State and local governments are the prime recipients for a tidal wave of federal grants via the CARES Act, ARPA and the Infrastructure Investment and Jobs Act. This unprecedented volume of federal dollars represents a once-in-a-generation opportunity to invest wisely for a better future. It can also overwhelm a state or local government’s existing management capacity.

To help ensure these grants are used effectively, many governments are making subawards to subrecipients. For example, instead of handling distribution directly, a health department can allocate funds to nonprofit providers, which then distribute to eligible individuals.

It’s an effective strategy for increasing management capacity and broadening the reach and impact of these grants. But it also introduces challenges around managing grant subrecipients and subawards.

How can state and local governments increase their odds of success when adopting this strategy? We have identified three leading practices states can follow. In this post, I’d like to highlight the first two.

Leading practice #1: Contractor or subrecipient?

The first step is to determine if the entity to whom you’re conveying the money is legally a contractor or a subrecipient. 

You can do this on a case-by-case basis using the following four-part test:

  • Will the proposed entity make eligibility decisions?
  • Will the proposed entity have its performance measured in relation to the objectives of the federal grant?
  • Will the proposed entity make programmatic decisions?
  • Will the proposed entity use the funds to carry out the purpose of the grant?

Not all decisions are clear-cut. As a prime recipient, you will have to exercise judgment.

Here’s another way to think about the distinction. A contractor provides goods and services within normal business operations. A contractor also provides similar goods and services to many different purchasers. Contractors normally operate in a competitive environment and are not subject to federal compliance requirements.

But the terms and conditions of compliance for a prime recipient will flow down to a subrecipient. Each subrecipient must comply with specific federal requirements (e.g., 31 CFR 35 for ARPA) as well as Uniform Guidance for all federal grant programs in 2 CFR, Part 200.

Leading practice #2: Assess risk

The second step is to conduct a risk assessment of entities that you have determined are subrecipients. While conducting the assessment, consider the following:

  • What experience does the subrecipient have with the same or similar subawards?
  • Has the subrecipient complied with any audits? If so, what were the results?
  • Does the subrecipient have new personnel, or has it made substantial changes to its systems?
  • Does the subrecipient also receive federal awards directly from a federal agency?
  • What is the quality of the subrecipient’s internal control plan?

These five questions are just a starting point. You can use your judgment to build on these (e.g., “What is the subrecipient’s experience in the type of programs administered?”).

Many governments create a scoring rubric to determine the degree of risk. For instance, they may decide to give more weight to experience and audit findings than to other elements. This risk assessment is critical. The results will, and should, drive the nature of the subrecipient monitoring approach — the topic of our next post.

In the meantime, if you’d like to know more about federal grants and how they are awarded, let’s connect via LinkedIn.

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This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors. This document refers to marks owned by third parties. All such third-party marks are the property of their respective owners. No sponsorship, endorsement or approval of this content by the owners of such marks is intended, expressed or implied.

Bill Kilmartin

Former Comptroller – Commonwealth of Massachusetts

Ryan Oakes

Global H&PS Industry Practices Chair

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