Overview of Requirements
Clarifying Definitions
Narrative
Audit Requirements
Related Links
Related DABs

Overview of Requirements

Head Start grantee agencies are required to establish their own written procedures based on Federal standards for purchasing services, supplies and other expendable property, equipment, and real property. The standards for procurement are found in regulations 45 CFR 74.40 - 74.48 for institutions of higher education, hospitals, and other non-profit organizations, and commercial organizations; and in 45 CFR 92.36 for local government organizations.

The Federal standards were established to ensure that grantee agencies obtain materials and services paid for with Federal funds in an effective manner and in compliance with Federal laws. Grantee agencies are directed to use Federal funds to purchase items and services in the most economical way, and to buy only what they need.

Within the parameters of the Federal standards, grantee agencies are allowed to design their own systems for procurement and use whatever forms and workflow processes best suit the organizational structure. Such systems may be more stringent than the Federal requirements, but not less. Local government grantee agencies also must comply with applicable State and local laws and regulations.

Purchases of equipment, purchase/construction/renovation of facilities, etc., must still comply with all applicable Federal requirements, including prior approval from ACF as the Head Start funding source, before being purchased. Any record keeping requirements associated with such purchases should reflect the definitions of the funding agency. For example, if your agency definition of equipment uses a benchmark of $1,000 or more, your agency does not have to request Federal prior approval or maintain an equipment inventory for Federal purposes of items purchased for under $5,000.

Clarifying Definitions

Contract, when used in this section, refers to procurement contracts under the Head Start grant award (or delegate agency agreement) to purchase services, supplies and other expendable property, equipment, and real property using Head Start grant funds.

Equipment means an item of personal property, which costs $5,000 or more per unit, and which has a useful life of more than one year. A grantee agency may choose to establish a lower limit than $5,000 as its definition of equipment so long as it is applied consistently.

Personal property, in this section, is used to refer to property of any kind except real property. For Head Start grantees, personal property would include equipment, supplies, computers, computer software, copiers, kitchen appliances, fax machines, telephone systems, classroom desks and tables, playground equipment, etc.

Prior approval means the written approval by an authorized ACF official evidencing prior consent.

Property, when used alone, refers to both real property and personal property.

Real property means building structures and land. For Head Start grantees, this can include classroom facility buildings, administrative buildings, storage buildings, the land for the building or parking lots, playgrounds, etc.

Supplies means all personal property, excluding equipment and intangible property.

Narrative

Procurement standards

The Federal regulations, in 45 CFR 74.40 - .48 and 45 CFR 92.36, set standards for use by grantee agencies in establishing their own procedures for purchasing services, supplies and other expendable property, equipment, and real property with Federal funds. These standards were established to ensure that grantee agencies obtain materials and services with Federal funds in an effective manner and in compliance with Federal laws. The procurement standards include information for grantees on such subjects as competition, analysis of cost/price, contractual disputes, codes of conduct, procurement records, and written procedures.

A. Competition

Based on the Federal standard established in 45 CFR 74.43, all procurement transactions, regardless of amount, must be conducted in a manner that provides, to the maximum extent practical, open and free competition. This means that, even if it seems like a "good deal," grantee agencies cannot make the purchase until other vendors also are given consideration.

Also, to eliminate unfair advantage, contractors who develop or draft grantee applications or contract specifications or requirements (or statements of work, invitations for bids or requests for proposals) must be excluded from the competition for that procurement.

Soliciting competitive bid prices from vendors might be done in different ways. For example, a grantee agency could get vendor prices by advertising in newspapers, sending letters to prospective vendors, telephoning prospective vendors, or even by comparing prices in office supply catalogs.

Solicitations for bids should clearly state all the requirements the vendor must fulfill in order for the bid or offer to be evaluated by the grantee agency.

The procurement should be given to the vendor whose bid or offer is responsive to the solicitation, and is the most advantageous to the grantee agency (considering price, quality, and other applicable factors). Any and all bids or offers may be rejected when it is in the grantee agency’s interest to do so. This means that Head Start grantees do not have to accept the lowest bid received because other factors, such as quality of the product or service record of the vendor, also may be considered by the grantee in making the decision.

