Federal Grants

Distinction and Purpose

Grants and procurement contracts are two of the more common legal instruments used by the United States Government to formally express a legally enforceable act, process, contractual duty, obligation, or right between parties. The Federal Grant and Cooperative Agreement Act[1] of 1977 implemented legislation restricting the term “contract” to acquisition relationships and required the use of alternative instruments, such as grants, to implement assistance relationships. Prior to this act, Federal agencies frequently used procurement contracts and grants interchangeably and without consistency to relationship type.

Federal grants are not governed by the Federal Acquisition Regulation (FAR) the way that procurement contracts are. The principal purpose of a federal procurement contract is to acquire property or services for the direct benefit or use of the United States Government[2], and can be done by purchase, lease, or barter. The purpose of a grant agreement is to transfer a thing of value to a party in order to carry out a public purpose of support or stimulation[3]. Federal grants are governed by regulations in Title 2 of the Code of Federal Regulations (CFR) part 215. Because the purpose of federal procurement contracts and grants differ, the instruments also have different requirements and consequences.

Authority

Federal agencies have an inherent, constitutional authority to issue procurement contracts[4]. Assistance awards, however, cannot be executed without identifying appropriate statutory authority for a particular program. Statutes, or laws passed by Congress, authorize Federal agencies to use an assistance instrument. Congress gives statutory authority to Federal agencies through broad legislation or program-specific statutes. By passing these laws, Congress is also authorizing the award of financial assistance with contingencies on how the funds can be spent. Absent statutory authority, assistance instruments may not be used. Assistance affecting provisions are found in appropriations law, authorization laws, and crosscutting public policy statutes. Provisions of the Office of Management and Budget (OMB) Circulars are applicable to all Federal agencies. OMB established Title 2 of the CFR for grants and other financial assistance and non-procurement agreements as part of the efforts to implement the Federal Financial Assistance Management Improvement Act of 1999[5]. The legal availability of assistance funds is contingent upon funds being obligated and expended for their appropriated purpose and no other[6], expenses being properly incurred during the period of availability[7], and funding amount not exceeding funds appropriated[8].  

Synopsis

            Congress annually appropriates funding for grant programs which are listed in the Catalog of Domestic Federal Assistance and the Federal Registrar. In accordance with the Federal Funding Accountability and Transparency Act of 2006, each grant announcement is required to include sponsoring government department, program title, total budget, application deadline, administrative contact and program summary.

Competition Requirements

The use of competition in awarding grants is encouraged[9] and grant officers shall use merit-based, competitive procedures to the maximum extent practicable. Assistance-specific competition requirements are found in 10 U.S.C. 2361. Procurement contracts, must strictly adhere to the Competition in Contracting Act (CICA). CICA is not applicable to assistance awards.

Assistance programs have various means of limiting eligible recipients such as setting funding aside for state and local Governments[10], requiring cost sharing from all proposers[11], or limiting the geographical area recipients can be located.  Procurement contracts governed by the FAR have few options in regards to source selection. FAR Part 19 requires small business set-asides to the maximum extent practicable.

Responsibility Determination

            The responsibility determination requirements for grants and procurement contracts are similar. For a grant recipient to be determined qualified to receive an award in accordance with Title 32 of the CFR[12], they must have sufficient technical resources, management systems, and financial resources. Recipients must also have satisfactory record of both executing similar programs and integrity or business ethics and be otherwise qualified and eligible. For a prospective contractor of a procurement contract to be determined responsible in accordance with FAR 9.104, they must have adequate financial resources, be able to comply with required or proposed delivery or performance schedule and have a satisfactory performance record and record of integrity and business ethics. Additionally, the must have the necessary technical skills and be otherwise qualified and eligible.  Both types of award instruments are also required to check the list of excluded parties prior to award in accordance with Executive Order 12869-Reciprocity of Procurement and Non-Procurement Systems in Debarment and Suspension.

Award Announcement

            The Federal Funding Accountability and Transparency Act of 2006[13] required the establishment of one single searchable website, accessible to the public, that includes information on all of the Federal financial assistance and procurement awards. Any financial assistance obligation action exceeding $25,000 must be made available on the website within 30 days. FAR 5.301 requires the same of any procurement agreements at the same threshold.

Cost Principles

Grant agreements are subject to the requirements as established by the OMB Circular A-102 – Grants and Cooperative Agreements with State and Local Governments and OMB Circular A-110 – Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education and Other Non-Profit Organizations. Both grant agreements and procurement contracts are subject to the requirements as established by OMB Circular A-21 – Cost Principles for Educational Institutions, OMB Circular A-87 – Cost Principles for State, Local and Indian Tribe Governments, and OMB Circular A-122 – Cost Principles for Non-Profit Organizations.  

Contract Closeout
            The Federal Acquisition Regulation (FAR) at 4.804-5 provides detailed procedures for the closeout process
OMB Circular A-110, Subpart D, titled After-the-Award Requirements, contains closeout guidance and other procedures for subsequent disallowances and adjustments.

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[1] P.L. 95-224, now codified as 31 U.S.C. chapter 63

[2] 31 U.S.C. 6303

[3] 31 U.S.C. 6304

[4] Reference Article 1, Section 8 of the US Constitution

[5] Public Law 106-107

[6] 31 U.S.C. 1301(a)

[7] 31 U.S.C. 1502(a)

[8] Public Law 97-258

[9] 31 U.S.C. 6301(3)

[10] 10 U.S.C. 2391

[11] 10 U.S.C. 2511

[12] Reference CFR Title 32 Subtitle A Chapter 1 Subchapter C Part 22-DoD Grants and Agreements-Award and Administration

[13] Public Law 109-282