Q&A: Procurement & New Super Circular

The procurement rules governing purchases made with grant funds changed when the federal Office of Management and Budget (OMB) issued new Uniform Guidance on grant administration (the Super Circular) in late December 2014. The good news is that the one-year grace period the feds gave nonprofit organizations to comply with the new requirements has just been extended to two years.

Under the Super Circular, purchasing procedures must become more structured and purchases of more than $3,000 will have to be accompanied by varying levels of documentation as the dollar value of purchases increases. To help your organization comply with the requirements, The Grantsmanship Center asked Henry Flood, our senior advisor for grant administration, to address a few procurement issues that are raising concern.

Center: When compared to the old A-110 rules, how drastic are the changes in the Super Circular?

Flood: I wouldn’t characterize the changes as radical. The philosophies and broad policies articulated in the new guidance are similar to the old rules. But the new rules policies are more prescriptive. The standards of competition, the types of procurements authorized, and the documentation requirements are more specific.

Center: How can nonprofits best prepare for the new procurement requirements?

Flood: It is essential that you carefully examine your organization’s existing policies and procedures, compare them to the new requirements, and make changes as needed to ensure compliance. The precise citation for the new rules is 2 CFR 200.317 to 326. The new rules will have varying impacts on how nonprofit managers handle small and large purchases in the future.

Center: You said the impacts will vary. Please elaborate.

Flood: The impact will vary depending on the size of the organization, its experience handling procurement with federal funds, skill of the staff, and efficiency of procurement operations. I envision three situations.

First, managers at small nonprofits with limited funding streams and little or no experience with federal funding might need training and capacity-building assistance to handle substantial new procurement actions that could accompany a sudden influx of federal funding. These nonprofits would need to significantly revise old procurement policies and procedures, or write new ones to conform to the Super Circular. They’ll probably also have to make changes in other areas of operation, as well, to conform to the new regulations.

Second, there are the medium and large nonprofits. These generally have fully functioning procurement systems and staff with considerable experience handling a range of purchases with federal funding. Leaders will need to adjust policies to ensure that micro, small, and large purchases are properly classified and documented to avoid practical and audit compliance issues.

Third, it will be interesting to see how the audit community will handle the procurement changes in audits starting in 2017. It seems to me that no one is talking about the auditors, but they have a huge footprint on the grant reform initiative. This is a story in itself. Will auditors be prepared?

Center: Let’s talk about purchases that are under the small purchase threshold, now set at $150,000. We’ve heard some concern about the burden of documentation and the defense of decisions for purchases of between $3,000 and $150,000.

Flood: Approach this situation carefully and strategically. First, consider what a small purchase really is from a policy point of view. Purchases less than the simplified acquisition threshold ($3,000 to $150,000) are described as “simple and informal” by 2 CFR 200.320 (b). As such, these purchases require a lower threshold of competition, require fewer terms and conditions, can be solicited informally, and do not require a cost and price analysis.

Second, it matters greatly how you classify and describe the range of purchases that are possible below the simple acquisition threshold. The key to begin addressing classification and description is to have a uniform small purchase face sheet form that acts simultaneously as your solicitation, acceptance, and small purchase record of procurement. Federal, state, county, and municipal governments have done this for years with great success. The vast majority of all purchases (80 percent or more) are small purchases and the uniform small purchase face sheet is a highly efficient and effective tool. I’ve developed one of these forms for nonprofits that we are currently providing to participants in our Grant Management Essentials training, and that will soon be available as one of the attachments to a full publication called Procurement with Grant Funds. That new publication will be available through the Center’s website (tgci.com).

Third, as small purchases increase in value, managers need to consider a series of graduated competition requirements, approvals, and policy requirements. This will help avoid complaints, abuse, arbitrary decisions, and audit or compliance problems. It can all be accomplished without being overly burdensome if people are properly trained and the correct graduated policies and procedures are in place.

Finally, there is another important issue. What does an organization do if its own small procurement threshold is substantially less than the $150,000 threshold? You cannot have one threshold for purchases made with non-federal funds and another for purchases made with federal grant funds. The federal rule has always required that the more restrictive threshold prevail for defining a small purchase and capitalized assets.

In this situation, nonprofit managers should adopt the simplified acquisition threshold as official policy but institute a series of graduated authorities and documentation as the dollar value of the small purchase rises. This prevents abuse and ensures accountable and reasonable decision-making. And it also allows your organization to benefit from what the simplified acquisition threshold has to offer.

Center: What about larger nonprofits from where hundreds of thousands of dollars have been invested in high-end procurement systems and now face having to tweak those systems to comply with the new rules?

Flood: Again, I go to fundamental advice. The uniform face sheet documenting the procurement action is very important. But some organizations with systems built on customized programming could face technical hurdles that could be costly. During this compliance grace period, organizations that are heavily invested in customized electronic systems should compare the time and costs of tweaking those systems against the time and costs of going to more modern software or web-based procurement systems that are flexible enough to meet future needs.

— Henry Flood, Senior Advisor for Grant Administration