Budgeting for Subrecipients and Vendors

Accurate classification of subrecipients and vendors is critical to a program's success and integrity. OMB require subrecipients (other than for-profit subrecipients) that meet established expenditure thresholds to obtain a Single Audit. A Single Audit includes a financial audit as well as compliance testing. While for-profit subrecipients are exempt from Single Audit requirements, they are not exempt from compliance requirements, or from other audit or monitoring requirements that a program statute or the resulting agreement require in order to verify the for profit-subrecipient's compliance with applicable program requirements.

Vendors, on the other hand, are generally not subject to the same level of scrutiny or requirements. The higher level of scrutiny given to subrecipients reflects the significance of their role to carry out a program, as opposed to vendors that support the program but generally do not make decisions or take actions that impact a program's overall success or failure. Therefore, program compliance requirements are generally not passed through to vendors; however, if a vendor transaction is structured so as to make the vendor responsible for program compliance, the vendor's records must be reviewed to verify compliance.

It is important that accurate classifications be made early in the proposal-planning and purchasing process. Early determination facilitates the request and consideration of appropriate information during the selection process, and impacts whether the resulting agreement includes appropriate terms and conditions that require compliance with program requirements. The responsibilities contracted to an organization ultimately affect the level of oversight that needs to occur by the awarding entity in order to best manage risks that impact a program's integrity and overall success.

Definitions

The terms "subrecipient" and "vendor" have the meanings in the Uniform Guidance.

• Subrecipient - an entity that expends awards received from a pass-through entity to carry out a program. In other words, as found in the Uniform Guidance, "a subrecipient relationship exists when funding from a pass-through entity is provided to perform a portion of the scope of work or objectives of the pass-through entity's award agreement with the…awarding agency." (A pass-through entity is an entity that provides an award to a subrecipient to carry out a program.)
• Vendor - "a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a…program…." In other words, as found in the Uniform Guidance, "a vendor, on the other hand, is generally a dealer, distributor or other seller that provides, for example, supplies, expendable materials, or data processing services in support of the project activities."

The Uniform Guidance expands on the definitions above by describing the types of characteristics to consider when determining whether an entity is a subrecipient or vendor. The guidance discusses the following points with regard to determining whether a particular arrangement creates a subrecipient or vendor relationship: (1) examining each arrangement against characteristics that OMB identify as being indicative of subrecipientand vendor relationships; (2) considering the substance of a relationship more strongly than its form; and (3) use of professional judgment in making the determination.

Indicative Characteristics

The Uniform Guidance identifies characteristics that are indicative of subrecipient and vendor relationships. The characteristics are indicators only. Accordingly, neither OMB intend the characteristics to be used as a checklist, recognizing that factors other than those listed might also impact the determination. Therefore, each arrangement must be separately considered as a whole to determine whether its characteristics are more indicative of a subrecipient or vendor relationship.

The following guidance expands on the guidance provided by OMB by including examples that further describe each characteristic. As with the characteristics identified by OMB, the examples provided in this guidance are not intended for use as a checklist or to replace the need for professional judgment and separate consideration of each arrangement on its own merits.

Subrecipient:

• Has performance measured against the objectives of the Federal program
• Has responsibility for making programmatic decisions/li>
• Has responsibility for adherence to Federal program compliance requirements
• Uses Federal funds to  carry out a program of the organization, not to provide goods or services for a program of the pass-through entity
• Determines who is eligible to receive Federal financial assistance

Professional Service/Vendor:

• Provides the goods or services within normal business operations
• Provides similar goods or services to many different purchasers
• Operates in a competitive environment
• Provides goods or services that are ancillary to the operation of the Federal program
• Is not subject to compliance requirements of the Federal program

Use of Judgment in Making Determination

Determinations about whether an organization is a subrecipient or vendor are not always straightforward. For example, no single factor will alone dictate the existence of one relationship or the other in all cases. However, Appendix E of the Department of Labor Employment and Training Administration's One-Stop Comprehensive Financial Management Technical Assistance Guide does state that, "under no circumstances should a designation of vendor be made for providers that have a financial or performance requirement related to eligibility or selection of participants."

Similarly, an organization need not possess all of the subrecipient characteristics above in order to be a subrecipient, and may in fact possess some characteristics of both a vendor and subrecipient under the same agreement. Therefore, in each case, the determination of whether a particular entity is a subrecipient or vendor requires professional consideration of the preponderance of facts and evidence of a particular agreement against the definition and guidelines set forth by the Uniform Guidance.

F&A Budgeted for Subrecipeints

Under the Uniform Guidance, Facilities & Administrative (F&A) costs must be budgeted for subrecipients as follows:

1. If the subrecipient has a federally negotiated F&A rate, the negotiated rate must be included in all proposed subawards.
2. If the subrecipient does not have a federally negotiated F&A rate, the Uniform Guidance requires the use of at least a 10% de minimis F&A rate, except where the subrecipient is able to allocate and charge 100% of its costs directly.

It is not permissible for the PI/department to force or entice a proposed subrecipient without a negotiated rate to accept less than the de minimis rate. Finally, there is no change to UL Lafayette's recovery of its own F&A costs – this remains limited to receiving our F&A rate on the first $25,000 of each subaward.