Back in 2013, the U.S. Office of Management and Budget issued new rules governing procurement for organizations that must comply with Uniform Guidance for grant reporting. Nonfederal agencies received a grace period until December 25, 2017, to get their policies and documentation in order, but time is up for any agency with a fiscal year that began on or after last December 26th.
If you’re just getting started on these procurement requirements, try this simplified three-step approach to assessing your organization’s readiness and compliance:
Step One: Do you have written policies and procedures that align with the new regulations to prevent potential noncompliance?
Every nonfederal entity receiving federal awards must have documented procurement procedures that reflect current federal law, Uniform Guidance standards, and any state regulations. These procedures must ensure all solicitations clearly and accurately describe the requirements for what is being procured, what is required of the vendor and the factors used to evaluate bids. Lists of prequalified bidders or products must be current and include enough sources to ensure open competition.
Your policies must be specific enough that there are no areas open to interpretation and nothing that requires additional research to answer — for example, you can’t just write that a vendor “must comply with FAR requirements.” Define vague requirements such as receiving an “adequate” number of responses; how many is adequate? Spell out any exceptions in the policy. Note, too, that federal and state laws don’t always align; where there are conflicts, it’s wise to follow the most prescriptive rule. Seek guidance from the federal granting agency when requirements are unclear, and get those clarifications in writing.
One of the most pervasive issues with government procurements is the selection of a vendor with close personal ties to someone in the organization. Therefore, written conflict-of-interest policies are required to ensure that no one with an actual or apparent conflict — either personal or organizational — participates in the selection or administration of a federal grant-funded award. That policy must describe disciplinary actions for violators. Remember, too, that in the aftermath of a scandal, what seemed reasonable at the time of a decision might look like nepotism. The best defense is to have very specific policies and processes, then to follow them exactly.
Step Two: Do your procurement requirements define the basis for the type of procurement, contract type, and criteria for contractor selection and price comparisons?
Every procurement under Uniform Guidance must include documentation of its history, from the rationale for the purchasing method to the basis for comparing prices. Remember that Uniform Guidance requires full and open competition; that means you must be careful not to set requirements that could limit competition, such as specifying a particular product by brand. You also must not allow geographical preferences (with a few exceptions, such as architectural or engineering services), even if your state’s procurement policies allow those preferences.
Uniform Guidance allows five methods of procurement:
- Micropurchases, where the aggregate dollar amount does not exceed $3,500 — an amount periodically adjusted for inflation ($2,000 for construction subject to Wage Rate Requirements). No competitive quotes are required if management determines that the price is reasonable.
When practical, the entity should distribute micropurchases equitably among qualified suppliers. For example, when purchasing supplies, a nonfederal entity might consider rotating purchases among vendors that offer similar rates. When applying the micropurchase threshold, a nonfederal entity should note the threshold applies to the aggregate purchase amount rather than the cost of individual items.
- Small purchases fall below the Simplified Acquisition Threshold (SAT), which is currently $150,000. Informal purchasing procedures are acceptable, but price or rate quotes must be obtained from an adequate number of sources. The quotes don’t have to involve formal bids or solicitations; they can be obtained from vendor price lists, internet searches, oral quotes, etc. Like micropurchases, small purchases don’t require cost or price analysis.
- Sealed bids (formal advertising) is used for purchases over the SAT. This method requires a formal solicitation and a fixed price (lump sum or unit price). Awards must go to the responsible bidder who conformed to all material terms and is the lowest in price. Price is a significant factor in this method, which is the preferred method for construction. Use sealed bids when you can solicit bids from at least two suppliers, provide a complete and realistic specification or purchase description, create a firm fixed-price contract, and select a vendor based on price. You must make an independent cost estimate before receiving bids, then perform a cost and price analysis on the offers.
- Competitive proposals (Requests for Proposal or RFPs) is used for purchases over the SAT when sealed bids aren’t appropriate. This method requires formal solicitation and either fixed-price or cost-reimbursement contracts. The contract should be awarded to the responsible firm whose proposal is most advantageous to the program, with price being one of various factors. RFPs involve these requirements:
- Proposals must be publicized and identify all evaluation factors with their relative importance
- Proposals must be solicited from an adequate number of qualified sources
- The entity must have a written method for evaluating and selecting recipients
- Contracts must be awarded to a responsible firm
Like sealed bids, RFP awards require a cost and price analysis.
- Noncompetitive proposals: Also known as sole-source procurement, this method is appropriate only when specific criteria are met: for example, an item is available only from one source, a public emergency does not allow time for a competitive process, or multiple attempts at a competitive process have failed to yield adequate competition. Sole-source awards may occasionally be authorized by the federal granting agency. Sole-source purchases are possible at any level of expenditure when one of these criteria has been met.
Step Three: Do you have appropriate oversight to ensure that contractors meet the terms of their contracts?
Procurement oversight doesn’t end with an award — nonfederal entities must also monitor contractors to make sure they meet the agreed terms and specifications. Oversight is especially important for service contracts such as construction. This requirement supplements a similar requirement that contracts are only awarded to vendors who use funds responsibly and in accordance with their agreements.
During the selection process, you must confirm that the selected vendor has the ability to perform successfully under the required terms and conditions. Consider such matters as contractor integrity, compliance history, record of past performance, and financial and technical resources. Check for — and document — any suspensions or debarments of the bidder on the EPLS website for any contract over $25,000. Check suspension and debarment annually on multi-year contracts.
Other Considerations for Procurement Policy
During the procurement process, focus on the most economical solution and avoid using federal funds to acquire unnecessary or duplicative items. Consider using shared services and intergovernmental agreements, such as bulk purchasing, lease versus purchase, etc., for greater economy and efficiency.
With any method of procurement, Uniform Guidance standards emphasize contracting with small and minority businesses, women’s business enterprises and labor surplus area firms. A nonfederal entity must use these firms when possible. To include these businesses, place them on your vendor list, solicit pricing from them when they’re potential sources, break up projects or orders into smaller tasks to facilitate small-firm participation, or require major contractors to follow these guidelines in their subcontracts.
Regardless of what method your organization uses and what decisions you make, the key is to document everything — not just policies and procedures, but printouts of internet searches for quotes, memos documenting why you accepted or rejected a bidder, and notes from evaluation committee members.
If you have any questions related to Uniform Guidance or other financial reporting requirements, Weaver can help. We perform more than 100 single audits every year, and our government auditing team can help you sort out all the various requirements. Please see weaver.com for more information about government accounting and auditing, including single audits and recent changes to accounting standards.