Procurement Disaster Assistance Team

October 2021

(FM-207-21-0002)

(PDAT) Field Manual Procurement Information for FEMA Award Recipients and Subrecipients

PDAT Field Manual

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III

Contents

FOREWARD

Chapter 1: Introduction

1. Overview

Navigating the Manual

Additional Resources

Chapter 2: Applicability of the Federal Procurement Under Grant Standards

Overview of Contracts

Use of Contractors by Recipients and Subrecipients

Role of The Federal Government in Recipient and Subrecipient Contracting

Definition of Contract and Distinction from Subaward

Contract Payment Obligations

Fixed Price and Cost-Reimbursement Contracts

Applicability

Procurement by State Entities

Procurement by Non-State Entities

Chapter 3: General Procurement Under Grant Standards

Mandatory Standards

Maintain Oversight

Written Standards of Conduct

Gifts

Conflicts of Interests

Disciplinary Actions

Need Determination

Contractor Responsibility Determination

Maintain Records

Contractor Selection

Settlement of Issues

IV

Time-and-Materials Contracts

Considerations for State Entities using T&M Contracts

Encouraged Standards

Use of Federal Excess and Surplus Property

Use of Value Engineering

Use of Intergovernmental or Inter-Entity Agreements

Chapter 4: Competition

Restrictions to Competition

Unreasonable Requirements

Requiring Unnecessary Experience or Excessive Bonding

Noncompetitive Pricing Practices

Noncompetitive Contracts to Contractors on Retainer

Organizational Conflicts of Interest

Specifying Only a Brand Name Product

Any Arbitrary Action in the Procurement Process

Geographic Preferences

Exclusion of Contractors from Outside a Geographic Area

Price Matching

Reducing Bids

Adding Weight to Evaluation Factors

Set Asides

Written Procedures

Clear and Accurate Description of Requirements

Nonrestrictive Specifications

Qualitative Requirements

Product Specifications

Identify All Requirements/Evaluation Factors

Prequalified Lists

Chapter 5: Methods of Procurement

V

Informal Methods

Procurement by Micro-Purchases

Competition

Prohibited Divisions

Documentation

Responsibility

Procurement by Small Purchases

Formal Methods

Procurement by Sealed Bidding

Procurement by Proposals

Noncompetitive Procurement

Procurement by Micro-Purchase

Single Source

Public Emergency or Exigency

Federal Awarding Agency or Pass-Through Entity Approval

Inadequate Competition

Justification and Documentation:

Negotiation of Profit:

Ensure Compliance with Additional Requirements:

