One of the (many) things I found very confusing when I started working in the world of federal grant management was the way the terms subrecipient, subawardee, contractor, subcontractor, and vendor were bandied about-seemingly interchangeably.
It didn’t’ matter if I was talking with my colleagues or the federal agency personnel, there always seemed to be lots of confusion around these terms.
Expectations for non-federal entities in sorting roles and responsibilities into relationship categories:
I knew making the distinction was important because there were very different grant compliance and monitoring requirements depending on which group the relationships were classified with.
And grant recipients had to choose wisely because misclassification could be an expensive mistake resulting in cost disallowance.
So let’s take a quick review and shed some light on the on this confusing topic:
How does the Uniform Grant Guidance (UG) make the distinctions between contractors and subrecipient relationships?
Category #1: Subawardees and Subrecipients
“Subawardees” and “subrecipients” describe the same thing in the world of grants.
Both terms talk about organizations, that (similar to a recipient) are receiving federal assistance in the form of either money or property in lieu of money.
Either the original grantee or an eligible subrecipient makes this award to a subordinate recipient.
The key distinction between subrecipient vs. subcontractors is that the term “subrecipient” does not include vendors of goods and services.
For example, if a university purchases services for maintaining a copier, the maintenance company would not be a subrecipient because those services fall under federal procurement laws.
If the university, however, gives money to another local organization to educate local businesses on ways to reduce pollution, then the partner organization would likely be a subrecipient and fall under the federal grant regulations for subrecipients.
Category #2: Contractors, Subcontractors, and Vendors
The term “contract” can be also tricky because this term can be used both in the “award” world and the “procurement” world.
(Same with contractor, subcontractor, and vendor!)
What’s key for grant management is figuring out which set of regulations you need to apply to the relationship.
Think of it this way: a procurement contract is generally for the purchase of goods and services, such as a box of pens, or servicing the office copier.
An award, which may occasionally be called a “contract,” must be used for a public purpose, such as researching the effects of pollution or reducing the number of DUI drivers on the road.
Contractors typically are in the business of providing goods and services to others.
Contractors offer they goods and services to a variety of customers and generally compete for the grant recipient’s business.
Finally, the goods and services they offer to the grant recipient supplement the program work as opposed to being integral to the program objectives.
How to avoid the common risks associated with a grant relationships
If you are looking to reduce the risk of misclassification of a grant relationship, the determining factor has to do with the level of involvement the organization has in achieving the program objectives.
How Do You Tell? 5 Tips to Spot a Subrecipient
Here are 5 things to look for in a subrecipient relationship:
1) Are they eligible to receive Federal Financial Assistance-i.e. not an individual?
2) Is their performance measured against program objectives?
3) Do they have responsibility for programmatic decision making?
4) Are they required to comply with the applicable Federal program requirements for subawardees?
5) Do they use federal funds to carry out a program vs. providing goods or services?
What are the expectations for non-federal entities in sorting roles and responsibilities into relationship categories?
Ultimately, the buck stops with the grant recipient for the proper classification of both subcontractors and subrecipients. But there is a simple option that often gets overlooked…
When in doubt, ask your funder!
It is better to seek clarification from your funder than to beg forgiveness when you have questioned costs, or worse!
Services to Support Grants are Tricky
When materials and supplies are purchased, it’s pretty straightforward.
It gets messier with services.
For example, an organization doing research services or software development could be either a subcontractor or a subrecipient depending on the objectives of the sponsored agreement or federal program.
No wonder we get confused!
Get on the same page from the start with the requirements and you can avoid unpleasant situations in the future.
How to distinguish between different types of agreement legal instruments based on project roles and responsibilities
The Facts Matter
The facts and circumstances around what the subrecipient or subcontractors are doing for the federal award will matter more than the “name” you call them.
Some organizations think that by calling everyone a “subcontractor” and having a “contract” instead of a “subaward agreement” they get out of the subrecipient monitoring requirements.
But here’s the problem with that strategy…
Subawards required the prior approval of the funding agency.
Where procurement contracts with subcontractors typically do not have that same level of approval.
In other words, if you classify a subaward as a contract incorrectly, you would probably not have the required prior approval of your funder.
And that would be an expensive lesson to learn.
Not a good strategy!
Substance over Form
Agencies can still hold the organization responsible based on the actual function of the work spelled out in the agreement-regardless of what title you put on the agreement.
The federal grant regulations specifically say that the term “subaward” “includes financial assistance when provided by any legal agreement, even if the agreement is called a contract, but does not include procurement of goods and services…”
The OMB’s Audit guidelines contained in 2 CFR Part 200 aka the Uniform Guidance in CFR § 200.330SUBRECIPIENT AND CONTRACTOR DETERMINATIONS state “the substance of the relationship is more important than the form of the agreement.”
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Lucy Morgan CPA, MBA
CEO, Compliance Warrior