As we turn the corner into the final few months of the year, we devote this month's newsletter to the upcoming implementation of the Uniform Guidance's new procurement standards.
Implementation of the Uniform Guidance's New Procurement Standards
As you may recall, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, commonly referred to as the "Uniform Guidance," was issued on December 26, 2013. See 78 Fed. Reg. 78590 (Dec. 26, 2013). This final rule was not actually effective until December 26, 2014. However, as a result of various intervening rules (the most recent of which was issued on May 17, 2017), the implementation of the procurement provisions of the Uniform Guidance (2 C.F.R. §§ 200.317 to 200.326) were delayed until December 26, 2017. See 82 Fed. Reg. 22609, 22609 (May 17, 2017) ("For the procurement standards in §§ 200.317 to 200.326, non-federal entities may continue to comply with the procurement standards in previous OMB guidance" until December 26, 2017.). These procurement standards will apply to all nonprofits issuing contracts under a federally funded program.
The New Procurement Standards
While the Uniform Guidance's procurements standards may appear at first blush to be largely similar to the prior standards, there are several key differences worth noting:
- Grantees must engage in full and open competition.The old regulations required full and open competition to the "maximum extent possible." Adopting a more FAR-like standard, the Uniform Guidance requires all procurement contracts issued above $150,000 to be subject to full and open competition, unless the regulations' articulated exceptions apply. The regulations do not define "full and open competition," but grantees should assume that the previous unofficial rule of obtaining three bids to ensure price reasonableness will no longer be the standard. Thus, we recommend that grantees routinely post their procurement opportunities to a designated location on their websites. Grantees should further train their contractors to understand that all procurement opportunities will be posted on the grantees' websites.
- A cost and price reasonableness analysis is still necessary where a sole-source contract is required.If a procurement contract is competed for and more than two offerors respond, the contract is subject to price reasonableness and does not require an additional cost analysis. However, if a procurement cannot be competed for, grantees should write a sole-source justification that contains a cost analysis examining each element of cost, including profit. Contractors, therefore, may need to provide a breakdown of their costs, including overhead markup, to ensure grantees charge only costs that are reasonable and necessary against the grant. In order to receive contractors' confidential pricing information, grantees should prepare nondisclosure agreement templates (that they are prepared to sign) and must take all appropriate measures to ensure that contractors' confidential information is not released.
- Grantees must ask for representations regarding actual or potential conflicts of interest.The new regulations prohibit conflicts of interest, including organizational conflicts of interest. Grantees must request that offerors disclose any and all potential conflicts of interest, including those of their affiliates, in their proposals. Grantees should include language in the RFP stating that by submitting an offer, offerors are acknowledging they and their affiliates have no undisclosed conflicts of interest.
- Grantees must train evaluation teams to provide adequate procurement documentation that clearly explains a grantee's reasoned decision for making an award.Grantees will need to consider whether and the conditions under which a procurement award can be protested. These protest rights should be provided in the terms of the grant itself. Even if express protest rights are not granted, adequate procurement documentation is necessary to ensure (i) that grantees have complied with the terms of the competition and (ii) that enough offerors have provided comparable prices, demonstrating that an appropriate market exists to determine price reasonableness.
Additional Requirements and Best Practices
In addition to the above requirements, we typically remind and advise many nonprofit federal award recipients to consider the following:
- Lowest Cost Is NOT the Award Standard.The Uniform Guidance provides that contracts may be awarded on a "most advantageous" standard. Thus, nonprofits need not offer based on the lowest price, but rather, can award to a more expensive contractor as long as there is a justified reason. That being the case, it is critical that all evaluation and award decisions are documented and maintained in the contract file.
- Impose Appropriate Document Retention and Production Requirements.The Uniform Guidance requires a three-year record retention (which may be extended by an audit or litigation), but nonprofits should consider whether three years is sufficient. Often contractors perform their work as a portion of a program, and an audit may not occur until many years after the conclusion of the contract. Nonprofits should evaluate the work and whether longer record retention requirements are appropriate or if all records should be turned over by the contractor.
- Consider Having Compliant Contract Templates.Given the requirements discussed here, as well as additional requirements and flow-down clauses imposed by the Uniform Guidance, nonprofits should consider developing standardized contract templates that include all of these key provisions to ensure compliance with the Uniform Guidance's procurement standards.
- Post-Award Compliance.Furthermore, be certain to keep in mind that post-award contract compliance is also critical. For example, all modification should be within the scope of the original competition, include a price analysis for any increase in the price, and be documented. On the other hand, if the scope expands beyond the original competition, the nonprofit is required to either perform a new competition or modify the contract with a written justification as to why a sole source modification was justified. If that is indeed the case, be certain to include the justification in the contract file and perform a cost analysis.
In light of the above requirements, a final best practice that nonprofit federal award recipients should consider is the practice of maintaining contract files that include all records relating to the history of each procurement, proposal evaluations, contract selections, and contract documents (e.g., solicitation, Q/A, evaluation, award decision, etc.), including documents related to unsuccessful offerors. Retaining and maintaining these files will certainly pay dividends to nonprofits should a grant, and the contracts issued under such grant, later be audited.