Four Ways to Justify Sole Source Contracts Under Your Federal Grants

There are few headlines that can make a federal grant recipient or subrecipient look worse than the one that says it awarded “no bid” contracts. Whenever the media uncover these, they get sanctimonious and act like federal money has been stolen or at least grossly wasted. That’s why being able to justify “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.

First, remember that the federal government instructs all recipients and subrecipients to engage in competitive procurement of goods and services using federal grants and makes clear that noncompetitive procurement is to be the exception to your normal practice. 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 common grants administration rule issued pursuant to Office of Management and Budget Circular A-102 informs state, local and tribal governments about four specific criteria that may be used to support what it calls “noncompetitive negotiation.” On the other hand, OMB Circular A-110 cryptically tells colleges and universities, hospitals and other nonprofit organizations that they must prepare a “justification for lack of competition when competitive bids or offers are not obtained” without providing any guidance as to what the justifications might be.

Since Circular A-110 is silent about any criteria, nongovernmental recipients and subrecipients are usually and understandably more nervous about sole source transactions than are their governmental brethren. However, by incorporating some of the same criteria that apply by their terms to governments into their required written procurement procedures, nongovernmental entities should be able to support justifiable sole source actions in a manner that has long been accepted by the federal agencies for the governmental sector.

The 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.

Few would argue about the ready transferability of these four criteria to the nonprofit sector, but those who argue that the silence in Circular A-110 suggests an even broader interpretation should tread lightly. For example, some nonprofit organizations might be tempted to add a criterion permitting top management to authorize sole source procurement in cases that are “in the best interest” of the organization. A frequent problem with policies such as that, whether in procurement or other administrative actions, is that they invite what auditors call “frequent management override,” where exceptions become the rule.