The issues, options, and procedures for annually measuring overall payment error in the Pell Grant program are specified in detail. Guidelines for establishing a definition of Pell Grant payment error are provided, and the design issues related to error measurement are examined. A comparison is made of options for selecting a study sample and for collecting data required to measure payment error. Data collection procedures are specified in detail, along with procedures needed to create a study database from the collected data. Guidelines for data analysis are also included. The correct award to students is based on such factors as enrollment status and student costs. Error measurement in the Pell program involves time-related research design factors, all of which must be understood when planning the data collection effort and when analyzing the data. Data collection activities are outlined for sample selection, student/parent interviewing, collecting hardcopy secondary data, and collecting data from institutions. Tasks and procedures required to create the database include: receipt of data, editing and coding, data entry, machine edit and updating, reformatting files for analysis package, producing marginal tabulations, merging data files, and reviewing case for quality control. Appended are: a glossary; a description of measurement tolerances of error in the program; algebraic specifications of error measures; and an estimate of requirements for conducting an assessment of overall payment error in the Pell Grant program. (SW)