Suggested Elements for Noncompetitive Procurement Justification

Chapter 6: Socioeconomic Contracting

Affirmative Steps

Solicitation Lists

Soliciting

Dividing Requirements

Delivery Schedules

Obtaining Assistance

Prime Contractor Requirements

Definitions for Socioeconomic Firms

Small Business

VI

Women’s Business Enterprise

Minority Business

Labor Surplus Area

Labor Surplus Area Firm

Chapter 7: Domestic Preferences

Domestic Preferences for Procurement

Applicability

Definitions

Chapter 8: Procurement of Recovered Materials

Inapplicability to Indian Tribes and Private Nonprofit NFEs

EPA Product Designation

Affirmative Procurement Program

Solid Waste Disposal Services

Certifications

Chapter 9: Cost or Price Analysis

Price Analysis

Cost Analysis

Cost Plus a Percentage of Cost Contracts

Four-Part Analysis

Considerations for State Entities using CPPC Contracts

Chapter 10: Federal Awarding Agency/Pass-Through Entity Review

Pre-Award Procurement Review

Technical Specifications

Procurement Documents

Exemption

FEMA or Pass-Through Entity Review

Self-Certification

Post-Award Procurement Review

VII

Chapter 11: Bonding Requirements

Bid Guarantee

Performance Bond

Payment Bond

Chapter 12: Contract Provisions

Required Provisions

Contract Remedies

Termination for Cause and Convenience

Equal Employment Opportunity

Davis-Bacon Act

Copeland Anti-Kickback Act

Contract Work Hours and Safety Standards Act

Rights to Inventions Made Under a Contract or Agreement

Clean Air Act and the Federal Water Pollution Control Act

Suspension and Debarment

Byrd Anti-Lobbying Amendment

Procurement of Recovered Materials

Prohibition on Contracting for Covered Telecommunications Equipment or Services

Domestic Preferences for Procurements

FEMA Recommended Provisions

Access to Records

Changes and Modifications

DHS Seal, Logo, and Flags

Compliance with Federal Law, Regulations, and Executive Orders

No Obligation by the Federal Government

Program Fraud and False or Fraudulent Statements or Related Acts

Affirmative Socioeconomic Steps

Copyright

Chapter 13: Beyond the Basics: Important Procurement Considerations

VIII

Considerations for Indian Tribal Governments

Indian Tribal Preferences When Awarding Contracts

Inapplicability of the Socioeconomic Affirmative Steps

Contract Changes/Modifications

Scope of the Contract

Scope of Competition

Design-Bid-Build and Design-Build Contracts

Design-Bid-Build

Design-Build Contracts

CMAR Delivery Method

Price as a Selection Factor for CMAR

Cooperative Purchasing

Joint Procurements

Joint Procurements between State and Non-State Entities

Using Another Jurisdiction’s Contract (Piggybacking)

Non-State Entities and Piggybacking

State Entities and Piggybacking

Cooperative Purchasing Programs

Use of General Services Administration Schedules

Other Supply Schedules and Cooperative Purchasing Programs

Prepositioned Contracts for Disaster Grants

Non-State Entities and Prepositioned Contracts

State Entities and Prepositioned Contracts

Mutual Aid Agreements

Purchasing Agents

Non-State Entities and Purchasing Agents

State Entities and Purchasing Agents

Chapter 14: Remedies for Procurement Noncompliance

Remedies for Noncompliance

Specific Conditions

IX

APPENDIX

ACRONYM REFERENCE

DEFINITIONS

FOREWARD

All FEMA awards are subject to the federal procurement standards under the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards found at 2 C.F.R. §§ 200.317-200.327.1 The Procurement Disaster Assistance Team (PDAT) Field Manual (Manual) provides guidance regarding the mandatory requirements for FEMA award recipients and subrecipients using federal funding to finance the procurement of property and services.

PDAT, a subcomponent of FEMA’s Grant Programs Directorate’s (GPD), Office of Enterprise Grant Services, Policy Division, developed this Manual to provide accurate and updated information to support both FEMA staff and FEMA award recipients and subrecipients regarding proper compliancy under the federal procurement standards.

This version of the PDAT Field Manual will:

A. Exemplify the Agency’s mission statement: Helping people before, during and after disasters;

B. Improve accessibility to all users of this Manual, providing clear and understandable language to enhance understanding of the federal procurement standards;

C. Provide guidance regarding the Office of Management and Budget (OMB) revisions and final guidance to the Uniform Rules, 2 C.F.R. Part 200 on August 13, 2020;

D. Illustrate how certain rules apply to an award recipient and/or subrecipient with real world examples; and

E. Give additional resources, tools, and guidance to help all users develop further knowledge of the procurement under grants subject matter.

FEMA administers over 45 disaster and non-disaster grant programs that provide over $3 billion in federal assistance to state entities and non-state entities annually. All recipients and subrecipients of FEMA awards are subject to the Uniform Rules found at 2 C.F.R. §§ 200.317-200.327, which apply to contracts under FEMA awards or Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) disaster declarations issued on or after November 12, 2020. This Manual is applicable to FEMA awards and Stafford Act disaster declarations issued on or after November 12, 2020.

For contracts under FEMA awards or Stafford Act declarations issued between December 26, 2014, and November 11, 2020, please refer to the Field Manual: Procurement Information for FEMA Public Assistance Award Recipients and Subrecipients (October 2019).

