Don’t Say UGH! to UG Procurement!

Molly Fish

The recent announcement that procurement requirements related to Uniform Guidance have once again been delayed is not cause to return the issue to the back burner. The implementation date is scheduled for July 1, 2018. This extension should be utilized as a trial period to work out the problems instead of a procrastination period to create more. This article provides a summary of the procurement section of the 2 CFR 200 to make the changes seem a little easier to tackle.

As a refresher, the principles related to Uniform Guidance were developed to help unify, clarify, simplify, and standardize the numerous federal grant requirements previously in play. The new guidance provided 80 fewer pages than the combined circulars it replaced in the hopes of eliminating duplicative or conflicting guidance. The document focuses on leveraging technology, minimizing waste, fraud and abuse, and shifting the focus from compliance to performance. The document still boasts a whopping 140+ pages of information related to federal grant compliance; however, the general tone is one of outcomes.

In addition to focusing on outcomes, the 2 CFR 200 moved internal control guidance into administrative requirements with the purpose of enforcing stronger underlying systems before federal expenditures are incurred. In the past, this section was only included in the audit requirements, which resulted in noncompliance only after the funds were spent. This focus is one of the underlying reasons for the procurement changes that organizations should implement to satisfy the new requirements by the July 1st deadline.

Although 140+ pages may seem like an overwhelming place to start, the 2 CFR 200 is a relatively simple read. The following summary is intended to help lay the groundwork for procurement changes, but a knowledge of the actual requirements will greater ensure your organization’s compliance.

General procurement requirements start at §200.318 of the Uniform Guidance. One of the first items to note is that every entity must have its own documented procurement procedures. In the past, various organizations provided example documents that could be leveraged, but ultimately the procurement procedures must be specific to your organization. It cannot be a generic document.

General procurement also states that procedures should identify if insubstantial financial interests or nominal value gifts are acceptable. If this is not explicitly written into a procurement procedure manual, the default is that none are allowed. Also, general procurement states that procedures must avoid acquisition of duplicative or unnecessary items. This section further encourages inter-entity agreements when appropriate to extend the reach of resources, and also encourages that lease versus purchase analysis are performed as necessary. Also, the new guidance requires written conflict of interest policies that address the selection, award, and administration of procured vendors. It also requires that violations are met with disciplinary action.

It is important that your procurement procedures address the oversight of contractors to ensure they are performing in accordance with their contract, which should be written to include necessary federal grant requirements. If there is any knowledge that a contractor is not considered responsible and unable to perform successfully, the organization should not award them any federal contracts. Contractor oversight leads into the next section of the procurement requirements that addresses full and open competition.

This section of the 2 CFR 200 (§200.319) specifically states that when contractors are involved in the developing and/or drafting of specifications, requirements, statements of work, and invitations to bid or RFPs, they cannot compete for that procurement. In addition, the procurement procedures should encourage competition by requiring that a clear and accurate description of technical requirements, minimum essential characteristics of the product (detailed product specifications should be avoided, if at all possible), all requirements offerors must fulfill, and the factors to be used in evaluating bids/proposals, be included in every RFP.

To further ensure competition, prequalification lists must be current and include enough qualified sources to ensure open and free competition. Situations considered to be restrictive of open competition include the following:

  • Placing unreasonable requirements on firms in order for them to qualify to do business.
  • Requiring unnecessary experience and excessive bonding.
  • Noncompetitive pricing practices between firms or between affiliated companies.
  • Noncompetitive contracts to consultants that are on retainer contracts.
  • Organizational conflicts of interest.
  • Specifying only a "brand name" product instead of allowing an “equal" product to be offered.
  • Any arbitrary action in the procurement process.
  • Geographical preferences unless a federal statute is mandated or encouraged

Directly following General Procurement and Competition is the area of the upcoming procurement changes that most organizations will need to address now. This section (§200.320) contains the five allowable procurement methods that must be written into every organization’s procurement policies and utilized as needed. The five procurement methods are:

1)Micro-purchases (new for government): aggregate does not exceed $3,500 ($10,000 for some organizations)

An organization should distribute equitably among qualified suppliers and only need consider the price reasonable.

2)Small purchases: cost less than Simplified Acquisition Threshold ($150,000)

Price or rate quotations from an adequate number of qualified sources (no definition of adequate, but judgment would state more than 1)

3)Sealed bids: if complete specifications, two or more responsible bidders, and procured item lends itself to firm fixed-price contract

Publicly advertise invitation for bids, all bids publicly opened at time and place prescribed in invitation, firm, fixed-price contract awarded to lowest responsive and responsible bidder, sound reasons for rejection must be documented, consideration given to discounts, transportation costs, and life cycle costs.

4)Competitive proposal: if conditions are not appropriate for a sealed bid, there is more than one source, and the procured item lends itself to a fixed-price or cost-reimbursement contract

Requests for proposals must be publicized and identify all evaluation factors and relative importance, solicited from an adequate number of qualified sources, a written method for conducting technical evaluations of proposals and selecting recipients, award to “most advantageous” proposal including price and other factors. Only architectural/engineering can use selection without consideration of cost

5)Noncompetitive proposals (restrictions on usage new for nonprofits): if only available from one source, or if public exigency or emergency that will not permit delay, or if federal awarding agency or pass-through entity expressly authorizes, or after soliciting a number of sources competition is determined inadequate

Solicitation from only one source

It is likely that your organization is already utilizing some or all of the methods above, so the change is not expected to be drastic. The most drastic change is thoroughly documenting the method selected and ensuring procurement procedures are properly updated to include all five of these methods. The form of documenting the method selected can vary as 2 CFR 200 is focused on the ‘what’ not the ‘how.’ Utilizing current software is one recommendation as every vendor disbursement should be run through your accounting system. Making note of a micro or small purchase item in the description or another field of the software may be an efficient way to document the method. Even writing the method on each invoice will do the trick as long as you remember to do so. However you choose to implement, start now. Practice for the upcoming fiscal year, so that when it comes time for your audit after July 1, 2018, you are fully in compliance.

Other items to mention in the 2 CFR 200 procurement section include contract cost and price analysis guidelines at §200.323, as well as suspended and debarred parties. An organization must perform cost or price analysis in connection with every procurement over the Simplified Acquisition Threshold. Cost plus percentage of cost, and percentage of construction cost methods are never allowed in federal procurement. Also, a contract award must not be made to parties listed on the government-wide exclusions in the System for Award Management (SAM). Ensure that there is a system in place to regularly monitor federal vendors with this website at https://www.sam.gov/.

As a reminder, the complete 2 CFR 200 can be found at: https://www.federalregister.gov/articles/2013/12/26/2013-30465/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards. If you would like to learn more about the implementation of Uniform Guidance, please visit Yeo & Yeo’s website to watch a helpful webinar at: http://www.yeoandyeo.com/news/compliance-with-the-uniform-grant-guidance.

July 1, 2018 will be here in no time and another extension should not be relied upon. We encourage you to use the additional time and the contents of this article to help you implement procurement changes now, so you will not have to say UGH! to UG procurement later!

Molly Fish

Molly Fish

CPA

Molly R. Fish, CPA, manager, is a member of Yeo & Yeo's Government Services and Education Services Groups. She is a member of Michigan School Business Officials and the Michigan Government Financial Officers Association. Her areas of expertise include audits for local units of government, school districts, and for-profit businesses. She is a presenter at statewide government and education industry conferences and has over seven years of public accounting experience.