United States: Federal Grant & Contract News For Nonprofits - March 2014

In the past several newsletters, we devoted our attention to one of the more significant regulatory changes affecting nonprofit recipients of federal grants and contracts in the past decade – the Super Circular. However, in the interim, there have been a number of other interesting and important legal developments in the nonprofit procurement and grant arena. We discuss two of these in this month's newsletter.

GAO's Review of Recovery Act Grant Funds

In January, the Government Accountability Office (GAO) released a report – Recovery Act: Grant Implementation Experiences Offer Lessons for Accountability and Transparency – which details lessons learned regarding useful practices and challenges to ensuring the accountability of grants funded by the American Recovery and Reinvestment Act of 2009 (Recovery Act). Many of these challenges are common among a broad range of grant recipients, and thus, may be equally common and useful for all grant recipients to address such challenges.

Faced with aggressive timelines for distributing billions of dollars, federal, state, and local officials adopted a number of practices to foster accountability including:

  • Strong support by top leaders;
  • Centrally situated collaborative governance structures;
  • The use of networks and agreements to share information and work towards common goals; and
  • Adjustments to, and innovations in, usual approaches to conducting oversight such as the increased use of up-front risk assessments, the gathering of "real time" information, earlier communication of audit findings, and the use of advanced data analytics.

Federal, state, and local officials also encountered challenges related to the transparency of Recovery Act funds. In response, these officials developed useful practices, including a number of best practices for creating an effective website, such as: (1) establishing a clear purpose; (2) using social networking tools to garner interest; (3) tailoring the website to meet audience needs; and (4) obtaining stakeholder input during design.

While some of the above circumstances may be unique to government grant recipients, any grant recipient, whether large or small, could adopt many of the practices to positively impact their administration and oversight of grant funds. For more information on the challenges and lessons learned from Recovery Act grant fund administration and oversight, view the complete GAO report.

Contract or Cooperative Agreement?

On March 25, 2014, the Court of Appeals for the Federal Circuit reversed and remanded a case to the Court of Federal Claims that examined whether a Notice of Funding Availability (NOFA) issued by the Department of Housing & Urban Development (HUD) was a contract governed by the Contracting in Competition Act (CICA) and the Federal Acquisition Regulation (FAR), or a cooperative agreement, not subject to CICA or the FAR. CMS Contract Management Services, No. 2013-5093 (Fed. Cir. March 25, 2014). The NOFA was for administrative services related to Section 8 housing funds. HUD included requirements in the NOFA restricting competition largely to in-state Public Housing Authorities (PHAs). If the NOFA was a contract – subject to the CICA requirements – such an anti-competitive provision would render the solicitation invalid. After a lengthy series of protests before the GAO, the Court of Federal Claims, and finally the Federal Circuit, the Circuit reversed the Court of Federal Claims and held that the NOFA was a contract subject to the competition requirements of CICA.

The Circuit applied the principal purpose test articulated by the Federal Grant and Cooperative Agreement Act (FGCAA), 31 U.S.C. § 6301, that an agency is required to employ in determining the type of funding instrument to use. Under this Act, an agency must use a procurement contract if the principal purpose of the funding instrument is to acquire property or services for the "direct benefit or use of the United States government." An agency can use a cooperative agreement or a grant when "the principal purpose of the relationship is to transfer a thing of value...to carry out a public purpose of support or stimulation." The Court of Federal Claims found that HUD was statutorily required to use PHAs to administer contracts and, therefore, was not contracting out a service for its own benefit. However, the Federal Circuit reversed because (1) the NOFA included characteristics of a contract, in that it was a performance-based award and was procured on a best value basis; (2) HUD retained control over which citizens received funding; and (3) HUD paid awardees an administrative fee.

The case serves as a good reminder of the same principal purpose test that grantees must use to determine whether they should be awarding a subgrant or a contract/subcontract. However, the Circuit's articulation of the factors that led the Circuit to deem the NOFA a solicitation of a contract could lead to confusion given that the new Super Circular requirements specifically provide for performance-based grants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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