Four Ways to Justify Sole Source Contracts Under Your Federal Grants

September 12, 2012, Adapted from Federal Funds Management Advisor, Bob Lloyd, Principal

The federal government and state of NC instructs all recipients and subrecipients to engage in competitive procurement of goods and services for items/services over $5,000. They are clear that noncompetitive procurement is to be theexceptionto your normal practice.

An exception, “sole source” contracts — where your organization either did not seek competition or, if it did, received only one offer — can be very important to your compliance posture. As to when to employ that exception, the federal rules differ depending on whether your organization is a governmental entity or a nongovernmental one.

The federal guidance in OMB Circular A-110 tells universities, hospitals and other nonprofit organizations that they must prepare a “justification for lack of competition when competitive bids or offers are not obtained”, often called a “sole source justification” However, the federal circular does not provide guidance as to what the justifications might be, nor how they might be viewed by auditors.

As a result,grant recipients and subrecipients are nervous about sole source transactions. Entities canjustify sole source actions by incorporating some of the same criteria that apply to governments into required written procurement procedures. This manner has long been accepted by the federal agencies.

The OMB A-102 Common Rule states that noncompetitive negotiation may be used “only when the award of a contract is infeasible under small purchase procedures, sealed bids or competitive proposals” and one of the following circumstances applies:

  1. The item is available only from a single source;
  2. The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation;
  3. The awarding agency authorizes noncompetitive proposals (as it might do by approving a grant application narrative which calls for a sole source procurement); or
  4. After solicitation of a number of sources, competition is determined inadequate.

For example, an organization might add a criterion permitting top management to authorize sole source procurement when it’s “in the best interest” of the organization. A problem with this approach is what the auditors call “frequent management override,” where exceptions become the rule and thus risk a disallowance of the contracted funds.

ECU Procedure for Sole Source Contracting

  1. At the time of budget preparation AND prior to proposal submission consult with the OSP Grant Officer to determine if the relationship between ECU and the other party is a vendor/contractor or a subrecipient (subaward).
  2. Upon determination that the 3rd party is a contractor/vendor providing goods/services over $5,000, include a thorough description of the contractor and the scope of work to be performed on the grant project. It is critical to include the contractor by NAME in the budget, narrative and proposal documents. Furthermore, your position is strengthened if you can include a letter of support, price quote or other documentation from the vendor detailing their service and pricing.
  3. Upon award, complete the Sole Source Justification form below in accordance with the Materials Management Instructions found at Sole Source Justification Instructions. Be certain to include the grant’s Banner Fund Number and copies of the grant budget and justification where the contractor is named. Include copies of the sponsor Notice of Award and/or other proposal documents that name the contractor.

06/18/2013 Vers.2