What procurement processes govern use of ARP funds?

The U.S. Department of the Treasury (“Treasury”) clarified that funds made available under the American Rescue Plan Act (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) are subject to federal procurement requirements outlined in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), found at Title 2 of the Code of Federal Regulations, Part 200 (“2 CFR 200”).[1] These requirements outline the general standards and regulations for the procurement of goods and services for recipients and subrecipients of federally awarded funds.[2] Per 2 CFR 200.318(a), non-Federal entities, such as municipalities, must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. The non-Federal entity’s documented procurement procedures must conform to the procurement standards identified in 2 CFR 200.317 through 200.327.

Procurement and contracting requirements are in place as best practices to mitigate the risk of fraud, waste, or abuse of federal funds and are designed to ensure that federally funded contracts are competitive and fair.[3] Treasury reminds that recipients and subrecipients of this funding are required to have documented processes and procedures governing procurement and contracting under this award.[4] 

A few requirements drawn from the Uniform Guidance include the following:

• Adhering to local procurement and contracting policies, standards, or procedures, including applicable local or state laws.[5] In cases where the federal and local requirements conflict, a municipality typically should adhere to the more stringent requirement.[6] Auditors or oversight authorities will look to published policies and procedures governing procurement of federally funded contracts, as well as local laws, to ensure that both local and federal requirements were met.[7] 
• Maintaining clear policies governing conflicts of interest for employees involved with developing solicitations, evaluating or awarding contracts, or managing or monitoring vendors.[8] Municipalities should also maintain documented standards to certify and confirm that potential vendors are not suspended or debarred from doing business with the federal government prior to entering contracts funded with federal awards.[9] 
• Publishing and documenting clear standards in procurement solicitations and evaluation criteria on how a municipality will determine a “responsive and responsible.” Municipalities should ensure that factors that may be overly restrictive to free and open competition are not included, such as placing unreasonable requirements on vendors to qualify or establishing any steps in the procurement process that are arbitrary or irrelevant to the award of contracts necessary and reasonable for the implementation of the use of funds under this award.[10]
• Utilizing the appropriate procurement method based on the size of the proposed scope of services to ensure adequate competition.[11] For services under the simplified acquisition threshold ($250,000, or a lesser threshold established by the municipality, see 2 CFR 200.318(a)),[12] procurement may follow informal procurement methods.[13] For solicitations over the simplified acquisition threshold, procurement should follow formal procurement methods,[14] such as sealed bidding or competitive proposals.
  • If procurement is only possible through non-competitive methods, municipalities will need to justify use of a non-competitive procurement process, only permissible when one of the following conditions are met: the item is below the micro-purchase threshold established by the municipality; the item is only available from a single source; the public exigency or emergency will not permit a delay from publicizing a competitive solicitation; or after solicitation of a number of sources, competition is determined inadequate.[15] Clearly documenting conditions surrounding the award or specialized circumstances will be critical to demonstrate compliance, especially if inability to follow competitive procurement is due to exigency or emergency of an imminent threat to public health, safety, or welfare.
  • Where feasible, municipalities should consider taking steps to ensure competition is accessible to minority- and women-owned businesses in addition to labor surplus area firms.[16]
• Justifying and documenting the selection of vendors, including: (1) that a vendor is responsive to the requirements outlined in the procurement, (2) responsible, (3) not debarred from doing business with the federal government, and (4) offering a reasonable, competitive cost, based on cost or price analysis completed by the municipality.[17]
• Maintaining records sufficient to detail the history of procurement.[18] 
• Including appropriate federal requirements or language in the executed contract, including bonding provisions,[19] documentation and reporting requirements, or applicable contract provisions as identified in Appendix II: Contract Provisions for Non-Federal Entity Contracts Under Federal Awards.[20]
• Ensuring that the contract structure is appropriate for the goods and/or services rendered, that prices are fair based on an independent cost or price analysis, and that a cost-plus-percentage-of-cost method is not used for federally-funded contracts.[21]

Municipalities may have existing contracts or working relationships with vendors for similar services that they may wish to use for ARP-funded work. To utilize a pre-existing contract, municipalities can consider the following requirements to assess whether the contract meets federal procurement requirements:

• Was the contract competitively procured and consistent with local procurement and contracting requirements and applicable laws? If so, are there differences between the local and federal requirements that may be in conflict?
• Is the contract active and does it include the goods or services being sought?
  • For example, a municipality may have an existing contract for providing workforce development services that they wish to use starting July 1, 2021, but the contract expired in March 2021. Extending the contract to include additional time may be deemed noncompetitive, because the contract expired before services began.[22]
  • For example, a municipality may have an engineering and construction firm contracted to build a new community center and wants to use the same firm to perform citywide water and sewer infrastructure projects as permitted by the CLFRF. This scope is different than what is included in the current contract and may be considered noncompetitive.
• Has the vendor demonstrated capacity and financial responsibility to provide the goods or services being sought?
• Are there other vendors or organizations that could also reasonably and responsibly provide the good and/or service that may object to the lack of competition available for federal funds?
• Can the municipality clearly document and justify the reasoning to utilize an existing vendor relationship in lieu of following normal procurement and contracting processes? This may include justification of exigent or emergency circumstances, imminent threat to public health and safety, or substantive demonstration that no alternatives were feasible.
• Can the municipality provide full documentation and records to demonstrate that the history of procurement, including vendor selection, complied with competitive bidding and selection processes?[23]

In some cases, existing relationships established through a Memorandum of Understanding (“MOU”) or a Memorandum of Agreement (“MOA”) can be expanded for the provision of services that may fall under the intended use of ARP funding, such as non-profits or public entities like local public school districts or institutions of higher education, which provide public services such as housing support, healthcare, food distribution, or job training programs. Municipalities may explore utilizing existing MOUs or MOAs, or establishing new MOUs or MOAs, with non-profits and public entities to provide additional services utilizing existing MOUs or MOAs, or establishing new MOUs or MOAs, with non-profits or public entities to provide additional services utilizing ARP funding. MOUs and MOAs should still include the required contract provisions,[24] monitoring and oversight requirements,[25] and cost principles[26] as identified by federal or local requirements, though they likely will not follow the same procurement process. Municipalities should also be prepared to justify and document the selection of the MOU or MOA as the most appropriate, reasonable, and cost-effective method to provide services utilizing ARP funds.

Last Revised: December 16, 2021