There are three types of legal relationships that account for most Government spending -- procurement contracts, grants, and cooperative agreements. This client alert provides a high-level overview of Federal grants. The Federal Grant and Cooperative Agreement Act of 1977 stipulates when each of these relationships should be used. For grants:
An executive agency shall use a grant agreement as to the legal instrument reflecting a relationship between the United States Government and a State, a local government, or other recipient when—
(1) the principal purpose of the relationship is to transfer a thing of value to the State or local government or other recipient, to carry out a public purpose of support or stimulation authorized by a law of the United States, instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; and
(2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.
See 31 U.S.C. § 6304.
Types of Grants
Broadly, there are two types of Federal grants, although in reality many grants do not fit neatly into any single category and the distinctions can be blurred. The most common is a “discretionary” grant. Discretionary grants are awarded by a Federal agency and typically provide the agency with discretion to determine (a) whether the grant should be awarded; and (b) if awarded, to whom. Discretionary grants are awarded based on a competitive process in which the awarding agency assesses the merits of the application(s).
The second type is a “mandatory” grant. Mandatory grants often are “formula” or “block” grants. These grants are awarded to recipients on a non-competitive basis, often based on a legislative formula. They typically are awarded by the Federal Government to States, cities, or counties based on population or other census criteria, and all applicants that meet the minimum requirements of the application process may receive money.
The type of grant, along with the legislative requirements and awarding agency, can make a significant difference in the rights of applicants/awardees with respect to the evaluation, award, oversight and performance of grants.
The Notice Process
A Federal agency that plans to award a grant is required to post notice of the grant in the Catalog of Federal Domestic Assistance (“CFDA”) which is maintained by the General Services Administration (“GSA”). The CFDA serves as a one-stop shop for all Federal grant programs. The content of notices posted in the CFDA is dictated by OMB and includes a program description, brief summary of the statutory or regulatory requirements of the program, its intended outcome, whether the program makes award on a discretionary basis or the awards are prescribed by Federal statute (such as in the case of formula grants), projected funds available, the statutory authority for funding the program, eligibility factors or considerations that determine the applicant’s qualification for award under the program, and the applicability of single audit requirements. See 2 C.F.R. § 200.202. Applicants should pay close attention to any grant notices because, for the most part, there is no “protest” process for unsuccessful applicants.
The Award Process
In assessing potential awardees, the awarding Federal agency is required to review Government-wide repositories of eligibility and financial integrity information, such as the System for Award Management and the Federal Awardee Performance and Integrity Information System. At a minimum, the information in the system for a prior Federal award recipient must demonstrate a “satisfactory record” of integrity, business ethics, and executing programs or activities pursuant to Federal grants, cooperative agreements, or procurement awards. Further, for competitive grants, the awarding agency must have in place a framework for evaluating the risks posed by applicants. See 2 C.F.R. § 200.205. The Uniform Guidance lists several factors that may be considered by the agency in its risk evaluation. See id.
Another consideration during the award process is conflicts of interest. Federal awarding agencies must establish conflict of interest policies and applicants must disclose in writing any potential conflict of interest to the awarding agency. See 2 C.F.R. § 200.112.
Other disclosures that applicants must make, in writing, include all violations of Federal criminal law involving fraud, bribery, or gratuity violations potentially affecting the Federal award, as well as certain civil, criminal, or administrative proceedings (must be reported in SAM). Failure to make required disclosures can result in any of the remedies described in §200.338, including suspension or debarment.
Once terms have been finalized between a grant applicant and the awarding agency, the agency will issue a Federal award. The content of the Federal award is dictated by the agency’s regulations and typically includes the recipient’s name, total amount of Federal funds obligated, start and end dates, general terms and conditions, specific terms and conditions from the agency, and Federal award performance goals (i.e. the timing and scope of expected performance).
If an applicant is unsuccessful in obtaining an award, it varies by agency whether there is a process for debriefings or protests of the award. Some agencies do not allow any sort of protest, some allow for internal appeals procedures within the agency, and some have external panels of administrative law judges to which an appeal can be made.
In general, there are extensive record-keeping requirements that awardees must comply with. Among others, grant recipients are required to provide financial and performance information to the awarding agency using OMB-approved standard information collection procedures. This includes providing cost information to demonstrate cost effective practices. See 2 C.F.R. § 200.301. Agency regulations concerning costs are extensive (see 2 C.F.R. Subpart E), and awardees that expend $750,000 or more a year from the grant will be audited (see 2 C.F.R. Subpart F, § 200.501). The significant Government oversight that accompanies a grant award underscores the importance of effective internal controls, resources and written procedures. Not only will these assist in grant and regulatory compliance, but they come in handy when the auditors come knocking (and they often do come knocking).
Federal grants are a good way to get a slice of the Government’s business. Over the last 10+ years, the Government has spent more on grants than on procurement contracts. However, grants are highly regulated and the penalties for non-compliance can be steep, including suspension/disbarment, exclusion from future Federal awards, and even criminal prosecution. Accordingly, pay close attention to the regulations and requirements for each grant, and consider consulting an attorney with any questions.