1 Adopted by DHS at 2 C.F.R. § 3002.10. 79 Fed. Reg. 75871 (Dec. 19, 2014); Revised 2 C.F.R. 200 (Aug. 13, 2020).

https://www.govinfo.gov/content/pkg/FR-2020-08-13/pdf/2020-17468.pdf https://www.govinfo.gov/content/pkg/FR-2020-08-13/pdf/2020-17468.pdf https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200 https://www.fema.gov/sites/default/files/2020-07/fema_procurement_field-manual_2019.pdf

For contracts under FEMA awards or Stafford Act declarations issued before December 26, 2014, please refer to the Field Manual: Public Assistance Grantee and Subgrantee Procurement Requirements Under 44 C.F.R. PT. 13 AND 2 C.F.R. PT. 215 (December 2014).

While prior versions of the Field Manual are only directly applicable to FEMA’s Public Assistance Program, all FEMA award recipients and subrecipients are encouraged to review these resources since they provide guidance on the federal procurement under grants regulations unless restricted by statue.

NOTE: FEMA will monitor the implementation of this policy through close coordination with various program offices, regional staff, and, as appropriate, interagency partners and non-federal stakeholders. FEMA will consider feedback, as appropriate, from these entities when issuing a final policy.

https://www.fema.gov/sites/default/files/2020-07/fema_public-assistance-grantee-subgrantee-procurement-2014_field-manual.pdf https://www.fema.gov/sites/default/files/2020-07/fema_public-assistance-grantee-subgrantee-procurement-2014_field-manual.pdf

Chapter 1: Introduction

1. Overview This version of the Manual incorporates relevant content from both the 2014 Field Manual, the 2016 Supplement to the Field Manual,2 and the 2019 Field Manual.3 However, this version now supersedes both previous resources following OMB revisions of OMB Guidance for Grants and Agreements found in Title 2 of the Code of Federal Regulations. These revisions are applicable to all FEMA awards issued on or after November 12, 2020, unless specifically indicated otherwise.4 These revisions include changes to the federal procurement standards, which govern how FEMA award recipients and subrecipients must purchase under a FEMA award. For FEMA declarations made on, or awards issued prior to November 12, 2020 and after December 26, 2014, please reference the previous federal procurement standards. While the Manual is intended to serve as a practical field reference and has the effect of FEMA policy, it is not all encompassing, nor does it have the force and effect of law and regulation.

The information provided in the Manual is only intended to serve as a basic reference and framework for both FEMA staff involved in the various aspects of administering FEMA awards as well as the recipients and subrecipients procuring property and services as identified in the Uniform Rules. It is not intended to be, nor does it provide or constitute legal advice for FEMA award recipients and subrecipients.

Adherence to, application of, or use of this document regarding a procurement subject to FEMA awards does not guarantee the legal sufficiency of any procurement, nor does it ensure that an award or subaward will not be audited or investigated. All legal questions concerning the sufficiency of a procurement in terms of federal procurement should be referred to the recipients and subrecipients’ legal counsel.

As a condition of receiving reimbursement for contractor costs relating to FEMA’s federal assistance programs, FEMA award recipients and subrecipients must comply with all applicable federal laws, regulations, and executive orders. Each non-Federal Entity (NFE) is responsible for managing and administering its federal awards in compliance with the applicable requirements, including but not limited to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for

2 Procurement Guidance for Recipients and Subrecipients under 2 C.F.R Part 200 (Uniform Rules) Supplement to the Public Assistance Procurement Disaster Assistance Team (PDAT) Field Manual, June 21, 2016.

3 Field Manual – Procurement Information for FEMA Public Assistance Award Recipients and Subrecipients, October 2019.

4 2 C.F.R. § 200.216 Prohibition on certain telecommunications and video surveillance services or equipment is applicable to all FEMA awards issued on or after August 13, 2020.

https://ecfr.federalregister.gov/on/2020-11-11/title-2/subtitle-A/chapter-II/part-200 https://www.fema.gov/sites/default/files/2020-07/fema_procurement-under-grants-field-manual-supplement_1.pdf https://www.fema.gov/sites/default/files/2020-07/fema_procurement-under-grants-field-manual-supplement_1.pdf

Federal Awards codified at 2 C.F.R. Part 200, which DHS adopted at 2 C.F.R. § 3002.10.5 Specifically, the regulations at 2 C.F.R. §§ 200.317-200.327 set forth the procurement standards that NFEs must follow when using FEMA financial assistance to conduct procurements of real property, goods, or services.

