Don’t Risk Having Procurement Costs Disallowed

Framework of house

Federal grantee procurement standards, as stipulated in the “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” impose strict requirements on not-for-profits receiving federal funds. These standards have significantly altered nonprofit purchasing policy and documentation. 

After a lengthy grace period to allow more time for implementation, the requirements became effective in calendar year 2018 or fiscal years beginning in 2018. If an audit finds your organization out of compliance, it can put future federal funding at risk.

Although your organization may have changed its written nonprofit procurement policies to comply with the revised standards, that part is easier than the actual procurement practices. During educational sessions, we have noted inconsistent practice or simple confusion among not-for-profit organizations due to the detailed documentation required:

  • Current policies do not reflect the increase in the thresholds of micro-purchases or small purchases. 
  • Not all procurement procedures were documented in writing.
  • Procurement records were not always kept for each relevant purchase, which should include bids solicited, selection criteria, quotes from vendors and the final contract price. When single source vendors were selected, insufficient or no documentation of the justification considered. 
  • Conflict of interest policies may leave out employees involved in procurement as well as all entities owned by or considered “related” to your organization.

In addition, in 2018 the National Defense Authorization Act (NDAA) increased the micro-purchase threshold from $3,500 to $10,000 and the simplified acquisition threshold from $150,000 to $250,000. Further, certain institutions may request micro-purchase thresholds higher than $10,000. 

These changes provide more flexibility for not-for-profit organizations, but organizations must still be mindful of the dollar value of their purchases to manage procurement methods in compliance with the federal standards. 

  • “Micro-purchases” of supplies or services up to $10,000 generally can be awarded without soliciting competitive quotes if not-for-profit organizations consider the price to be reasonable based on past experience or information readily available. “Small purchases” of services, supplies or other property that don’t cost more than $250,000 require price or rate quotes from an adequate number of qualified sources.
  • For purchases exceeding $250,000, you must select vendors or suppliers based on publicly solicited sealed bids or competitive proposals. Select the lowest bid or the proposal most advantageous to the relevant program based on price and other factors that impact the program performance. This is the preferred method for procuring construction and has additional specific requirements on the process and documentation. 
  • Also, organizations must have a written method for conducting technical evaluations of the proposals received and for selecting recipients if the competitive proposals method is used — and perform a cost or price analysis for every purchase over $250,000 to make independent estimates before receiving bids or proposals.

Noncompetitive proposals solicited from a single source are permissible in only limited circumstances. For example, they’re allowed in the event of a public emergency where the nonprofit must respond immediately or, after solicitation of a number of sources, competition is determined inadequate.

Lindquist, von Husen & Joyce provides nonprofit procurement policy assessments as well as education on the audit criteria and requirements that grant recipients must meet. Contact your engagement partner at LvHJ. 

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Increases in OMB Uniform Guidance Procurement Thresholds

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