If your organization receives federal funding subject to the rules and regulations in the Uniform Guidance, make note of changes made in 2020 to the procurement standards.
Though these changes were made and, for some awards, became effective in fall 2020, many not-for profit organizations are now receiving federal grants for the first time, highlighting the need to be aware of the procurement standards contained in the Uniform Guidance.
Procurement refers to the purchase of goods or services, typically for other-than-payroll and certain non-payroll expenses. Procurement standards require entities to establish policies and procedures before making purchases with federal funding and are often more prescriptive than how a typical not-for-profit would procure goods and services
The revisions made to the Uniform Guidance this last fall are effective for new federal awards (subawards) and amendments to existing awards issued on or after November 12, 2020. The changes discussed below would not be effective for awards existing prior to, and not amended after, this date.
Under the revisions to the Uniform Guidance, the following were key changes noted:
- Organization of the existing Procurement Methods as Informal, Formal, and Non-competitive. The Revised Uniform Guidance did not add/remove existing Procurement Methods.
- Wording changes that may not seem like a significant change but should be reviewed, nonetheless. The red-lined version of the Revised Uniform Guidance can be found here.
- Potential for increases to micro-purchase thresholds to over $10,000.
To get started, the following are the Procurement Methods identified in the Uniform Guidance. I have detailed below what each means, and the changes, if any, that were included in the Revised Uniform Guidance.
- Micro-purchase (up to $10,000)
- Small purchase (up to $250,000)
- Formal (over the small purchase threshold; $250,000+)
- Non-competitive (sole source)
Purchases in the informal category include micro-purchases and small purchases.
Micro-purchases do not require formal procurement processes as long as the not-for profit considers the price to be reasonable based on research, experience, purchase history, or other information and documents it files accordingly. Purchase cards can be used for micro-purchases if procedures are documented and approved by the entity.
With the latest changes in the requirements, entities now have the possibility to increase their micro-purchase threshold up to $50,000 with a self-certification that any one of the following conditions are met:
- The entity is a low-risk auditee (as defined in section 200.520 of 2 CFR 200).
- They perform an annual internal risk assessment to identify, mitigate, and manage financial risks
- They are a public institution whose State law allows a higher threshold
Entities may even increase the micro-purchase threshold to over $50,000, but it does require approval by their cognizant agency for indirect costs.
Small purchases are those between the micro-purchase threshold and up to $250,000. This threshold is also referred to as the “simplified acquisition threshold,” or SAT. Small purchases require price or rate quotations from an adequate number of qualified sources. These can be as informal as website or catalog prices, or more formal, such as written quotations from a vendor.
As there is no defined minimum for “adequate number,” it’s important for entities to establish what they consider to be an adequate number of sources in their accounting policies and procedures. It’s also important for the entity to retain documentation of the price/rate quotes that it obtained.
It’s key to note that the thresholds referred to above are maximum limits. An entity can typically choose a lower dollar amount for any of the thresholds discussed here by incorporating them into its accounting policies and procedures. If an entity does elect a lower threshold, it is bound to that lower threshold for compliance purposes. In other words, during an entity’s Single Audit, the auditor will test procurement purchases against the purchasing thresholds established in the entity’s policies and procedures.
For all procurement purchase thresholds, the entity needs to establish them in its accounting policies and procedures, even if the entity is defaulting to the maximum limits in the Uniform Guidance.
Purchases in the formal category are those over the small purchase threshold, and they typically require obtaining multiple bids through a formal process.
Sealed bids are publicly solicited and award a firm, fixed-price contract to the lowest eligible bidder.
Proposals are used when awarding either a fixed price or a cost-reimbursement contract. They are also publicly solicited and are used when sealed bids are not appropriate. The entity often needs to perform technical evaluations of the proposals in order to consider all of the relevant factors.
Non-competitive procurements are only allowed under one of the following specific circumstances:
- Purchases below the micro-purchase threshold;
- Purchases only available from a single source;
- The purchase needs to be completed more quickly than a sealed bid or proposal procurement process would allow, such as in an emergency situation like a natural disaster;
- The federal awarding agency or pass-through entity approves the use of non-competitive procurements in response to a written request from the entity; or
- Sealed bids or proposals were sought, but competition was deemed inadequate due to lack of eligible responses.
When using the non-competitive procurement, it is key that you confirm:
- One of the conditions does apply to the underlying procurement; and
- Justification for use of this method (i.e. condition that was met) is clearly documented.
With new procurement standards in effect, take the time now to ensure your entity is up to date with the revised thresholds and use the revision as a reminder to ensure your policies and procedures over federally funded procurement of goods and services meet requirements of the Uniform Guidance. Read through the guidance and review your written policies and procedures. And avoid future non-compliance and potential audit findings by revising your practices and documentation today.
If you have questions on the new procurement standards, please send me an email.
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