Navigating the Manual This Manual is structured according to the progression of the federal procurement under grant requirements listed in 2 C.F.R. §§ 200.317-200.327. Throughout the Manual, icons are used to help identify key definitions, examples, tools/resources, and common DHS OIG audit findings.

Internal hyperlinks connect sections that are complementary within the Manual.

External hyperlinks connect the Manual with relevant external references or resources.

Blue boxes indicate important terms or sections to know and understand.

Gray boxes indicate an example where procurement under a FEMA award is being used.

Graphics indicate:

5 79 Fed. Reg. 75871 (Dec. 19, 2014); 85 Fed. Reg. 49506 (Aug. 13, 2020).

Definition Examples Tools/Resources

Common OIG Findings

State Entities Non-State Entities

Additional Resources Questions regarding this policy may be directed to your assigned FEMA program analyst or grants management specialist or the Centralized Scheduling and Information Desk (CSID) at askcsid@fema.dhs.gov.

Related Tools and Resources

FEMA Public Assistance Program and Policy Guide (PAPPG) The Uniform Rules Top 10 Procurement under Federal Awards Mistakes OIG DHS Audit Reports related to FEMA Fire Management Assistance Grant Program Guide (FMAG) FEMA Preparedness Grants Manual Assistance to Firefighters Grants (AFG) Program Hazard Mitigation Assistance Program (HMGP) Guidance mailto:askcsid@fema.dhs.gov https://www.fema.gov/sites/default/files/documents/fema_pappg-v4-updated-links_policy_6-1-2020.pdf https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#section-200.317 https://www.fema.gov/sites/default/files/2020-08/fema_top-10-mistakes_flyer.pdf https://www.oig.dhs.gov/reports/audits-inspections-and-evaluations?field_dhs_agency_target_id=2&field_oversight_area=All&field_fy_value=All https://www.fema.gov/sites/default/files/2020-04/FMAG_Guide_Feb_2014.pdf https://www.fema.gov/grants/preparedness/manual https://www.fema.gov/grants/preparedness/firefighters https://www.fema.gov/grants/mitigation/hazard-mitigation-assistance-guidance

Chapter 2: Applicability of the Federal Procurement Under Grant Standards

Overview of Contracts

Use of Contractors by Recipients and Subrecipients Recipients and subrecipients often use contractors to help carry out their FEMA award projects. For example, a subrecipient may receive financial assistance under a FEMA award to repair a building damaged by a major disaster, and it may then award a contract to a construction company to complete the work. FEMA generally views contractor costs as an allowable cost6 under the FEMA award, as long as the costs are deemed reasonable.

Such a contract is a commercial transaction between the recipient or subrecipient and its contractor, and there is privity, or a legally recognized relationship, of contract between the recipient or subrecipient and its contractor. However, FEMA is not a party to that contract and has no privity of contract with that contractor. FEMA’s legal relationship is only with the award recipient, not with the subrecipient or contractors. Therefore, there is no contractual liability on the part of FEMA to the recipient’s or subrecipient’s contractor.

Role of The Federal Government in Recipient and Subrecipient Contracting

Although the federal government is not a party to a recipient’s or subrecipient’s contract, it determines eligibility and reimbursement for a recipient’s or subrecipient’s contracting with outside sources under the FEMA award. Recipients and subrecipients that use FEMA award funding must comply with the procurement under grant requirements imposed by federal law, executive orders, federal regulations, and terms of the grant award.7

Definition of Contract and Distinction from Subaward A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. There are three elements necessary to form a contract:

6 2 C.F.R. § 200.403.

7 See Illinois Equal Employment Opportunity Regulations for Public Contracts, B-167015, 54 Comp. Gen. 6 (1974); see also King v. Smith, 392 U.S. 309, 333 n. 34 (1968).

