United States: OMB Gives Grant And Cooperative Agreement Recipients Additional Time To Comply With New Procurement Requirements Mandated By "Super Circular"

Last Updated: May 23 2017
Article by Tina D. Reynolds

The Office of Management and Budget ("OMB") announced earlier this week that it is giving universities, nonprofits, state and local governments, and other "non-Federal entities" an additional year to comply with the new procurement standards that were part of the extensive changes to administrative processes, cost accounting, and audit requirements set in motion by OMB's December 2013 "Super Circular."

The May 16, 2017 Federal Register announcement by OMB, which extended the deadline for procurement standards compliance to December 26, 2017 (or three years after the effective date of the remainder of the Super Circular), did not provide a rationale for the extension.

Super Circular Procurement Standards

The procurement standards, codified at 2 C.F.R. §§ 200.317-200.326, require non-Federal entities other than states (which have their own procurement processes) to establish procurement procedures for subawards and subcontracts that address the following:

  • Organizational and personal conflicts of interest;
  • Contractor integrity, compliance with public policy, record of past performance, and financial and technical resources;
  • Maintenance of records reflecting the procurement method rationale, selection of contract type, contractor selection or rejection, and the basis for the contract price;
  • Promotion of full and open competition that ensures objective contractor performance and eliminates unfair competitive advantages;
  • Development of solicitation documents that incorporate a clear and accurate description of the technical requirements for the material, product, or service to be procured and that apprise offerors of all requirements they must fulfill and all factors to be used in evaluating bids or proposals;
  • Measures to ensure that minority businesses, women-owned businesses, and labor surplus area firms are used when possible;
  • Inclusion of a cost or price analysis in connection with every procurement action, including contract modifications, and the separate negotiation of profit in cost reimbursement contracts;
  • Preservation of contract award-related documentation for review by the government or pass-through entity upon request.

Additional requirements are specified based on whether the contract is solicited through sealed bids or competitive procurement. Sole source awards are only permitted in limited circumstances. Fixed price and cost reimbursement contracts are preferred; time and materials-type contracts are disfavored and may only be used in certain specified instances. Finally, it is worth noting that some of these procedures do not apply to purchases below the simplified acquisition threshold (currently $150,000).

The Super Circular Generally

The December 2013 OMB Uniform Guidance—which became known as the "Super Circular"—was the culmination of a lengthy process begun by the Council on Financial Assistance Reform ("COFAR"), an interagency group created in 2011 and charged with assisting OMB in cutting government red tape and reducing waste, fraud, and abuse in connection with grants and cooperative agreements. The Super Circular consolidated and amended instructions previously found in eight separate OMB Circulars that applied to non-Federal entities. The changes were extensive and covered administrative requirements, cost principles and audit requirements for federal grants and cooperative agreements.

A December 19, 2014 consolidated final rule promulgated by OMB and 28 federal agencies implemented OMB's Super Circular with minimal changes. This final rule, now codified at Title 2 of the Code of Federal Regulations, supersedes and consolidates requirements from OMB Circulars A-21, A-87, A-89, A-102, A-110, A-122, and A-133 and those portions of A-50 pertaining to audits.

Of particular note were provisions that require federal funding applicants to disclose conflicts of interest and certain types of criminal violations, that raise the thresholds on federal awards subject to audit, that limit allowable costs associated with federal award performance, and that restrict the accumulation of profits in connection with federal awards.

In addition, new rules pertaining to information technology and shared services now make explicit a non-Federal entity's responsibility for safeguarding protected personally identifiable information and information designated as sensitive.

Another significant change was the inclusion of provisions that provide for a de minimis indirect cost rate of 10% to non-Federal entities that have never had a negotiated indirect cost rate. The new guidance also requires federal agencies to accept previously negotiated indirect cost rates and to allow for a one-time extension of federally approved negotiated indirect cost rates for a period of up to four years.

Altogether, the Super Circular dramatically changed the ground rules for recipients of federal grants and cooperative agreements.

For assistance in drafting and implementing procurement procedures that meet the OMB's requirements, or for questions about the Super Circular or grants and cooperative agreements generally, please contact the author.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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