Are there ever legitimate reasons to contract an entity as a sole source without engaging in a competitive bidding process? What are good practices to avoid the appearance of procurement fraud in non-competitive procurement?

Under the Uniform Guidance, there are limited scenarios under which sole source (non-competitive) procurement may be permitted, but non-federal entities should carefully review all federal, state, and local internal regulations, policies and procedures. 2 CFR 200.320 details scenarios where non-competitive procurement may be permitted:

Non-competitive procurement can only be awarded if one or more of the following circumstances apply:
(1) The acquisition of property or services, the aggregate dollar amount of which does not exceed the micro-purchase threshold (see paragraph (a)(1) of this section);
(2) The item is available only from a single source;
(3) The public exigency or emergency for the requirement will not permit a delay resulting from publicizing a competitive solicitation;
(4) The Federal awarding agency or pass-through entity expressly authorizes a non-competitive procurement in response to a written request from the non-Federal entity; or
(5) After solicitation of a number of sources, competition is determined inadequate.[1]

When procuring property, goods, or services under a federal award, non-federal entities such as cities, municipalities, and local governments (“non-federal entities”) must generally comply with three categories of authority: (1) their internal policies and procedures, (2) applicable state and local regulations, and (3) federal guidelines, most importantly the “Uniform Guidance,” 2 CFR 200.[2] Non-federal entities are required to comply with each category of authority, and if there are inconsistencies, they must follow the most stringent guidelines.

Micro-Purchase Awards

Per 2 CFR 200.320, micro-purchase awards may proceed without soliciting competitive price or rate quotations. The micro-purchase threshold is set by the municipality responsible for determining and documenting the appropriate micro-purchase threshold. This threshold is based on internal controls, an evaluation of risk, and documented procurement procedures. The micro-purchase threshold used by the non-federal entity must be authorized or not prohibited under state, local, or tribal laws or regulations.[3]

By default, the micro-purchase threshold is set at $20,000 with certain exceptions found within the Federal Acquisition Register, though non-federal entities should consult all applicable rules and regulations.[4] Non-federal entities may set and annually self-certify a threshold for micro-purchases of up to $50,000 while maintaining documentation which can be submitted to federal awarding agencies that demonstrates any of the following:

a) A qualification as a low-risk auditee, in accordance with the criteria in § 200.520 for the most recent audit;
b) An annual internal institutional risk assessment to identify, mitigate, and manage financial risks; or,
c) For public institutions, a higher threshold that is consistent with State law.[5]

For all micro-purchase thresholds of above $50,000 set by a non-federal entity, the non-federal entity must submit documentation to the federal awarding agency demonstrating any of the three criteria listed above.[6]

Non-federal entities must also comply with their own policies and procedures and any applicable state and local policies regarding micro-purchase thresholds. As discussed above, in cases of inconsistency amongst the three, non-federal entities must comply with the category which would require the most restrictive policies and procedures.

Single Source

2 CFR 200.320 allows sole source procurements when the item is only available from a single source.[7] These procurements may be permissible in certain circumstances but will always require detailed justifications. Procurement officers should ensure that in addition to having written procedures to govern procurement transactions, they do not draft procurement proposals unnecessarily limiting competition. Non-federal entities must comply with 2 CFR 200.319.[8] Under this section, the following non-exhaustive situations are considered restrictive of competition:

• Placing unreasonable requirements on firms to qualify to do business;
• Requiring unnecessary experience and excessive bonding (i.e., where the insurance requirements of the non-Federal entity are not deemed adequate to protect the interest of the Federal Government);
• Non-competitive pricing practices between firms or between affiliated companies;
• Non-competitive contracts with 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 and describing the performance or other relevant requirements of the procurement; and,
• Any arbitrary action in the procurement process.[9]

Sole source procurements are not considered restrictive of competition if the item is available only from a single source.

Relevant procurement procedures must be documented and must conform to the procurement standards in the Uniform Guidance.[10] The National Association of State Procurement Officers has published a list of state sole source requirements;[11] however, municipalities should contact their state’s procurement officer for the latest updates. In all cases where sole source procurement is allowed, 2 CFR 200 cost principles guidelines, such as those in §200.404 – Reasonable Costs, must be followed.[12]

Public Exigency or Emergency Circumstances

Non-competitive procurements due to emergency or exigent circumstances are those that require immediate action and typically involve a threat to life, public health or safety, or some other form of dangerous situation.[13] Procurements under these emergency circumstances are commonly undertaken immediately in the aftermath of a disaster (e.g., hurricane, fire, flood) and are only permissible during the actual emergency or exigent circumstances when a competitive procurement process would prevent the non-federal entity from taking immediate action.[14] Non-federal entities should carefully review all applicable federal, state, local and internal regulations, policies and procedures.

As noted above, awards made under non-competitive procurements due to emergency or exigent circumstances are only permissible during the actual emergency or exigent circumstances; non-federal entities undertaking non-competitive procurements for these reasons must re-procure the goods or services once the emergency circumstances that prevented a competitive process have passed.

It is also worth noting that emergency sole source procurements would not typically be allowable for funding through the American Rescue Plan Act of 2021 (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) as the Department of the Treasury (“Treasury”) is unlikely to consider the ongoing COVID-19 public health emergency a sufficient justification to bypass a competitive procurement process if otherwise required.

As discussed above, if a municipality’s internal policies and procedures are more restrictive regarding sole source procurements, the municipality must comply with its own policies and procedures.

Federal Awarding Agency or Pass-Through Entity Authorization

There may be instances when a sole source procurement is appropriate outside of the circumstances explicitly stated in 2 CFR 200.320. In some of these cases, a non-federal entity may submit a written request to the federal awarding agency or pass-through entity and proceed with a sole source procurement if the federal awarding agency or pass-through entity expressly authorizes a non-competitive procurement.[15]

Competition Deemed Inadequate

When conducting a competitive procurement process, there may be instances when competition is deemed inadequate. Examples may include lack of qualified or responsive bidders. In these circumstances, a sole source procurement may be pursued as long as the non-federal entity has complied with 2 CFR 200.318-327 and other applicable rules and regulations.[16] These procurements are typically subject to higher scrutiny, and non-federal entities should document the circumstances and detailed reasoning to justify the non-competitive procurement.

Good practices for Sole-Source Procurements Include:

• Maintain comprehensive documentation of the award of the contract under one of the above non-competitive criteria. 
• Institute a review process for all non-competitive source requests.
• Provide a standard template for written justifications. This template could include:
  • A description of why competition is not possible in the specific case, including research showing that the vendor is the only source for the goods or services;
  • Documentation of any timing issues requiring purchases under exigent circumstances; and,
  • Demonstration that pricing falls within the micro-purchase threshold.
• Limit the duration of any sole source contract.

Last Updated: March 6, 2023