Mutual assent;

Consideration or a substitute; and No defenses to formation;8 such as duress, misrepresentation or fraud, mistake and unconscionability.

Contracts are generally governed by the common law, although contracts for the sale of goods such as movable and tangible property, are governed by Article 2 of the Uniform Commercial Code as well as common law.

The term “contract” is general and includes several different varieties or types.9 For example, contracts can be categorized by subject matter such as construction, research, supply, service or by the manner in which they can be formed and accepted such as bilateral or unilateral. Recipients and subrecipients are free to select the type of contract they award consistent with the federal procurement under grant rules and federal law, applicable state, Tribal, and local laws and regulations, and within the bounds of good commercial business practice.

The Uniform Rules provide that a contract is for obtaining goods and services for the NFE’s own use and creates a procurement relationship with the contractor.10 Characteristics indicative of a procurement relationship between the NFE and a contractor include when the contractor:

1. Provides the goods and services within normal business operations;

2. Provides similar goods or services to many different purchasers;

3. Normally operates in a competitive environment;

4. Provides goods or services that are ancillary to the operation of the federal program; and

5. Is not subject to compliance requirements of the federal program, as a result of the agreement, though similar requirements may apply for other reasons.11

Contract Payment Obligations There are generally three types of contract payment obligations: fixed-price, cost-reimbursement, and time-and-materials (T&M). Because the Uniform Rules do not define or fully describe these types of contracts, the following provides a general overview of these contracts that is largely based on the concepts and principles from the Federal Acquisition Regulation (FAR).

Fixed Price and Cost-Reimbursement Contracts With regard to fixed price and cost-reimbursement contracts, the specific contract types range from firm-fixed price, in which the contractor has full responsibility for the performance costs and resulting profit or loss, to a cost-plus-fixed-fee, in which the contractor has minimal responsibility for the performance costs and the negotiated fee or profit is fixed. There are also various incentive contracts

8 Restatement (Second) of Contract, § 1 (1981). Mutual assent also known as offer and acceptance, 9 Id.

10 2 C.F.R. § 200.1.

11 2 C.F.R. § 200.331(b).

in which the responsibilities of the contractor for performance costs and the profit or fee incentives offered are tailored to the uncertainties involved in contract performance.

Fixed price contracts provide for a firm price or, in appropriate cases, an adjustable price.12 The risk of performing the required work at the fixed price is borne by the contractor.13 Firm-fixed price contracts are generally appropriate where the requirement, such as scope of work, is well-defined and of a commercial nature.14

Construction contracts, for example, are often firm-fixed price contracts. NOTE: T&M contracts and labor-hour contracts are not firm-fixed price contracts.15

Cost-reimbursement contracts provide for payment of certain incurred costs to the extent stipulated in the contract.16 They normally provide for the reimbursement of the contractor for its allowable costs, with an agreed-upon fee.17 There is a limit to the costs that a contractor may incur at the time of contract award, referred to as a ceiling price. The contractor may not exceed the ceiling price without the recipient’s or subrecipient’s approval, or the contractor does so at its own risk.

In a cost-reimbursement contract, the recipient or subrecipient bears more risk than in a firm-fixed price contract.18 A cost-reimbursement contract is appropriate when the details of the required scope of work are not well-defined.19 There are many variations of cost-reimbursement contracts, such as cost-plus-fixed-fee, cost-plus-incentive-fee, and cost-plus-award-fee contracts.20 However, the cost plus a percentage of cost (CPPC) contract which is discussed in detail later on in this Manual, is strictly prohibited for non-state entities.21

12 48 C.F.R. Subpart 16.2 (Fixed-Price Contracts). A fixed price contract can be adjusted, but this normally occurs only through the operation of contract clauses providing for equitable adjustment or other revisions of the contract price under certain circumstances. 48 C.F.R. § 16.203 (Fixed-Price Contracts with Economic Price Adjustment).

13 Bowsher v. Merck & Co., 460 U.S. 824, 826 at n. 1 (U.S. 1983) (“A pure fixed-price contract requires the contractor to furnish the goods or services for a fixed amount of compensation regardless of the costs of performance, thereby placing the risk of incurring unforeseen costs of performance on the contractor rather than the Government.”).

