OMB Provides Additional Guidance for Grant Recipients Under Section 889

4 min

The Office of Management and Budget (OMB) recently released guidance in a frequently asked questions format to assist awarding agencies and grant recipients with understanding the requirements of 2 C.F.R. § 200.216. As Venable previously discussed, 2 C.F.R. § 200.216 implements Section 889(b)(1) of the National Defense Authorization Act for Fiscal Year 2019 (Pub. L. 115-232), which prohibits the use of grant funds "to procure or obtain, extend or renew a contract to procure or obtain, or enter into a contract (or extend or renew a contract) to procure or obtain" covered telecommunications and video surveillance services or equipment.

Of note, concerning whether a federal agency is obligated to include a special provision relating to the prohibition in awards and notices of funding opportunity, the guidance states, "[w]hile referencing 2 CFR Part 200 may likely suffice, including a specific provision may be a best practice in order to ensure clarity, especially because this is a new requirement." Relatedly, recipients can expect federal agencies to begin amending currently existing agreements to incorporate the prohibition. In other words, recipients should be aware that some awards and amendments may not be as explicit as others in notifying recipients that the prohibition applies.

Also, as we have been advising clients, the guidance explains that recipients may not include costs related to covered services or equipment in their indirect cost rates. The guidance notes that this applies to recipients that use the de minimis indirect cost rate. Consequently, recipients are advised to review their cost pools to ensure that unallowable costs, such as those for prohibited covered telecommunications and video surveillance services or equipment, are not included. Similarly, the guidance notes that recipients that previously included costs of covered services or equipment in their indirect cost pools must now negotiate an indirect cost rate that excludes such unallowable costs. For recipients that determine that they have not included such costs in their indirect cost pools, the guidance directs them to include a statement affirming their compliance in each indirect cost proposal. Such a statement would seem to run close to a certification, which is not specifically required of grant recipients as opposed to contractors. However, the FAQs further explain that by signing an award agreement a recipient is certifying that they will comply with Section 889's prohibition. This is not new, given that any signature is construed as a certification to material terms, but it only highlights that although one aspect is touted as being less onerous for grantees, this is not the case at all. Certainly, the format is different, but make no mistake, grant recipients, by signing a grant agreement and drawing down funds, are certifying that they are abiding by Section 889.

While it is advisable to review the guidance in its entirety, in addition to the foregoing, we also call out the following:

  • The prohibition is effective for all expenditures charged to federal awards on or after August 13, 2020.
  • OMB clarifies that unlike procurement contracts, the prohibition cannot be waived for grants.
  • Recipients may use covered telecommunications equipment and services as long as no federal award funds are involved. That said, recipients may not treat such cost as meeting their cost sharing or match requirements. Moreover, recipients may not use program income to cover costs relating to covered services or equipment.
  • Recipients may procure services or goods from a contractor that uses prohibited equipment or services, as long as such prohibited items are not involved.

Again, recipients should be cognizant that the prohibitions in 2 C.F.R. § 200.216 apply to all federal awards as of August 13, 2020. Even if your award does not explicitly include the prohibition, it applies.

Recipients should analyze their costs, paying special attention to their indirect cost pools to ensure they are not inadvertently billing a federal award for costs relating to covered services or equipment. If previous costs associated with covered telecommunications and video surveillance services or equipment are tied up in your current, approved indirect cost rates, you should immediately contact your cognizant agency, put them on notice, and seek their guidance on whether indirect rates can be recovered during the interim, as it will likely take some time to renegotiate those rates.

We will continue to track developments with Section 889 and keep you posted.