When is a purchase order appropriate?
What difference does is make whether the entity is a nonprofit of for-profit institution?
When do we need to decide whether something is a subcontract or a procurement?
Conceptually, procurement is used to buy conventional goods or services. A subaward, on the other hand, goes to a junior partner in the sponsored project -- a "subrecipient." The work and the payment procedures are akin to those of a federal research award; the only difference is that instead of the award coming directly from the federal government, it is coming from UNM as a pass-through.
While these conceptual characterizations solve most of the cases, a difficult minority fall in the middle. No one factor determines whether a money-out contract is a subaward or a procurement. Rather, a number of factors must be looked at.
I set forth below a set of factors indicating whether a particular transaction is a subaward or a procurement. The first five factors in each column come from OMB Circular A-133; the remaining factors come from various secondary sources. While they do not provide a definitive answer, these factors provide an analytical method by which to reach an answer.
Using this method will resolve many close cases. For those cases it does not resolve, there will be an irreducible amount of subjective discretion by UNM. There is no means to absolutely guarantee that the federal government will defer to our decisionmaking in every event. Using a standardized factor test, however, will enable us to document for the federal government in every case that our decision was at least reasonable.
That said, the factors are as follows:
SUBRECIPIENT FACTORS |
VENDOR FACTORS |
Distributes federal dollars further down the pipeline. |
Provides the goods or services within its normal business operations. |
Performance is measured against the objectives of the federal award. |
Provides similar goods or services to many different purchasers. |
Has responsibility for programmatic decisionmaking. |
Operates in a competitive environment. |
Has responsibility to comply with applicable federal program requirements. |
Not subject to the compliance requirements of the federal program. |
Uses the federal funds to carry out its own program, as compared to providing goods or services for a UNM program. |
Provides goods or services that are ancillary to the operation of the federal program. |
Exercises considerable discretionary judgment. |
Provides services of a repetitive nature or goods of a commonly available kind. |
Provides matching funds or cost sharing. |
Assumes the risk if performance is more costly or time consuming than expected. |
Indirect Costs
We may charge overhead only on the first $25,000 of each subrecipient award. The subrecipient itself can charge us overhead at its regular rate, if the subaward is on a cost reimbursement basis. With a procurement contract, on the other hand, we may charge overhead on the entire amount. The vendor does not charge us overhead, but we do not necessarily see the components of the vendor's price. Its price, therefore, will likely include overhead, as well as wages, parts, and profits.
Audit Requirements
UNM must monitor subrecipients' activities to ensure that the funds are used for authorized purposes in compliance with laws, regulations, and the provisions of the prime award. OMB Circular A-133 directly applies to subrecipients that are nonprofits or institutions of higher education, which must be audited if they expend more than $300,000 in federal awards from any sources during its fiscal year. For-profit subrecipients are not subject to OMB A-133, but UNM fulfills its oversight responsibilities by imposing audit or financial recordkeeping and review obligations in the subcontract. Vendors, on the other hand, do not have their expenditures reviewed and audited, and are not subject to program compliance requirements.
OMB Circular A-110
Subrecipients that are non-profits, hospitals, or institutions of higher education are subject to OMB Circular A-110. Subrecipients that are state or local governments are subject to the Grants Management Common Rule. Vendors are not subject to either of these.
Procurement Code
Vendor transactions are subject to the Procurement Code. Subrecipient transactions are not.
Federal Law Compliance
Vendors and subrecipients are subject to different federal pass-through requirements. Each federal law must be examined to determine whether it applies, but some apply only to subrecipients and not to vendors.
Prior Approval
Federal awards generally require prior approval of subawards that were not covered in the proposal; federal awards rarely if ever require prior approval of procurements.
Yes. As the law currently stands, the definitions in the various OMB Circulars and agency regulations are all very general. Only OMB Circular A-133 has given any guidance whatsoever. There is no case law on this subject. While the law may evolve in the future, for right now we can make a single determination for all purposes.
Unfortunately, the OMB Circulars are not always consistent in their terminology. They often use subaward, subagreement, and subgrant synonymously, and refer to the third party in each of these cases as the subrecipient. The most problematic word is "subcontract" which can refer to a subrecipient award or a procurement. The moral: Don't take the differences in terminology too literally, read for context, and, when in doubt, consult this office.
When is a purchase order appropriate?
Generally, the Purchase Order can serve as the legal contractual document for procurements only. While we may decide to continue using Purchase Orders for subawards, we will generally want a stand-alone subaward agreement, and will not want to incorporate the Purchase Order's standard terms and conditions.
What difference does is make whether the entity is a nonprofit of for-profit institution?
In the procurement context, none. In a subrecipient context, it does make a difference. OMB Circular A-133 does not apply to for-profit subrecipients. Nevertheless, we are still responsible for their compliance with the Prime Agreement in all their activities. We need to explicitly pass on compliance requirements in the subaward, including audit requirements adequate to satisfy our OMB Circular A-133 obligations. OMB Circular A-21 makes no distinctions based upon whether the subrecipient is a for-profit or a nonprofit. OMB Circular A-110 specifically acknowledges that subrecipients may be commercial entities, but does not itself apply to them.
When do we need to decide whether something is a subcontract of a procurement?
The earlier the better. Since overhead recovery depends upon the determination, this will affect the budget in the proposal. For any large money outflows, therefore, this should be decided before the proposal is submitted. The determination also affects whether the Procurement Code must be followed, and the type of legal document used in creating the contract.
Prepared by:
Robert E. Bienstock,
Sr. Associate University Counsel
Scholes Hall, Room 152
Albuquerque, NM 87131-0056
(505) 277-5035
(Revised: 05/29/97)