Carolyn Elliott-Farino said:

On this topic I am still perplexed. A-110 defines subaward in .2 (ff) and specifically says that the term subaward “does not include procurement of goods and services.” The Research Terms and Conditions also says that subawards do not include “contracts which are required to be entered into and administered under procurement laws and regulations.”

Given that subawards do not include procurement of goods and services, how do sections .41 through .48 apply, since they set forth standards for use by recipients in establishing procedures for the procurement of supplies and other expendable property, equipment, real property and other services with Federal funds?

I don’t understand your comment that the subaward concept is only an issue for F&A. We must flow down federal terms and conditions to our subrecipients, but we do not do that for vendors under procurement contracts. A subaward agreement and procurement contract for goods and services have different terms and conditions.

What am I missing here???

Tks. Carolyn

For subcontracts under prime contracts, the issue is simple.  All subcontracts are “procurements” and must comply with 2 CFR 215 procurement standards (or equivalent).

The FAR makes it plain that subcontracts are any contract between the prime and another.

“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements covered by 31 U.S.C.6301, et seq. For discussion of various types of contracts, see Part 16.

“Subcontract” means any contract as defined in Subpart 2.1 entered into by a subcontractor to furnish supplies or services for performance of a prime contract or a subcontract. It includes but is not limited to purchase orders, and changes and modifications to purchase orders.

If the Prime is a contract, then it will need an approved Contractor Purchasing System or will be required to obtain advance approval of most subcontracts under 44.201-1 - Consent requirements.  To get the subcontract approved, the Prime will need to follow something like the 2 CFR procedures.

For Grants and Cooperative Agreements, the issue is more complicated.

The issue that you must address is whether you are making “awards” to subrecipients or “contracts under grants” (as NIH puts it).

An “Award” is “… financial assistance that provides support or stimulation to accomplish a public purpose.

EPA has a site discussing this issue:

If the purpose of the funded activity is to support or stimulate activities that are not for the direct benefit or use of the Federal government, an assistance agreement (grant or cooperative agreement) may be used.

 

Support or Stimulation Test:

 

    Is the applicant performing the project for its own purpose?

    Is EPA merely supporting the project with financial or other assistance?

    Is the benefit to EPA incidental (i.e., do funded activities compliment EPA's mission)?

 

The distinguishing factor between a grant and a cooperative agreement is the degree of Federal participation or involvement during the performance of the work activities.  

The Department of Veterans Affairs goes further with:

Federal award means Federal financial assistance and Federal cost-reimbursement contracts that non-Federal entities receive directly from Federal awarding agencies or indirectly from pass-through entities. 38 CFR 41.95

Subrecipient means a non-Federal entity that expends Federal awards received from a pass-through entity to carry out a Federal program, but does not include an individual that is a beneficiary of such a program. A subrecipient may also be a recipient of other Federal awards directly from a Federal awarding agency.

(b) Federal award. Characteristics indicative of a Federal award received by a subrecipient are when the organization:
…
(5) Uses the Federal funds to carry out a program of the organization as compared to providing goods or services for a program of the pass-through entity.

The use of the terms is not consistent across the government or even within a given department.

The Office of Management & Budget issued guidance identifying the requirement to report first-tier sub-awards [under the Federal Funding Accountability and Transparency Act (FFATA)]  on April 6, 2010 and that guidance may be found at the OMB Open Government site at http://www.whitehouse.gov/omb/open. That guidance defines a sub-award as generally referring to a monetary award made as a result of a Federal award to a grant recipient or contractor to a sub-recipient or sub-contractor respectively.

 

“Subawards” are defined as either subcontracts or grants-specific subawards. A “subcontract,” means a subcontract awarded directly by a contractor to furnish supplies or services (including construction) for performance of a prime contract, but excludes supplier agreements with vendors, such as long-term arrangements for materials or supplies that would normally be applied to a contractor’s general and administrative expenses or indirect cost. For grants, a “subaward” means a legal instrument to provide support for the performance of any portion of the substantive project or program for which you received this award and that:

A. the prime recipient awards to an eligible sub-recipient; or

B. sub-recipient at one tier awards to a sub-recipient at the next lower tier.

 

Note how EPA talks about it:

CHAPTER 1 – GRANT RECIPIENT PURCHASING REQUIREMENTS

As a recipient of EPA grants and cooperative agreements, you will likely need to buy supplies, equipment, and services to complete your project. This guidance will help you meet EPA requirements when making such necessary purchases.

This guidance is not intended for State governments. Only certain portions of EPA's regulations (40 CFR 31.36) apply to States which should review that regulation to determine the applicable EPA requirements.

The Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments (40 CFR Part 31) applies to EPA grants and cooperative agreements to State, local, and Tribal governments. (From now on, the term "grants" will be used to refer to both types of assistance agreements.) If you receive assistance under the "Cooperative Agreements and Superfund State Contracts for Superfund Response Actions" regulation (40 CFR Part 35, Subpart O), you will be required to follow requirements which differ from or supplement the provisions of 40 CFR Part 31. The Subpart O requirements are not described in this guidance.

Most of this guidance is devoted to the acquisition procedures § 31.36 prescribes for local governments. The rule requires that when States acquire property and services with grant funds, they must follow the same policies and procedures they use when making purchases with non-Federal funds. In addition, States must include in every grant-supported purchase order or contract all clauses required by Federal statute and executive orders.

EPA often calls purchasing under grants "procurement", but in this guidance we use the term "purchasing".

This guidance does not apply to obtaining the services of individual consultants. A consultant is a person who has expertise in a particular field (specialized skills) and who serves solely in an advisory capacity and is paid at a daily or hourly rate. A consultant primarily provides views or opinions on problems or questions you present. The term includes experts or persons with excellent qualifications and a high degree of attainment in a professional, scientific, technical, or other field. If you obtain the services of a contractor and the terms of the contract provide you with the responsibility for the selection, direction, and control of the individuals who will be providing services under the contract at an hourly or daily rate of compensation the identified individual is likely a consultant. EPA has limits on its participation in payments for consultants, so if you have questions as to whether a particular individual is a consultant, you should contact your project officer or grants specialist for assistance.

This guidance also does not apply to subgrants. A subgrant is an award of financial assistance in the form of money, or property in lieu of money, which you make to an eligible subrecipient. The term "subgrant" does not encompass recipient purchases. EPA has other guidance applicable to subgrants. Contact your project officer or grants specialist for that guidance. (You cannot make a subgrant to a profit-making organization.)

BASIC REQUIREMENTS FOR PURCHASING SYSTEMS

It is unlikely you will purchase the supplies, equipment, and services you need for your grant at an auction, but EPA's purchasing guidance and requirements are designed to ensure that what you buy you get at a reasonable price in a fair and openly competitive way. Many EPA grant recipients have their own purchasing requirements and systems. If you have your own system and it meets the minimum standards of the EPA regulations as explained in this guidance, you may use that system. If your system does not comply, you may modify your system or make adjustments as needed so that your grant-supported purchases are made in accordance with the minimum EPA requirements.

The following sections of this guidance are based on and provide cross-references to the applicable regulations and can help ensure you have a strong purchasing system which will ensure you make sound purchasing decisions.

The agencies can be downright obscure in their discussion.  For instance, NIH provides:

Procurement System Standards and Requirements

General

Grantees may acquire a variety of goods or services in connection with a grant-supported project, ranging from those that are routinely purchased goods or services to those that involve substantive programmatic work. States may follow the same policies and procedures they use for procurements from non-Federal funds. All other grantees must follow the requirements in
45 CFR 74.40 through 74.48 or 92.36, as applicable, for the purchase of goods or services through contracts under grants. The requirements for third-party activities involving programmatic work are addressed under “Consortium Agreements.”

A contract under a grant must be a written agreement between the grantee and the third party. The contract must, as appropriate, state the activities to be performed; the time schedule; the policies and requirements that apply to the contractor, including those required by 45 CFR 74.48 or 92.36(i) and other terms and conditions of the grant (these may be incorporated by reference where feasible); the maximum amount of money for which the grantee may become liable to the third party under the agreement; and the cost principles to be used in determining allowable costs in the case of cost-type contracts. The contract must not affect the grantee’s overall responsibility for the direction of the project and accountability to the Federal government. Therefore, the agreement must reserve sufficient rights and control to the grantee to enable it to fulfill its responsibilities.

 

The definitions under the Federal Funding Accountability and Transparency Act Implementation make the picture even more obscure:

 

(bb) The term subaward means an award of financial assistance made under an award by a recipient to an eligible subrecipient or by a subrecipient to a lower tier subrecipient. The term includes financial assistance when provided by any legal agreement, even if the legal agreement is called a contract, but does not include procurement of goods and services.

 

(cc) The term subrecipient means the legal entity to which a subaward is made and which is accountable to the recipient for the use of the funds provided.

 

We begin to get the idea that there is a distinction between “an award of financial assistance made under an award” and a subcontract or “contract under a grant” as NIH puts it.

 

DOL confuses the situation even further by statements such as:

 
3. Subawards to Organizations, Groups, and/or Persons

Grantees may procure sub-contracts or sub-grants with other organizations to fulfill the purpose and activities of the Cooperative Agreement award. Subawards may be included as a budget line item. Subawards must be awarded in accordance with 29 CFR 95.40-48 and are subject to audit, in accordance with the requirements of 29 CFR 95.26(d). Subawards awarded after the Cooperative Agreement is signed, and not proposed in the application, must be awarded through a formal competitive bidding process, unless prior written approval is obtained from USDOL. In addition, all subawards are subject to the restrictions and prohibitions related to prostitution, inherently religious activities, and terrorism as outlined in this section (6-8). Detailed information on subawards should be provided during the project document review process. Copies of all subawards above $ 100,000 must be provided to USDOL prior to implementation of the contract. 75 FR 975 01/09/2007

 

And the Department of Energy is even more confusing:

 

§ 603.610 Flow down requirements.

 

If it is an expenditure-based award, the TIA must require participants to provide the same financial management, property management, and purchasing systems requirements to a subrecipient that would apply if the subrecipient were a participant. For example, a for-profit participant would require a university subrecipient to comply with requirements that apply to a university participant and would require a GOCO or FFRDC subrecipient to comply with standards that conform as much as practicable with the requirements in the GOCO/FFRDC procurement contract. Note that this policy applies to subawards for substantive performance of portions of the RD&D project supported by the TIA and not to participants' purchases of goods or services needed to carry out the RD&D.

 

10 CFR 603 has even more detailed flowdown requirements, including a requirement for flowdown of the termination provisions (as discussed in 2 CFR 215.48(b)).

 Finally, the provisions of 2 CFR 215.48 are themselves the height of obscurity, providing:

 Sec. 215.48  Contract provisions.

 

    The recipient shall include, in addition to provisions to define a

sound and complete agreement, the following provisions in all contracts.

The following provisions shall also be applied to subcontracts.  ...

The bottom line is that most agencies consider most subcontracts, even for research activity, to be subject to the rules for procurement of goods and services, unless the prime awardee is simply flowing the funds through to the actual research entity. The subaward phrasing was initially for use in connection with financial assistance provided by a “pass-through” entity only to the line level entity providing the “public purpose.”  It was not for use just because an entity provided a part of  the “substantive programmatic work” (i.e., part of the research). Note that NIH avoids the issue by explicitly laying out what is required for "consortium agreements."

 While some agencies may be moving away from explicit application of the procurement standards in 2 CFR 215 for research work done under a “contract under a grant,” the basic principles of the standard still must be a part of the subcontracting system as well as the entities “purchasing” or procurement system. If this is no longer the norm for review by either auditors or compliance monitoring agencies, please let me know.