Ah, the grant subrecipient.
There is a lot of confusion around classifying contractors vs. subrecipients regarding federal funding.
And as a grant management professional, you probably know there are a lot more compliance requirements concerning spending grant funds with a subrecipient when compared to a contractor (aka a vendor.)
Here are just a few:
- Funding agency pre-approval requirements
- Additional subrecipient monitoring
- Single Audit Act audit (See what to expect when you are expecting a federal funds audit )
Now it may be easy to tell the difference between a contractor and a subrecipient when you are contemplating buying a box of pencils vs. enlisting a University’s help to complete part of the program research covered in the federal grant.
But what about when things are less clear?
Sometimes you need a little extra clarity…
Six Ways to Distinguish a Contractor vs. Subrecipient Relationship
Here are the top 6 tips for distinguishing between a vendor and subrecipient relationship.
Tip #1: Look at the Federal Award Terms and Conditions
The starting place in determining the type of relationship is understanding the terms and conditions of your federal award.
- If the agreement explicitly states there will not be subrecipients, subgrantees, or subawardees on this award, you should not contemplate using a subrecipient.
Tip #2: Determine What Type of Goods or Services They Provide
When the relationship is to provide goods and services in the normal course of business operations, you are probably working with a contractor (aka a vendor) in a procurement relationship and NOT a subrecipient relationship.
- This determination of the relationship is especially true if the vendor routinely provides similar goods and services to other customers
Tip #3: Decide Who Makes the Decisions for the Program
A grant subrecipient will usually be responsible for some degree of programmatic decision-making under the award.
- For example, a subrecipient may decide who is eligible to receive the benefits of the federal program or determine the best way to perform scientific research.
Seen another way, contractors should NOT make programmatic decisions about the federal award.
Tip #4: Judge if the Purchase is Made in a Competitive Environment
Contractors typically operate in competitive environments providing the type of goods and services purchased by the federal award.
- If multiple companies exist that could (or would) do the work, it is more likely to be a contractor relationship than one of a grant subrecipient
Tip #5: Agree on How Performance is Measured
Federal award recipients have their performance on the grant measured by a pre-defined set of outcomes or performance measurements.
Similarly, a subrecipient’s performance is usually measured by their results in carrying out some portion of the federal program.
- For example, do they have to complete specific program goals or outcomes to receive payment?
In contrast, a contractor is usually paid for completing a service or delivering goods.
Tip #6: Unearth Additional Compliance Requirements
Though many of the provisions in the grant management regulations are common to both contractors and subrecipients, such as ensuring no federal funds flow to suspended or debarred parties and lobbying disclosures, there are additional compliance requirements for subrecipients.
- For example, subrecipients may need annual Single Audit Act audits, or grant subrecipients could be limited to specific activities or spending categories.
Summary: Good Judgment is Still the Universal Best Practice
It is still important to realize that, ultimately, the use of human judgment will be needed to determine which type of relationship best fits the facts and circumstances of achieving results for the federal grant.
And it never hurts to discuss with your program officer before ensuring you have property classified the relationship.
In summary, this often confusing topic requires a reasonable and thoughtful approach to avoid misclassifying contractors vs. grant subrecipients.
