2 CFR 200.331, Subrecipient and contractor determinations, requires that an organization performing a grant or cooperative agreement document a case-by-case determination as to whether each sub-agreement it makes classifies the lower-tier organization in the role of a subrecipient or a contractor. The guidance provided to assist with this required determination is extremely subjective.
In the best laymen’s terms we can muster, a subrecipient is another organization that plays an integral role in the actual Federal program being worked. On the other hand, a contractor is simply providing goods or services that are ancillary to the Federal program.
2 CFR 200.331(c), Use of judgment in making determination, provides that the substance of the relationship is more important than the form of the agreement (i.e., whether you call the agreement a contract or not), and your judgment in classifying each agreement is the key.
Why Would a Lower-Tier Organization Care if it is a Subrecipient or a Contractor?
Plain and simple – Profit. Even a Not-For-Profit Organization likes to get a little extra on all its agreements. It allows them to cover costs that may not be allowable under 2 CFR 200 Cost Principles and cover other operating expenses. 2 CFR 200.400(g) provides that a 2 CFR 200.324(b) allows a contractor a reasonable profit.
What is the Risk?
2 CFR 200.339(b) allows for the disallowance of all or part of your cost that is not in compliance with any of the requirements set forth in 2 CFR 200.
2 CFR 200.331 sets a clear requirement that a “documented” determination must be made by you, the pass-through entity (i.e., the higher-tier organization) awarded the grant or cooperative agreement.
Without a documented determination, an auditor is very likely to find you in non-compliance and disallow all or part of the cost associated with the lower-tier organizations. For example, if a lower-tier organization should have been a subrecipient instead of a contractor, the profit would be unallowable.
How Can Redstone Help?
Redstone can assistance to organizations with grants and cooperative agreements to ensure compliance with 2 CFR 200.331-333, Subrecipient Monitoring and Management:
- Assist in drafting or reviewing policies and procedures.
- Provide templates for documenting contractor/subrecipient determination.
- Provide a checklist to help assess the risk of subrecipients and document monitoring.
- Provide monthly accounting support or assist in setting up accounting structure.
Redstone GCI is available to assist contractors in developing accounting policies and procedures, checklists, accounting support, and reviews of invoices, Government reports for compliance with 2 CFR 200. Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying the 2 CFR 200 Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Grants.
John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant