This article was initially published in 2016, and has been updated to reflect the final one-year extension for implementation to 2018.
By Carolyn Stevens, CPA
Organizations receiving federal funds are subject to the procurement guidelines of the Uniform Guidance (UG), formally 2 C.F.R 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The Uniform Guidance became effective on December 26, 2014, consolidating and replacing several long-standing Office of Management and Budget (OMB) circulars. The procurement standards in the UG are covered in paragraphs §200.317 to §200.326, and have caused considerable consternation in the non-profit community because they outline changes that make compliance more onerous. In response, the OMB has allowed organizations to waive compliance with the new procurement standards until 2018. If your organization elects to follow your old policies until 2018, make sure to document that decision in writing, and take time now to review your current policy and re-work as necessary. Organizations with December 31 year-ends must implement the UG procurement standards on 1/1/18, and those with June 30 year-ends have a 7/1/18 implementation deadline.
Ironically, much of consternation about the UG’s procurement standards has turned on confusion about the difference between the words “should” and “must.” Here is the secret decoder ring, which by the way, applies throughout the UG, not just in the procurement sections:
- Should: is the recommended approach. Your organization should definitely consider operating this way, as it is, in the government’s opinion, the best way to go. If you decide to not to implement a “should,” you must document why. If however, the recommended procedure doesn’t work for your organization, a “should” is not required.
- Must: this is simpler. If the regulations say “must,” you must do it.
Here are some key factors to bring your organization into compliance with the UG’s procurement standards:
- Explicitly state in your procurement policy that it is written to comply with the requirements of the Uniform Guidance.
- Include language regarding standards of conduct and conflicts of interest.
- Avoid unnecessary or duplicative acquisitions. Don’t waste the tax payer’s money.
- Select vendors carefully. Use suppliers who are responsible, and have a proven track record of integrity, compliance with public policy, and successful past performance.
- Maintain records sufficient to detail the history of procurement including the rationale for the method of procurement, contractor selection, and price considerations.
- All procurement must be conducted in a manner providing full and open competition consistent with federal requirements (see more below).
- Organizations must take steps to use minority or women owned business when possible.
- Organizations must make procurement documentation available to their federal funder when requested.
Here are the dollar levels and types of purchases that have been immortalized in the OMB’s “bear claw,” graphic illustration:
- Micro-Purchases of $3,500 or less: may be awarded by soliciting bids, and should distribute micro-purchases equitably among qualified suppliers. The micro-purchase threshold is adjusted periodically, and is documented in the Federal Acquisition Regulation at 48CFR Subpart 2.1. A few government departments including the Dept. of Defense, National Science Foundation, and NASA have recently raised the micro-purchase threshold to $10,000.
- Example: Your organization normally orders office supplies from vendor Ultimate Office. Presumably you selected Ultimate Office based on price, quality, and convenience considerations. Document those considerations, and periodically, say once every three years per your policy, survey suppliers (online is fine), consider new options, and document your selection.
- Small Purchases between $3,500 and $150,000: price or rate quotations must be obtained from an adequate number (undefined, so use common sense) of qualified sources. Your organization must use a bidding process, but is not required to select the lowest price vendor.
- Example: Your organization sends out a request for proposal to several local CPA firms for audit services. You selected your auditor based on quality, reputation and price considerations. Document those considerations, and periodically, say once every five to seven years per your policy, repeat the request for proposal process, consider new options, and document your selection.
There are the three types of purchases over $150,000:
- Construction Projects over $150,000 with a Firm Fixed Price: requires procurement by publically solicited sealed bids. The contract must be awarded to the lowest price qualified bidder whose bid conforms to all material terms and conditions. Bids may be rejected if there is a sound documented reason.
- Example: Your organization seeks construction bids based on clearly defined technical specifications. It is assumed that all bids will meet the specifications. Therefore, you select the lowest price qualified bidder from the sealed bids obtained.
- Competitive Proposals over $150,000 Based on Either a Fixed Price or Cost Reimbursement: this method is used when conditions are not appropriate for the use of sealed bids. Contracts must be awarded to a qualified vendor whose proposal is most advantageous to the program, with price and other factors considered, i.e., price is one of several quantitative and qualitative factors. The basis for considering and selecting the vendor must be documented.
- Example: Your organization seeks services of an architect for your new building project. While there are technical specifications, there is also a qualitative/creative aspect to the project. You obtain several bids and make your selection based on both the qualitative and quantitative (price) aspects. Document your consideration and decision process, possibly by rating each of the aspect of the proposal and awarding the bid to the architect with the highest overall score.
- Sole Source Contracts over $150,000: solicitation from a sole source may only be used if one or more of these criteria are met: 1) the service or good provided is unique, 2) in the case of an emergency or, 3) if your federal funder authorizes it. The basis for considering and selecting the vendor must be documented.
- Example: Your organization is responding to a local disaster by procuring emergency construction services to stabilize your building for safety. You make the best procurement decision possible in the circumstances. When it is time for permanent repairs, you follow one of the other approved procurement standards above as applicable.
To sum up the essential points about procurement standards in the Uniform Guidance, read and follow the regulations (only ten paragraphs), and document, document, document! This last point is the crux of what makes the UG requirements more onerous for non-profits. In order to comply with the new regulations, recipients of federal funds may need to centralize their purchasing function. Moreover, a system of internal control has to be implemented related to vendor selection, even in the case of Micro- and Small purchases. It may make sense to maintain a procurement file for every vendor and develop a procurement evaluation form for each Micro- and Small purchase vendor (an electronic format is fine). Specify which staff members vet vendors, list the vendors considered, the basis for a decision, and who reviews and authorizes the decision.
The documentation must be maintained so that federal funders and auditors can review it. However, once the evaluation system and documentation files are in place, re-performance can be spread out over time. When you update your procurement policy, specify the time interval for re-performing your Micro- and Small purchase evaluations by type – for example, office supplies every three years, and professional services relationships every five to seven years. Don’t panic! It is not necessary to re-evaluate a vendor each time you make a purchase or even once a year.
The best resource on the Uniform Guidance is the Office of Management and Budget. Here is a link to the most recent set (July 2017) of FAQs.
Carolyn Stevens, CPA
Jacobson Jarvis & Co. PLLC