The Office of Management and Budget (OMB) issued Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) in December 2013. Due to significant changes in the Uniform Guidance procurement requirements, OMB delayed implementation of those Uniform Guidance provisions until January 1, 2018. A few of the significant changes to the procurement compliance requirements include documentation of conflicts of interest surrounding purchasing, five specific methods for procuring goods and/or services, and justification for purchases using the sole source methodology.
All organizations should already be maintaining, and updating annually, conflict of interest statements for board members and key employees. However, the new procurement requirements expand the reach of who should be completing such forms. Organizations should be reviewing and considering any and all employees involved in the selection and administration of purchases and contracts. Those identified employees should complete a conflict of interest form annually, specifically taking into consideration any real or apparent conflicts, whether they’re financial or based on relationships. The completed forms should be reviewed by an individual knowledgeable of the organization to identify any conflicts and ensure controls are in place over those transactions.
The biggest change under the new procurement compliance requirements was the addition of five prescribed methods of procurement to be followed when making purchases with federal funding. The objective of the methods was to ensure full and open competition of purchases. While the methods must be followed for any and all purchases involving federal dollars, the thresholds established are the maximum limits that must be adhered to and organizations should tailor the thresholds to be more in line with their current business practice transactions. The five prescribed methods are as follows, with the current thresholds as established by the National Defense Authorization Act (NDAA) of 2018, Sections 805 and 806:
1. Micro-purchases (<$10,000) – applies to purchases, which in the aggregate, do not exceed $10,000. Maintaining documentation to support the cost of the goods or services is not required to the extent the price is deemed reasonable.
2. Small purchases/Simple Acquisition (<$250,000) – for purchases of goods and/or services over $10,000 but less than $250,000. This requires documentation of price quotes from an adequate number of sources (not defined). Examples would include emails, online research, or catalog pricing. Any and all documentation should be maintained with the final selection.
3. Procurement by Sealed Bids (>$250,000) – the preferred method for any construction related purchases. The request for bids must be made public and solicited from an adequate number of sources (not defined). Bids are required to be opened publically and a formal review documented with the contract awarded to the lowest responsible bidder.
4. Procurement by Competitive Proposal (>$250,000) – used for purchases greater than $250,000 and requires that solicitation of bids must be received again from an adequate number of sources (not defined).
5. Sole-Source purchases have no specific threshold defined – these are purchases that don’t fall under the other four methods, and don’t require any price quotes or competitive proposals. This should be infrequently selected as the method for procuring goods and services with federal funding.
Expanding on the sole source method, this method has a whole subset of restrictions, which is why it should be infrequently selected. Typically this would be used if the good or service is only available from one source and is under one of the following circumstances: public emergency or national disaster (i.e. hurricane, blizzard, earthquake, etc.); the federal awarding agency specifically authorizes not utilizing one of the other methods after attempting one of the other methods and it’s deemed inadequate; and research and development purchases. The justification for using this method should be thorough and detailed to support the organization’s decision.
The key to compliance with the new procurement requirements is documentation. This will ensure your organization is prepared for any audit and in compliance with the federal regulations. Some considerations to ensure your organization’s compliance include:
- Organizations should be reviewing their current policies and procedures to ensure they have incorporated these five prescribed methods specifically for federal fund purchases.
- Organizations can choose to maintain separate procurement policies and procedures for those federal and non-federal purchases but should be clear on what procedures need to be followed and when.
- Organizations should maintain all documentation supporting the method utilized for the purchase. While this can become cumbersome, maintaining support for only the vendor selected will not be adequate documentation to support your method used.
While the significant changes to the procurement requirements have been highlighted here, this is in no way all-encompassing of all the nuances for compliance. Organizations expending federal funds should consider familiarizing themselves with the new 2019 OMB Compliance Supplement and 2 CFR 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.