Grants Practice Shorts: Disposition Of Federally-Funded Property

Welcome to Feldesman's Grants Practice Shorts series where we discuss helpful tips and strategies in common areas of federal grant management. Be sure to check out our other installments on our Grants Practice Shorts page.

The past two weeks we addressed "use restrictions" and "management requirements" for property that is acquired or improved with federal funds under the Uniform Guidance Property Standards. See 2 C.F.R. §§ 200.200.310 − 200.316. This week we discuss requirements for disposition of federally-funded property.

Disposition Requirements − Real Property

When real property acquired or improved with federal funds is no longer needed for its originally authorized purpose, the grantee must obtain disposition instructions from the federal awarding agency (or pass-through entity). § 200.311(d). Those instructions will provide for one of three alternatives:

1. The grantee retains title after compensating the federal awarding agency for its share. In such a scenario, the amount paid to the Federal awarding agency is equal to the product of the federal awarding agency's percentage of participation in the cost of the original purchase (and any improvements) and the fair market value of the property at disposition. § 200.311(d)(1).
2. The grantee sells the property and compensates the federal awarding agency. In such a scenario, the amount paid to the federal awarding agency is equal to the product of the federal awarding agency's percentage of participation in the cost of the original purchase (and any improvements) and the proceeds of the sale (after deducting any actual and reasonable selling and fixing-up expense) – the same formula, taking into account reasonable selling and fixing up costs. Sales procedures are to be competitive "to the extent practicable and that result in the highest possible return." § 200.311(d)(2).
3. The grantee transfers title to the federal awarding agency or a third party designated or approved by the federal awarding agency. In such a scenario, the grantee is entitled to be paid the product of the grantee's percentage of participation in the purchase of the real property (and cost of any improvements) and the current fair market value of the real property. § 200.311(d)(3). In planning, grantees should be mindful of diminished ability to negotiate fair valuation and prompt payment once title transfers to the government or a third-party.

Disposition Requirements – Equipment

When equipment acquired or improved with federal funds is no longer needed for the original program or project for which it was acquired, nor for other activities currently or previously supported by a federal awarding agency, then the grantee must generally request disposition instructions from the agency. Disposition then occurs as follows:

1. If the fair market value of the equipment is $5,000 or less, then it may be "retained, sold or otherwise disposed of with no further obligation to the Federal awarding agency." § 200.313(e)(1). Grantees should note this threshold increased to $10,000 effective for awards on or after October 1, 2024. See 89 Fed. Reg. 30082 (April 22, 2024). Moreover, if not prohibited by statute or regulation, the federal agency may permit grantee to retain equipment with no further obligation to the federal government, provided it is included in the Federal award terms and conditions. § 200.313(f).
2. If the fair market value of the equipment exceeds $5,000 (again, $10,000 on or after October 1, 2024), then the equipment may be retained by the grantee or sold, but the federal awarding agency is entitled to compensation in an amount equal to the product of the current fair market value (or proceeds from the sale) and the federal awarding agency's percentage of participation in the cost of the original purchase, and the federal agency may permit the grantee to retain, from the Federal share, $500 or ten percent of the proceeds to cover selling and handling expenses ($1,000 for awards on or after October 1, 2024). Id.; see also § 200.313(e)(2).
3. The grantee may transfer title to the federal government or an eligible third party, provided that the grantee is entitled to compensation for its attributable percentage of the current fair market value of the equipment § 200.313(e)(3).

Disposition Requirements – Supplies

Upon termination of the federal program or project, any residual inventory of unused supplies exceeding $5,000 ($10,000 for awards on or after October 1, 2024) in total aggregate value may either be retained or sold by the grantee. In either case, the grantee must compensate the federal government for its share by multiplying the current market value or proceeds from sale by the federal awarding agency's percentage of participation in the cost of the original purchase. § 200.314(a). If the supplies are sold, grantee may be permitted to retain, from the Federal share, $1,000 of the proceeds to cover expenses associated with the selling and handling of the supplies. Id.

As a general rule, the new thresholds that went into effect on October 1, 2024 will be applicable to new funding or continuation awards issued on that date or thereafter and not to previously awarded funding. Grantees may find they need to update their policies accordingly or clarify with federal funders any program-specific transition measures

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.