What guidelines/standards are applied by various municipalities when determining whether to engage in a competitive process in awarding federal funds to a subrecipient?

The U.S. Department of the Treasury's ("Treasury") Final Rule on the Coronavirus State and Local Fiscal Recovery Funds ("CSLFRF") makes it clear that recipients do not have to competitively bid awards to subrecipients.[1]

However, municipalities could, if so inclined, implement procurement processes that are more stringent than the federal requirements, including the use of a competitive bid process for awards granted to subrecipients. If a municipality chooses to implement a competitive process to award CSLFRF funds to subrecipients, municipalities should design the competitive process and award criteria to ensure the awarded subrecipient is able to implement a program that is responsive to and “reasonably proportional to the extent and type of public health impact or harm experienced.”[2]

To determine whether to engage in a competitive bid process when awarding grant funds to subrecipients, municipalities are generally guided by the:

1. Uniform Guidance Part 200;
2. municipality’s local government procurement rules and regulations; and
3. specific rules of the federal grant program.

Prior to issuing a subaward, it is important for recipients to distinguish between a subrecipient and a procurement contract, because only a procurement contract is subject to the procurement requirements outlined in the Uniform Guidance CFR §200.319.[3] According to the Uniform Guidance CFR §200.331:

(a) Subrecipients. A subaward is for the purpose of carrying out a portion of a Federal award and creates a Federal assistance relationship with the subrecipient. [] Characteristics which support the classification of the non-Federal entity as a subrecipient include when the non-Federal entity:

1. Determines who is eligible to receive what Federal assistance;
2. Has its performance measured in relation to whether objectives of a Federal program were met;
3. Has responsibility for programmatic decision-making;
4. is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
5. in accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.

(b) Contractors. A contract is for the purpose of obtaining goods and services for the non-Federal entity's own use and creates a procurement relationship with the contractor. Characteristics indicative of a procurement relationship between the non-Federal entity and a contractor are when the contractor:

1. Provides the goods and services within normal business operations;
2. Provides similar goods or services to many different purchasers;
3. Normally operates in a competitive environment;
4. Provides goods or services that are ancillary to the operation of the Federal program; and
5. Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons.

(c) Use of judgment in making determination. In determining whether an agreement between a pass-through entity and another non-Federal entity casts the latter as a subrecipient or a contractor, the substance of the relationship is more important than the form of the agreement. All of the characteristics listed above may not be present in all cases, and the pass-through entity must use judgment in classifying each agreement as a subaward or a procurement contract.[4]

The Final Rule also highlights other state and local laws outside of the federal grant program that may be applicable to municipalities:

Recipients should also be cognizant that federal, state, and local laws and regulations, outside of [CSLFRF] program requirements, may apply. [] State and local procurement, contracting, and conflicts-of-interest laws and regulations may include applicable requirements, including, for example, required procurement processes for contractor selection or competitive price setting.[5]

Lastly, a municipality should also ensure its procurement policies and procedures are documented and maintained to reflect any applicable state, tribal, or local laws and regulations.[6]

Notably, the Final Rule states: “[u]ltimately, recipients must comply with the eligible use requirements and any other applicable laws or requirements and are responsible for the actions of their subrecipients.”[7]

Last Updated: March 2, 2022