As of this fiscal year, all school districts that purchase goods or services with federal grant funds must comply with new federal regulations that were adopted a few years back. This is an important issue for schools to consider as they enter into contracts this spring to obtain federally funded goods and services.
By way of background, in 2013 the U.S. Office of Management and Budget (“OMB”) published the Uniform Guidelines requiring states and non-federal agencies to follow and adopt procedures and policies for purchasing goods and services with federal grant funds. The Uniform Guidelines became effective in 2014. However, the OMB granted a series of grace periods that delayed implementation of the new rules. The most recent grace period expired in December 2017 and therefore the rules became effective at the expiration of each entity’s fiscal year that occurred after that date.
For most Ohio schools, the new rules took effect July 1, 2018. This means that auditors will begin to audit districts on those procedures this school year. Some districts may have been audited this past year if the district adopted new policies and procedures before the expiration of the last grace period and failed to indicate in writing that they planned to take advantage of the final grace period. It is also important to note that the standards set out in the Uniform Guidance will not apply to contracts that were executed prior to the effective date of the rules.
The Uniform Guidance requires non-federal entities to use one of five specific purchasing methods for all nonpayroll purchases. 2 C.F.R. §200.371-318. The five procurement methods included in the Uniform Guidance are as follows:
- Micro Purchase Method – for purchases with an aggregate dollar amount that does not exceed the Micro Purchase Threshold, which is currently set at $10,000 (note that districts may set a lower threshold in board policy). Under this method, a district must consider costs, but is not required to solicit competitive quotes. To the extent practicable, the district must distribute micro-purchases equitably among qualified suppliers.
- Small Purchase Method – for purchases that do not exceed the Simplified Acquisition Threshold, which is currently set at $250,000 (note that districts may set a lower threshold in board policy). Here, an agency must obtain price quotations from an “adequate number of qualified suppliers.” The entity’s policy should define the number of quotes they believe to be adequate.
- Sealed Bid Method – for purchases that exceed the small purchase threshold where bids are publicly solicited and a firm fixed price contract is awarded to the responsible bidder who confirms all the terms and conditions of the invitation and has the lowest price. School districts will likely not use this method very frequently.
- Competitive Proposals – for purchases that exceed the small purchase threshold with more than one source submitting an offer for a fixed price or cost-reimbursement type contract. This method should be used when the Sealed Bid Method is not appropriate. The district is to evaluate the bidders on cost and other factors it has established in order to select the most qualified candidate.
- Noncompetitive Proposals – for purchases through a non-competitive solicitation under one of the following conditions:
- The item is available only from a single source;
- The public exigency or emergency for the requirement will not permit a delay in purchase;
- The Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-federal agency or;
- After solicitation of a number of sources, competition is determined to be inadequate.
A school district’s compliance with the Uniform Guidance will be subject to audit each year. The state auditor’s office has stressed that it is critical for school districts to maintain documentation to demonstrate that it has complied with the regulations set forth in the Uniform Guidance. This documentation should illustrate why a particular method was selected and how the district went about purchasing in accordance with their policies and guidelines. School districts should also be aware that a decision to use noncompetitive proposals may trigger stricter scrutiny and review than purchases made with other methods.
It is also important to note that there have been many questions about how the new regulations impact service contracts with Educational Service Centers (“ESCs”) in particular. Many services obtained through ESC contracts are paid for at least in part with federal funds. Two separate statues, R.C. §§3313.843 and 3313.845, define what types of contractual relationships that districts may have with ESCs. State law also specifically requires most districts to have a contract and be affiliated with an ESC if they have a student population at or below sixteen thousand. Unfortunately, this statutory structure does not fit neatly into the new Uniform Guidance, and it is unclear at this time whether school districts may use noncompetitive proposals, specifically through sole source, to procure federally funded services through ESCs. The Ohio Department of Education plans to publish additional guidance about how it believes the new procurement regulations apply to ESC contracts. The guidance is expected in the near future. In the meantime, contact legal counsel if you have questions about which method of procurement you should use for these and any other types of federally funded contracts.
What this means for your district
Districts should carefully review board policies and guidelines that pertain to federal procurement with staff who may be responsible for obtaining goods and services with federal grant funds. They should carefully consider how purchasing will be documented in anticipation of an audit. Districts should also review the terms adopted in policies and procedures with their policy providers to make sure that the policies are up to date.
Legal References: 2 C.F.R. Part 200, R.C. 3313.843, R.C. 3313.845