Ah, the grant subrecipient.
There is lots of confusion around classifying contractors vs. subrecipients when it comes to 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 an understanding of the terms and conditions of your federal award.
- If the agreement explicitly states there are will not be subrecipients, subgrantees, or subawardees on this award, you should not be contemplating 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 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 the 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 in order to receive payment?
In contrast, a contractor is usually paid for the completion of a service or delivery of 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 to have an annual Single Audit Act audits, or grant subrecipients could be limited to specific activities or categories of spending.
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 have this discussion with your program officer prior to ensure you have property classified the relationship.
In summary, this often confusing topic requires a reasonable and thoughtful approach to avoid misclassification of contractors vs. grant subrecipients.
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Lucy Morgan CPA, MBA
CEO, Compliance Warrior
Author of “Decoding Grant Management-The Ultimate Success Guide to the Federal Grant Regulations in 2 CFR Part 200” The 2nd Edition is now available on Amazon in Paperback and Kindle versions.