New federal procurement standards
New procurement standards that apply to purchases of goods and services made with federal funds will take effect for many nonprofits in 2017.
In an attempt to present a "government-wide framework for grants management" and improve efficiency, the Office of Management and Budget combined eight previous OMB Circulars into one set of “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Award,” also referred to as “Uniform Guidance.”
The Uniform Guidance became effective for all new federal awards and for incremental funding of existing awards received after Dec. 26, 2014. However, on Sept. 10, 2015, OMB issued a federal register notice that granted a two-year grace period to comply with the procurement standards in the uniform guidance. So, institutions whose fiscal year ends on June 30 must comply with the new standards by July 1, 2017.
Key elements of the new procurement standards are below. However, it is important to fully read the procurement section of the Uniform Guidance to ensure your nonprofit is in compliance.
Revised procurement categories
Micro-purchase – Under the new standards, micro-purchases are the acquisition of supplies or services costing less than $3,000. They may be awarded without soliciting competitive quotations if the nonprofit considers the price to be reasonable.
Small purchase – Services, supplies or other property costing less than $150,000 are now considered “small purchase” and are subject to new relatively simple and informal procurement methods. Nonprofits must obtain price or rate quotations from an adequate number of qualified sources. The standards do not define “adequate number”.
Sealed bids – Sealed bids are used for purchases over $150,000 and primarily for construction contracts. Sealed bids are publicly solicited and a firm price contract is awarded to the responsible bidder. Generally the lowest bid is selected.
Competitive proposals – Competitive proposals are used for procurements over $150,000 and require a formal solicitation, and can be either fixed-price or cost-reimbursement contracts. Competitive bids are used when sealed bids are not appropriate. The contract is awarded to the proposal that is most advantageous to the program.
Sole source – This category applies to procurements where the item is only available from a single source or when there is a public emergency that makes a competitive proposal process too time consuming. Sole source procurements require approval from the federal or pass-through funding source.
General procurement standards
Documented policies – Nonprofits must have documented procurement policies and procedures in place related to the purchase of goods and services with federal funds. These policies must be in accordance with the federal, state and local regulations. Federal awards must be used only for necessary items and there should be a full and open competitive procurement process.
Conflict of interest – There are now two types of conflict-of-interest policies required: employee conflict of interest and organizational conflict of interest. No employee, officer or agent may participate in the selection, award and or administration of a federally funded contract if there is an actual or apparent conflict of interest. Organizational conflict of interest is a new requirement, under which relationships with a parent company, affiliate or subsidiary organization must be identified if they appear to or actually render the nonprofit unable to be impartial in conducting a procurement action.
Documentation of cost and price analysis and vendor selection – There should be sufficient documentation on the process of vendor selection and how the nonprofit reached its final decision. For example, the organization must conduct a lease/purchase analysis to identify which is more cost effective before entering into a lease or purchase contract.
All nonprofits should take a careful look at their existing procurement policies and procedures and make necessary updates to be in compliance with the new standards before the effective date. Failure to do so can result in an audit finding and non-compliance with federal requirements.
Sibi Thomas, CPA, CFE, CGMA, is a partner within the Nonprofit & Government Group at Marks Paneth LLP. Thomas specializes in audit, advisory and tax services for nonprofits in New York and neighboring states. He can be reached at sthomas@markspaneth.com.