11 Changes to Procurement & Subaward Management Under Uniform Guidance

Procurement and subaward management under the Uniform Guidance just got a little tougher. On August 13, 2020, the Office of Management and Budget (OMB) released revisions to the Uniform Guidance, which included a number of changes to procurement and subrecipient management requirements.

Most of the revisions are effective November 12, 2020; however, §200.216 (prohibiting contracting for certain telecommunications equipment and services) was effective August 13, 2020 – the day the guidance was released.

Let’s take a look at what’s changed.

Changes Impacting Both Vendor and Subrecipient Management

1. Prohibition on Certain Telecommunication and Video Surveillance Services or Equipment (§200.216)

OMB revised 2 CFR to align with section 889 of the National Defense Authorization Act (NDAA) for FY 2019.  This new provision prohibits all Federal award recipients from using government funds to enter into contracts (or extend or renew contracts) with entities that use covered telecommunications equipment or services.  This prohibition applies even if the contract is not intended to procure or obtain any equipment, system or service that uses covered telecommunications equipment or services.

As described in section 889 of the NDAA 2019, covered telecommunications equipment or services includes:

• Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities).
• For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company (or any subsidiary or affiliate of such entities).
• Telecommunications or video surveillance services provided by such entities or using such equipment.
• Telecommunications or video surveillance equipment or services produced or provided by an entity that the Secretary of Defense, in consultation with the Director of the National Intelligence or the Director of the Federal Bureau of Investigation, reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.

2. Never Contract with the Enemy (§200.183)

This new provision prohibits Federal award recipients from entering into contracts with enemies of the United States.  Practically, it applies only to grants and cooperative agreements that exceed $50,000, are performed outside the United States, including U.S. territories, to a person or entity that is actively opposing United States or coalition forces involved in a contingency operation in which members of the Armed Forces are actively engaged in hostilities.

Changes Impacting Procurement Policies and Procedures

3. New Categorization of Approved Procurement Methods (§200.320)

OMB did not make any changes to the five approved methods of procurement; instead, they grouped the methods into three general categories:

1. Informal (micro-purchase, small purchase)
2. Formal (sealed bids, proposals) and
3. Non-Competitive (sole source)

No big change here.

4. Increase in Standard Micro-Purchase Threshold to $10,000 (§200.320)

Language was updated to recognize the previously approved increase in the micro-purchase threshold from $3,500 to $10,000.  Micro-purchases can continue to be awarded without soliciting competitive price or rate quotations if the non-Federal entity considers the price to be reasonable.

However, clarifying language was added stating that reasonableness should be based on research, experience, purchase history or other information, and that the determination of reasonableness should be documented in files accordingly.  The guidance also noted that purchase cards can be used for micro-purchases if procedures are documented and approved by the non-Federal entity.

5. Ability to Increase Micro-Purchase Threshold Beyond $10,000 (§200.320)

A new provision of interest is the ability for non-federal entities with low risk to establish a micro-purchase threshold even higher than $10,000.  You can go up to $50,000 by using a self-certification process; however, you must meet one of the following criteria:

1. Qualify as a low low-risk auditee for your most recent audit, or
2. Perform an annual internal institutional risk assessment, or

• For public institutions, be consistent with state law.

Organizations who want to take an even more aggressive approach can request a micro-purchase threshold above $50,000; however, you must receive approval from your Cognizant Agency to do this.

6. Increase in Simplified Acquisition Threshold to $250,000 (§200.320)

Language was also updated to recognize the increase of the SAT from $150,000 to $250,000.  Organizations are still responsible for determining an appropriate simplified acquisition threshold for themselves based on internal controls, an evaluation of risk and its documented procurement procedures.  So, if your risk appetite is lower, you can still use a lower threshold so long as it is not prohibited under State, local, or tribal laws or regulations.

7. Update to Noncompetitive Procurements (§200.320)

There is now a fifth circumstance whereby organizations can sole source a procurement: micro-purchases.  While this logically makes sense, many organizations were confused about whether or not micro-purchases were a form of sole source.  So, OMB connected the dots to confirm that they are.

8. Domestic Preferences for Procurement (§200.322)

In order to align with the Executive Order to Buy American and Hire American, a new provision was added to encourage Federal award recipients to have a preference for the purchase, acquisition, or use of goods, products, or materials produced in the United States (including but not limited to iron, aluminum, steel, cement, and other manufactured products). The requirements of this section must be included in all subawards including all contracts and purchase orders for work or products under this award.

It is somewhat unclear as to how far these requirements extend with regard to the types of goods and services that may apply; however, the following definitions were provided:

1. “Produced in the United States” means, for iron and steel products, that all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.
2. “Manufactured products” means items and construction materials composed in whole or in part of non-ferrous metals such as aluminum; plastics and polymer-based products such as polyvinyl chloride pipe; aggregates such as concrete; glass, including optical fiber; and lumber.

Changes Impacting Subrecipient Management

9. Additional Data Element Required in Subaward Agreements (§200.332)

OMB now requires that all subaward agreements include the Subaward Budget Period Start and End Date”.

10. Negotiation of Subrecipient Indirect Cost Rates (§200.332)

OMB added clarifying language around approving indirect cost rates for subrecipients.  Specifically, “if no approved rate exists, the pass-through entity must determine the appropriate rate in collaboration with the subrecipient, which is either:

1. The negotiated indirect cost rate between the pass-through entity and the subrecipient; which can be based on a prior negotiated rate between a different PTE and the same subrecipient. If basing the rate on a previously negotiated rate, the pass-through entity is not required to collect information justifying this rate, but may elect to do so; or
2. The de minimis indirect cost rate.

The pass-through entity must not require use of a de minimis indirect cost rate if the subrecipient has a Federally approved rate. Subrecipients can elect to use the cost allocation method to account for indirect costs in accordance with § 200.405(d).

11. Responsibility for Resolving Audit Findings (§200.332)

Finally, the updated guidance clarified that a pass-through entity is responsible only for resolving audit findings specifically related to the subaward, and not responsible for resolving cross-cutting findings. This is a key clarification, and allowing pass-through entities to only focus on a small subset of potential findings in subrecipient audit reports.

Closing Thoughts

One of the big drivers of all these changes is risk management.  In an effort to maximize the value provided by grant funding, the Federal government is developing a risk-based, data-driven framework that balances compliance requirements with a focus on performance.  In other words, be compliant but focus on those areas of the highest risk.

In order to comply with all of these updates, you will need to update your procurement and subrecipient management policies, procedures, risk assessment forms and contracting templates.  It’s also a good opportunity to take a step back and look at your own risk appetite as it comes to procurement and subaward management, and to refine your approach to be more risk-based as well.

If you need help with this process, our team of specialists can get you fast, cost effective support when you need it.  You can contact me directly at trogers@vendorcentric.com.