Based on the Federal standard found in 45 CFR 74.44 grantee agencies must, whenever possible, make positive efforts to use small businesses, minority-owned firms, and women's business enterprises, and should take all of the following steps to further this goal:

• Ensure that small businesses, minority-owned firms and women’s business enterprises are used to the fullest extent practical.
• Make information on forthcoming opportunities available and arrange time frames for purchases and contracts to encourage and facilitate participation by small businesses, minority-owned firms and women’s business enterprises.
• Consider in the contract process whether firms competing for larger contracts intend to subcontract with small businesses, minority-owned firms, and women’s business enterprises.
• Encourage contracting with consortiums of small businesses, minority-owned firms, and women’s business enterprises when a contract is too large for one of these firms to handle individually.
• Use the services and assistance, as appropriate, of such organizations as the Small Business Administration and the Department of Commerce’s Minority Business Development Agency in the solicitation and utilization of small businesses, minority-owned firms, and women’s business enterprises.
  

B. Cost/price analysis

The Federal procurement standard in 45 CFR 74.45 requires that some form of cost or price analysis must be made, and documented in the procurement files, in connection with every procurement action using Federal grant funds. This means that Head Start grantee agencies are required to analyze costs to determine if the amount seems reasonable.

Price analysis involves a comparison of marketplace prices. There are various ways to conduct a price analysis. These include comparing offered prices with those listed in commercial catalogs, or with those recently submitted for similar services. It can be done, for example, by comparing the price quotes submitted by vendors, or by telephoning other vendors to obtain their market price, or simply by comparing published market prices (such as from a classroom supply catalog, for example). Often grantee agencies have already done their price analysis without even realizing it, for example, by comparing catalog prices prior to making a purchase.

Cost analysis involves an examination of all the elements used in calculating a contract's total estimated cost. For example, when fixed-price contracts are based on cost estimates, grantee agencies should perform a cost analysis to determine the reasonableness of the prices. Cost analysis is the review and evaluation of each element of cost to determine whether it is reasonable, allocable to that grant program, and an allowable cost for that grant program. Every cost element listed in the vendor's offer must be examined. Through a cost analysis, determinations are made on which costs are reasonable, allowable under the grant regulations and grantee agency rules, and properly allocated to the work to be performed under the proposed contract. A cost analysis also is required when contract modifications introduce new conditions that were not examined under the previous analysis, or where more current information is needed.

C. Contractual disputes

The grantee agency, and not the Federal awarding agency, is the responsible authority regarding the settlement and satisfaction of all contractual and administrative issues arising out of procurements entered into in support of an award or other agreement. This includes disputes, claims, protests of award, source evaluation or other matters of a contractual nature. For example, if a vendor claims not to have been given fair treatment in the bid process or that another vendor unfairly won the bid, then the grantee agency must resolve the dispute using their own documentation of the procedures used. It cannot call upon ACF to resolve it. Also, if the grantee agency is dissatisfied with the services or product received from a contractor, the grantee agency must resolve the dispute, and cannot call upon ACF to resolve it.

Grantee agencies must maintain a system for contract administration, including vendor contracts, construction contracts, leases, and program or administrative service contracts. The system should include procedures regarding settlement and satisfaction of all contractual disputes. (Matters concerning violation of statute should be referred to whichever Federal, state or local authority has jurisdiction.)

D. Codes of Conduct

Grantee agencies must maintain written standards of conduct governing the performance of employees who are involved in he award or administration of procurement contracts, including vendor contracts, lease contracts, construction contracts, and program services and administrative services contracts. Generally this includes, at a minimum, the procurement officer (or whoever in the agency does the purchasing or leasing), contract administration officer, and all grantee agency officials who can sign or authorize procurement contracts (such as the executive director or program manager).

The written code of conduct must state that no grantee agency employee, officer, or agent shall participate in the selection, award, or administration of a procurement contract supported by Federal funds if a real or apparent conflict of interest would be involved. Based on the regulations, such conflict would arise when the employee, officer, or agent, or any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated, has a financial or other interest in the firm selected for an award.

The grantee agency’s written code of conduct also must state that officers, employees, and agents of the grantee agency shall neither solicit nor accept gratuities, favors, or anything of monetary value from contractors, or parties to subagreements. However, grantee agencies may set standards for situations in which the financial interest is not substantial or the gift is an unsolicited item of nominal value.

The Head Start program regulations, in 45 CFR 1304.52(h)(2), require that all employees engaged in the award and administration of contracts or other financial awards must sign written statements that they will not solicit or accept personal gratuities, favors, or anything of significant monetary value from contractors or potential contractors.

