Welcome to Feldesman’s Grants Practice Shorts series where we discuss helpful tips and strategies in common areas of federal grant management. Be sure to check out our other installments on our Grants Practice Shorts page.

Procurements and Subawards

Grantees may expend federal funds in contracts to acquire goods or services (“procurement contracts”). Federal grant rules call for a certain degree of competition that turns on the value of goods or services that will be procured. See 2 C.F.R. § 200.320 (Methods of procurement to be followed). Grantees may also make “subawards” of portions of their prime award to one or more second-tier entities that perform a share of the substantive work and are referred to as “subrecipients.” When issuing subawards, grantees act as “pass-through entities” (“PTE”). See 2 C.F.R. § 200.1 (definitions of “Pass-through entity,” “Subaward” and “Subrecipient”).

Subawards and procurement contracts serve different purposes in federally-funded programs and are subject to distinct compliance requirements. Procurement contracts must comply with the Federal Procurement Standards while subawards entail risk assessment and more robust oversight obligations.

The Uniform Guidance sets forth a number of factors that grantees may apply to their analysis of whether a particular relationship falls into a procurement contract or a subaward. 2 C.F.R. § 200.331.

The Uniform Guidance instructs that contractors generally display some or all of the following characteristics:

• “Provides the goods and services within normal business operations;
• “Provides similar goods or services to many different purchasers;
• “Normally operates in a competitive environment;
• “Provides goods or services that are ancillary to the operation of the Federal program; and
• “Is not subject to compliance requirements of the Federal program as a result of the agreement . . . .” 2 C.F.R. § 200.331(b).

By comparison, the Uniform Guidance instructs that subrecipients generally displaying some or all of the following:

• “Determines who is eligible to receive what Federal assistance;
• “Has its performance measured in relation to whether objectives of the Federal program were met;
• “Has responsibility for programmatic decision making;
• “Is responsible for adherence to applicable Federal Program requirements specified in the Federal award; and
• In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.” 2 C.F.R. § 200.331(a).

Where a particular relationship poses a “close call”, grantees have some degree of judgmental discretion in classifying the relationship as either a procurement contract or subaward. 2 C.F.R. § 200.331(c).

Compliance Obligations

As touched upon above, the parties’ compliance requirements will vary depending on the nature of the relationship created by their agreement. Compliance requirements for procurement contracts focus heavily on the process used to enter into the relationship (in particular, competition, rules against conflicts of interest and, in some cases, bonding requirements and certain standard contract clauses). See 2 C.F.R. §§ 200.317-200.327 (Procurement standards).

In the case of subrecipient relationships, just as for the prime award, the relationship will generally be cost-reimbursement, with reimbursement of only costs that are allowable and allocable under the federal cost principles. 2 C.F.R. Part 200, Subpart E. Moreover, the subrecipient will be subject to the same programmatic restrictions as the PTE (e.g., beneficiary eligibility restrictions, geographic scope restrictions, etc.) and will be part of performance of the award for purposes of reporting requirements. Importantly, any improper expenditure of the subrecipient will constitute an unallowable cost for which the PTE is responsible to the federal awarding agency. The grantee essentially steps into the shoes of the federal agency when it becomes a PTE, with the subrecipient taking on the traditional role of the grantee. Thus, PTEs are required to engage in certain minimum levels of oversight over the subrecipient’s performance. 2 C.F.R. §-200.332 (Subrecipient monitoring and management).

If you have any questions regarding grant-funded contracts, please contact Phillip A. Escoriaza, Senior Counsel, at 202.466.8960 or pescoriaza@feldesman.com. Be sure to also check out our Grants Practice Shorts page to read more helpful tips and strategies in common areas of federal grant management.