14 48 C.F.R. § 16.202-2.

15 48 C.F.R. § 16.201(b).

16 48 C.F.R. Subpart 16.3 (Cost-Reimbursement Contracts).

17 48 C.F.R. Subpart 16.3.

18 Kellogg Brown & Root Servs. v. United States, 742 F.3d 967, 971 (Fed. Cir. 2014) (“…cost-reimbursement contracts are intended to shift to the Government the risk of unexpected performance costs…”).

19 48 C.F.R. § 16.301-2(a).

20 48 C.F.R. Subpart 16.3.

21 See 2 C.F.R. § 200.323(d); DHS Office of Inspector General, Report No. OIG-14-44-D, FEMA Should Recover $5.3 Million of the $52.1 Million of Public Assistance Grant Funds Awarded to the Bay St. Louis Waveland School District in Mississippi-Hurricane Katrina, p. 4 (Feb. 25, 2014) (“Federal regulations prohibit cost-plus-percentage-of-cost contracts because they provide no incentive for contractors to control costs—the more contractors charge, the more profit they make.”). Note, Report No. OIG-14-44-D references 2 C.F.R. § 200.323(d). However, the 2 C.F.R. revisions applicable on or after November 12, 2020 modified the regulation citation to 2 C.F.R. § 200.324(d). The language found at both citations is identical and states “The cost plus a percentage of cost and percentage of construction cost methods of contracting must not be used.” Although the OIG references an old citation, the report is still valid since the regulatory language was unchanged and the citation was merely updated.

Applicability The procurement under grant standards set forth at 2 C.F.R. §§ 200.317-200.327 apply to all FEMA awards issued on or after November 12, 2020.22 Failure to follow the Uniform Rules found in 2 C.F.R. Part 200 when procuring and selecting contractors places FEMA award recipients and subrecipients at risk of not receiving either their full reimbursement for associated disaster costs or having obligated funds recouped by FEMA. This Manual focuses on the procurement standards set forth in 2 C.F.R. Part 200. For procurement guidance associated with disasters declared before November 12, 2020, please refer to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.

There are different sets of procurement rules that apply to state and non-state entities. A FEMA award recipient, therefore, must first determine if it is a state or non-state entity as defined under the federal procurement rules.

Additional guidance for determining an NFE’s entity type and identifying the procurement standards applicable to that entity type can be found in the subsections below.

Procurement by State Entities The federal procurement standards applicable to state entities are set forth in 2 C.F.R. § 200.317.

State23 entities include:

Any state of the United States, The District of Columbia, The Commonwealth of Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, The Commonwealth of the Northern Mariana Islands, and

Any agency or instrumentality thereof exclusive of local governments.

When procuring property or services under a FEMA award, a state entity must:

Follow the same policies and procedures it uses for procurements from its non-federal funds found at 2 C.F.R. § 200.317 (procurement by states);

22 85 Fed. Reg. 49506 (Aug. 13, 2020).

23 2 C.F.R. § 200.1 Institutions of Higher Education.

State Entities https://ecfr.federalregister.gov/on/2020-11-11/title-2/subtitle-A/chapter-II/part-200 https://ecfr.federalregister.gov/on/2020-11-11/title-2/subtitle-A/chapter-II/part-200 https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-D/subject-group-ECFR45ddd4419ad436d/section-200.317

Follow all necessary affirmative steps found in 2 C.F.R. § 200.321 (contracting with small and minority businesses, women’s business enterprises, and labor surplus area firms) to assure that small and minority businesses, women’s owned enterprises, and Labor Surplus Area (LSA) firms are used when possible;

Provide a preference, to the greatest extent practicable, for the purchase, acquisition, or use of goods, products or materials produced in the United States found in 2 C.F.R. § 200.322 (domestic preferences for procurements);

Ensure compliance with procurement of recovered materials guidelines found at 2 C.F.R. §

200.323 (procurement of recovered materials); and

Include all necessary contract provisions required by 2 C.F.R. § 200.327 (mandatory contract provisions).

