November 2017

Government Grant and Contract News for Nonprofits – November 2017

6 min

In a recent newsletter, we reminded nonprofits of the impending implementation of the Uniform Guidance's procurements standards (which had been postponed for several years) and highlighted some of the key differences from prior circulars. In this month's newsletter, we examine and summarize a number of the specific details of these standards, which can be found at 2 C.F.R. §§ 200.317 to 200.326.

General Rules of the Road (2 C.F.R. §§ 200.318, 321)

Before launching into a procurement, the Uniform Guidance imposes several general standards. Accordingly, it is critical that nonprofit federal award recipients institute key procurement policies and ask themselves these specific important questions at the outset of assessing a need:

  • Do we have a procurement policy and process for overseeing contract compliance?
  • Does our policy include provisions relating to conflicts of interest and organizational conflicts of interest?
  • Is it most economical and practical to purchase or lease to satisfy a need?
  • Does our organization already have this good/service (i.e., to avoid duplicative purchases)?
  • Does it make sense to purchase this along with something else or separately (i.e., does consolidation or breaking up the procurement make sense economically)?
  • Can our organization use an inter-entity agreement to satisfy the need (i.e., purchasing in bulk)?
  • Can our organization seek federal excess and surplus property in lieu of purchasing new items?
  • Given the size and nature of the procurement, would the use of "value engineering" clauses in the contract lead to cost reductions?
  • Can a minority- or woman-owned business satisfy the need?

As noted above, some of these questions require the creation and implementation of overarching policies, while others are questions that should be asked on a need-by-need basis. Regarding the latter, we also recommend that nonprofits document the answers to these questions in a procurement checklist and that such documentation be maintained in the procurement file. This will demonstrate to the funding agency or auditors that these key considerations were contemplated in advance of any subsequent procurement.

Competition (2 C.F.R. §§ 200.319, 320)

With respect to competition, the general rule is that "[a]ll procurement transactions must be conducted in a manner providing full and open competition." However, the anticipated procurement size will dictate the level of competition necessary:

  • Procurements less than $3,500:
    • No specific competitive process required;
    • Award to an offeror that is reasonably priced; and
    • To the extent practicable, distribute micro-purchases equitably among qualified suppliers.
  • Procurements between $3,500 and $150,000:
    • Price or rate quotations must be obtained from an adequate number of qualified sources. Typically, an adequate number of sources is at least three offerors, but this is not a firm rule and could be more or less, depending on relevant circumstances.
  • Procurements over $150,000:
    • Full and open competition generally required.

Sole Sourcing Contracts (2 C.F.R. § 200.320)

In limited circumstances, competition can be avoided, but these types of awards are scrutinized closely and therefore should be made only when absolutely necessary, justified by the limited circumstances (discussed below), and well documented. The circumstances that permit sole sourcing contract awards include situations where:

  • The good or service is available only from a single source;
  • There is a public exigency or emergency where delay is not an option (note: delay in getting started in the procurement effort cannot support an exigency or emergency);
  • The federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request; and/or
  • After the solicitation of a number of sources, competition is determined to be inadequate.

Furthermore, even if a sole source award is justified under one or more of the permissible situations, a cost analysis (not a price analysis) is required. And as part of this analysis, the offeror's profit margin on the contract must be specifically analyzed for fairness and reasonableness.

Determining an Appropriate and Permissible Contract Type (2 C.F.R. §§ 200.318, 320, 323)

The Uniform Guidance further provides instruction on the contract type that can and/or should be used. In particular, when possible, firm-fixed-price contracts are preferred. On the positive side, if such contracts are awarded with competition, no analysis of profit is required. Cost-plus type contracts are acceptable, with a few important caveats:

  • Cost-Plus a Percentage of Cost (CPPC) contracts are PROHIBITED, which means Cost-Plus Incentive Fee or Cost-Plus Award Fee contracts are permissible; and
  • Profit must be separately analyzed and deemed reasonable.

Time and materials contracts are permissible, but are the least favorable approach. Nevertheless, in certain contexts they may be the only appropriate vehicle. Regardless, labor and material rates should be fully burdened to avoid additional markups, and an overall price ceiling should be put in place to curb open-ended work.

Minimum Solicitation Requirements (2 C.F.R. § 200.319)

Related to competition are the Uniform Guidance's solicitation requirements. Importantly, the Uniform Guidance details minimum solicitation "dos" and "don'ts" that are intended to ensure all potential vendors are bidding on a level playing field. In particular, nonprofits:

  • Cannot impose state, local, or tribal geographic preferences in the evaluation of bids or proposals, except when federal statutes expressly mandate or encourage geographic preferences;
  • Cannot include requirements that "unduly restrict competition," such as:
    • Placing unreasonable requirements on firms in order for them to qualify to do business;
    • Requiring unnecessary experience and excessive bonding;
    • Imposing noncompetitive pricing practices between firms or between affiliated entities;
    • Issuing noncompetitive contracts to consultants that are on retainer contracts;
    • Specifying only a brand name product instead of allowing "an equal" product to be offered and describing the performance or other relevant requirements of the procurement; or
    • Any arbitrary action in the procurement process
  • Must notify offerors and award contracts on a "most advantageous" basis, with price and other facts considered (i.e., the award may go to a bid that is not the lowest price);
  • Must incorporate a clear and accurate description of the technical requirements for the material, product, or service being procured;
  • Must identify all requirements that offerors must fulfill and all other factors to be used in evaluating bids or proposals;
  • Must notify offerors that the nonprofit will not award a contract to an offeror where there are indicia of a lack of business integrity (i.e., the nonprofit should consult the System for Award Management (SAM) to ensure the potential awardee is not to be suspended or debarred by the federal government; see; and
  • Must require offerors to identify and disclose potential or actual conflicts of interest.

Contract Clause Flow-Down (2 C.F.R. §§ 200.318, 326)

After going through the above, it is also often overlooked that any award contract may include the requisite terms from the Uniform Guidance. First, this includes certain procurement requirements of 2 C.F.R. §§ 200.317-200.325 as appropriate for the prime contractor, as well as situations where the prime will subcontract work to subcontractors. The level of inclusion may vary, based on the contract type. For example, if the prime contract holds a cost-plus contract, the competition standards will apply to any subcontracts let by the prime, whereas this is not the case for fixed-price prime contracts.

Section 326 also includes specific terms and flow-down clauses that must be included. Some of these provisions are basic terms that most contracts would include (i.e., termination provisions, etc.), but others are specific, federally mandated flow-down clauses.

Document Retention (2 C.F.R. passim)

Finally, as noted above, it cannot be stressed enough that all of the foregoing actions must be fully documented and that such documentation must be maintained in a procurement file. This also goes for modifications to any contracts. Documentation and maintenance of these records will save your organization significant time and energy should the grant funding for a contract ever be audited.