Time is up for many nonprofits! The two-year deferral period for implementation of the procurement standards under Uniform Guidance (UG), Title 2, CFR 200 for non-Federal entities was officially over as of January 1, 2017. Effective immediately, federally funded organizations with a calendar year end of December 31 must implement appropriate policies and procedures to be in compliance. As your organization begins to review current policies and procedures and consider revisions, your leadership should not underestimate the significance of the new procurement standards, not to mention the staff time and resources required to ensure compliance. What does procurement look like under the new standards? What can you do to make sure your organization is compliant without causing an unnecessary burden for those involved in your procurement process?

Procurement Under the New Standards

Under the new Uniform Guidance standards, an organization must follow the five methods of procurement. Additional explanation can be found in Section 200.320, Methods of procurement to be followed.

Micro purchases. These include purchases of supplies or services totaling less than $3,500.

Small Purchases. These are purchases up to the Simplified Acquisition Threshold of less than $150,000.

Sealed Bids. Bids are publicly-solicited and include a firm fixed price contract.

Competitive Proposals.  Proposals are requested from multiple sources and the contract type for the selected contractor can be fixed price or cost reimbursement.

Non-Competitive Proposals. This method should only be used when the service or item is available from only one source.

Where to Start

While your organization can be faced with implementing significant modifications to current policies and procedures as well as additional workload for current staff, addressing these ten areas will put your organization on the path to compliance and prepare you for a clean audit.

  1. First, read the section of Uniform Guidance that addresses procurement standards, Section 200.317-200.326. While the language may not be easily digestible and require the help of an expert on Uniform Guidance, the first step should be to identify those areas requiring clarification as well as specific areas of concern when considering your current procurement policies.
  2. Understand the difference between contract procurement vs. sub-recipient monitoring and management. Organizations often confuse this distinction because the same entity can be the recipient of an award, a sub-recipient (carrying out a portion of an award), and a contractor at the same time. Those in your organization who handle contracts and procurement should evaluate this on a case-by-case determination to determine which category applies. Section 200.330 provides further clarification.
  3. Your procurement policies and procedures must be in writing. You may be a smaller organization, and perhaps to this point you have operated with a verbal understanding among your staff. The new procurement standards under Uniform Guidance require clearly documented policies and procedures, a best practice for organizations notwithstanding the new requirements.
  4. Your standards of conduct regarding conflicts of interest must also be documented. Your organization’s procurement policies should establish and document important decisions regarding such factors as the limits for an item of substantial financial value and the disciplinary actions to be taken if a conflict is uncovered.
  5. Take appropriate steps to ensure your organization enters into a procurement transaction utilizing responsible contractors. You must provide oversight to ensure compliance and remember to follow the Suspension and Debarment rules under Section 200.212.
  6. Avoid acquisition of unnecessary or duplicative purchases when possible. Use excess or surplus property when available or feasible to reduce overall costs.
  7. Focus on efficiency through shared goods and services via inter-entity agreements. The guidance encourages inter-entity agreements that involve partnerships with state and local governments (and possibly other organizations) to leverage some of the same resources and avoid duplication.
  8. Include provisions for value engineering in your contract. If your organization manages construction projects, include value-engineering clauses in your contracts to encourage cost reductions where possible.
  9. Maintain records to detail the history of your procurement activities. . Providing a standardized form (and mandating its use) is a great approach to ensure your staff’s compliance.
  10. Training on an ongoing basis will ensure all staff is implementing the new policies and procedures. Once is not enough. Training on your policies and procedures should be part of your organization’s culture.

As with the other provisions of Uniform Guidance, perform some internal analysis before modifying your policies and procedures to ensure that procurement will not become an added burden for your organization. An auditor with both experience assisting tax-exempt organizations and detailed knowledge of Uniform Guidance can help you understand the new procurement standards and determine the best way for your organization to respond. For questions about procurement under Uniform Guidance, contact Terri McKnight, CPA, Partner, Gelman, Rosenberg & Freedman at 301-951-9090.

Terri M. McKnight, CPA

Nonprofit Audit Partner and Director of Audit