The code of conduct must provide for appropriate penalties (meaning disciplinary actions) to be applied for violations of such standards by officers, employees, or agents of the grantee agency. Such disciplinary actions generally range from suspension without pay to termination of employment or removal from office, depending on the position of the offender and the nature of the offense.

E. Procurement Records

As stated above under Section B, the Federal standard found in 45 CFR 74.45 states that price or cost analysis is required and must be documented in the procurement files for every procurement transaction. For price analysis, this would mean keeping copies of all the documentation of the prices and vendors that were compared, identifying which vendor was chosen, and stating why that vendor was chosen. For cost analysis, it would mean keeping written documentation of the determination of whether a cost was reasonable, allocable to that grant, and allowable for that grant.

In addition, the procurement records for purchases in excess of the simplified acquisition threshold (41 U.S.C. 403(11))—currently set at $100,000—must include the following at a minimum:

• Basis for contractor selection.
• Justification for lack of competition when competitive bids or offers are not obtained.
• Basis for award cost or price.

Grantee agencies are required to make available to ACF, on request, all procurement documents, such as requests for proposals or invitations for bids, and independent cost estimates when any of the following apply:

• The grantee agency’s procurement procedures or operations fail to comply with the Federal procurement standards.
• The procurement is expected to exceed the simplified acquisition threshold (currently $100,000), and is to be awarded to the vendor without competition, or only one bid or offer is received in response to a solicitation.
• The procurement, which is expected to exceed the simplified acquisition threshold, specifies a “brand name” product.
• The proposed award over the simplified acquisition threshold is to be awarded to other than the apparent low bidder under a sealed bid procurement.
• A proposed contract modification changes the scope of a contract or increases the contract amount by more than the amount of the simplified acquisition threshold.

F. Written Procedures

All grantee agencies must establish and follow written procurement procedures for making purchases with Federal funds (45 CFR 74.44 and 92.36).

The written procurement procedures must provide, at a minimum, that the grantee agency will:

• Take steps to make economical purchases and avoid purchasing unnecessary or duplicative items. (This means that the grantee agency must have some sort of mechanism for determining the items they already have.)
• Analyze, prior to leasing or purchasing, whether leasing or purchasing an item is the most economical and practical alternative in the long run, for both the grantee agency and for the Federal government. (Leasing should be used in lieu of purchasing when it is the more economical and practical alternative. This requirement essentially directs grantee agencies to buy only what they need and purchase items in the most economical way.)
• Provide solicitation advertisements for goods and services that contain all of the following:
  
  1. A clear and accurate description of the technical requirements for the material, product, or service to be procured—without including features which unduly restrict competition.
  2. Requirements which the bidder or offeror must fulfill and all other factors that will be used in evaluating the bids or proposals.
  3. A description, whenever practical, of technical requirements in terms of the functions to be performed or performance required, including the range of acceptable characteristics or minimum acceptable standards.
  4. The specific features of “brand name or equal” descriptions the bidders are required to meet when such terms are included in the solicitation.
  5. The acceptance, to the extent practical and economically feasible, of products or services with dimensions measured in the metric system.
  6. Preference, to the extent practical and economically feasible, for products and services that conserve natural resources and protect the environment and are energy efficient.

Audit Requirements

Under the Single Audit Act, and OMB Circular A-133, auditors are required to assess internal control and compliance. In the area of procurement, this would include assessing the grantee agency’s written procurement procedures (including the approvals required, competition process, documentation records required, etc.), and may include reviewing a sample of actual purchases made during the audit year. However, since not all auditors perform their reviews in exactly the same way, the grantee agency may want to stipulate in the audit contract that the audit is to include assessment of the procurement process and controls.

Some of the types of audit findings in this area are:

• Not having required written procurement procedures (or having procedures that have not been updated to reflect the process actually in use).
• Not following grantee agency written procurement procedures.
• Not maintaining required supporting documentation in the procurement records.
• Not obtaining required approvals prior to purchase.
• Not determining whether a cost was allowable prior to purchase (which generally also results in a disallowance).
• Not providing open and free competition.

 

Related Links

45 CFR 74.40 - .48	Procurement Standards
45 CFR 92.36	Procurement
OMB Circular A-133	Audits of States, Local Governments, and Non-profit Organizations

Related DABs

DAB Decision 1625	Disallowances of funds expended on real property
DAB Decision 1759	Disallowance of funds expended on office equipment