Receiving Federal Funding? Procurement Policies and Procedures Requirements that You Should Know

Written on July 11, 2014

You may be asking yourself, “Procurement. What does it mean? And why are my auditors asking me about my procurement policies and procedures?”

If your organization receives and spends federal grant money, listen up.  You are likely subject to federal regulations under the Office of Management and Budget (OMB) Uniform Guidance (formerly Circular A-110*). These regulations can include written requirements for policies and procedures, how to determine which vendor to use, and what records you keep on file.

Procurement simply means the buying of goods or services. This means spending money on most anything other than payroll. Before you enter into any disbursement transaction with federal grant money, review these two questions:

  1. Is the total dollar amount I’m going to pay the third party for this purchase more than $150,000? That’s the current threshold for procurement requirements (the “small purchase threshold”). Be careful; even if you break up the payments into cash outlays less than $150,000 each, you are still subject to procurement requirements if the total payments for the good/service add up to more than the small purchase threshold. Also, watch out for cost overages on items that you had budgeted for under $150,000.
  2. Is this a procurement transaction with a vendor, or is this a pass-through transaction to a subrecipient?
    1. Vendor relationships are those where the entity provides the goods or services as a normal part of their ongoing business: they have many different customers, they operate in a competitive environment, and what they provide is ancillary to the operation of your federally funded program. Think of this as your normal “buying something at a store” transactions.
    2. Subrecipient relationships are those where you, as the recipient receiving federal funding, hires another organization to help you run your federally funded program. The subrecipient becomes an outsourced extension of your staff, and they are subject to the same array of compliance requirements as you are. (Stay tuned for Part II, where we learn about subrecipient monitoring and related requirements.)

Now you have identified an anticipated purchase you want to make from a vendor that exceeds the small purchase threshold. What next?

Policies and Procedures

First, you must have established written procurement procedures. These should include the following provisions:

  1. That you will avoid purchasing unnecessary items.
  2. That you will assess the cost/benefit of leasing instead of purchasing items, where appropriate.
  3. That solicitations for goods and services include all of the following:
    1. Clear and accurate description of the technical requirements for what you are seeking to purchase.
    2. All factors and requirements of the bidder that you will consider in evaluating bids or proposals.
    3. Technical requirements in terms of functions to be performed or performance required.
    4. The specific features of “brand name or equal” descriptions that bidders are required to meet when such items are included in the solicitation.
    5. The acceptance of goods/services dimensioned in the metric system of measurement.
    6. Preference for goods/services that conserve natural resources, protect the environment, and are energy efficient, when practicable and economically feasible.

Bidding Process

In most cases, you should obtain a minimum of three competitive bids or proposals.

There are several stipulations that you have to meet when going through the procurement process, including:

  1. Making positive efforts to utilize small businesses, minority and women-owned firms, whenever possible.
  2. Ensuring that the type of procuring instruments used (fixed price, cost reimbursable, incentive contracts, or purchase orders) are appropriate for the particular transaction. Note that “cost-plus-a-percentage-of-cost” and “percentage of construction cost” methods of contracting are not allowed.
  3. Entering into contracts with responsible contractors who have the ability to perform successfully.  This includes reviewing the Federal Excluded Parties List System (EPLS) to ensure the contractor has not been suspended or debarred from doing work with the federal government. (http://www.sam.gov, look for “Search Records” at the top).

Contract Language

The contract should include the following items:

  1. Provision that allows for remedies for contractor violation or breach of contract terms.
  2. Provisions for termination by the organization.
  3. Provision that the granting agency has the right to examine the contractor’s books and records for the transaction.
  4. A list of the procurement provisions directly from the Uniform Guidance.

Recordkeeping

It is critical to keep an audit trail of your actions, as the granting agency can request to see support and documentation for the entire process. If they are not satisfied as to your procedures, they may halt future funding and/or require a refund of grant funds you have already spent.

Here is the minimum you should be maintaining on file:

  1. Procurement records, including basis for contractor selection, justification for lack of competition when competitive bids or offers are not obtained, and the basis for award cost or price.
  2. Price analysis, which can include comparison of price quotes, market prices, and other indicators.
  3. Cost analysis, which is the review and evaluation of each element of cost to determine reasonableness, allocability, and allowability.
  4. Evidence of your monitoring of contractor conformance with the terms, conditions, and specifications of the contract.

Conclusion

There are a lot of strings attached to spending federal funds, and a number of them involve requirements you must meet before you sign a purchase agreement, contract, or check. With some upfront planning and implementing the right steps ahead of time, you can avoid running afoul of the federal procurement guidelines.

*Note: The OMB has issued a recent revision to Circular A-110 and a number of other sources such as Circular A-133 that contain cost principles and audit requirements. The new Uniform Guidance establishes guidelines for all federal awards to non-federal entities, helping to streamline the guidance into one central location.

 

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