Making a correct contractor vs subrecipient determination under the Uniform Guidance (UG) isn’t always black and white. There are nuances to contractual agreements that can make it very difficult to determine the nature of the relationship.
Recognizing this, the UG requires pass-through entities to “make case-by-case determinations whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. ” In other words, it’s up to you to make a correct determination for each agreement that you enter into.
While there are no hard and fast rules to making a contractor vs subrecipient determination, there are some common criteria identified in the Uniform Guidance that you can use as a basis for making an accurate determination.
Attributes of a Subrecipient
A subrecipient is an entity that works in collaboration with the pass-through entity to perform a substantive portion of the programmatic effort on an award. Characteristics which support the classification of a non-Federal entity as a subrecipient include when the entity:
- Determines who is eligible to receive what Federal assistance;
- Has its performance measured in relation to whether objectives of a Federal program were met;
- Has responsibility for programmatic decision making;
- Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
- In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.
Subrecipients are subject to additional monitoring and management by the pass-through entity that includes use of specific subaward language, performing periodic risk assessments and establishing monitoring activities to ensure accountability and compliance.
Attributes of a Contractor
The role of a contractor is much different from that of a subrecipient. Contractors provide goods and services to a variety of customers, and their products are ancillary to the operation of a Federal program. Characteristics indicative of a procurement relationship between the non-Federal entity and a contractor are when the contractor:
- Provides the goods and services within normal business operations;
- Provides similar goods or services to many different purchasers;
- Normally operates in a competitive environment;
- Provides goods or services that are ancillary to the operation of the Federal program; and
- Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons.
Among other things, a contractor is subject to the procurement requirements defined in Sections 200.317 – 200.326 of the Uniform Guidance.
Create a Process and Know that Judgement Will be Needed
In determining whether an agreement is with a subrecipient or a contractor, the substance of the relationship is more important than the form of the agreement. All of the aforementioned characteristics listed above may not be present in all cases. It’s up to you to use judgment when in classifying each agreement as a subaward or a procurement contract.
In order to create consistency in your contractor and subrecipient determination process, it is a good idea to develop a checklist or some other type of decision-making tool. It will not only provide needed guidance to those making this determination, but will also allow you to document your decision-making rationale.
Author: Tom Rogers
Job Title: CEO
Organization: Vendor Centric
Tom is the founder and CEO of Vendor Centric, he has been a trusted advisor to nonprofit organizations for 30 years, with a focus on helping them align the right people, processes and systems to mitigate third-party risk and drive more value from third-party contracts and relationships.