Even if a state complies with its own policies and procedures used for procurement from non-federal funds when it procures property or services under a FEMA award, FEMA will still evaluate the procurement to determine whether the costs conform to the Cost Principles at 2 C.F.R. Part 200, Subpart E.24 For example, while state entities are not prohibited by the federal rules to award a CPPC contract, FEMA may still question the contract costs as unreasonable, since this type of contract incentivizes the contractor to drive up costs to increase profit. A state must use the Cost Principles at 2 C.F.R. Part 200, Subpart E as a guide in the pricing of fixed-price contracts and subcontracts where costs are used in determining the appropriate price.25

Additionally, while more prescriptive conflict of interest rules apply to non-state entities, FEMA, pursuant to its authorities, requires that all NFEs, including state entities, maintain written conflict of interest rules, including organizational conflicts of interests rules, governing the actions of their procurement professionals and disclose any potential conflict of interest to FEMA in writing.26

Procurement by Non-State Entities The federal procurement under grant standards applicable to non-state entities when procuring property or services under an award or cooperative agreement are set forth in 2 C.F.R. §§ 200.317-

327. Non-state entities are eligible FEMA award recipients that do not meet the “state” definition found at 2 C.F.R. § 200.1 States.

24 A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. The question of reasonableness is particularly important when the NFE is predominantly federally funded.

25 2 C.F.R. § 200.401.

26 2 C.F.R. § 200.112.

https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-D/subject-group-ECFR45ddd4419ad436d/section-200.321 https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-D/subject-group-ECFR45ddd4419ad436d/section-200.322 https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-D/subject-group-ECFR45ddd4419ad436d/section-200.323 https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-D/subject-group-ECFR45ddd4419ad436d/section-200.323 https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#section-200.327 https://ecfr.federalregister.gov/current/title-2/part-200/subpart-E https://ecfr.federalregister.gov/current/title-2/part-200/subpart-E

Non-state entities include:

Local27 and Tribal28 governments, Institutions of Higher Education (IHEs) 29 that do not meet the definition of state, Hospitals30 that do not meet the definition of state instrumentality, and

Other PNPs31.

Although an Indian Tribal Government may potentially be either a recipient or subrecipient under the Stafford Act and other FEMA financial assistance programs, Indian Tribal Governments are not defined as a “state” at 2 C.F.R. § 200.1 States. In turn, Indian tribes must comply with the federal procurement under grant standards applicable to non-state entities. Each of the federal procurement under grant requirements applicable to non-state entities will be expanded upon in this Manual.

The NFE must have and use documented procurement procedures, consistent with state, local, and Tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward. As set forth in 2 C.F.R. § 200.318(a), an NFE must use its own documented procurement procedures which reflect applicable state, local, and Tribal laws and regulations, provided that the procurements conform to appliable federal law and the federal procurement standards identified in §§ 200.317-200.327.

The federal procurement under grant standards only address certain, limited procurement concepts, and do not focus on all possible procurement issues. Where the federal procurement under grant standards do not address a specific procurement issue, a non-state entity must abide by the applicable state, local, and/or Tribal procurement standards or regulations. However, where a difference exists between a federal procurement standard and a state, local, and/or Tribal procurement standard or regulation, the non-state entity must apply the rule(s) that allow for compliance with all applicable levels of governance.

Example: Non-State Entity Application of the Rules

Scenario: Non-state entity procurement under grant standards may, in some cases, be more restrictive than the federal procurement standards at 2 C.F.R. §§ 200.318-

200.327. For example, the regulation at 2 C.F.R. § 200.320(a)(2) allows a non-state entity to use procurement by small purchase procedures when the total value of services, property, or other property acquired remains below the federal Simplified Acquisition Threshold (SAT),which is

27 2 C.F.R. § 200.1 Local government.

28 2 C.F.R. § 200.1 Indian tribe.

29 2 C.F.R. § 200.1 Institutions of Higher Education (IHEs).

30 2 C.F.R. § 200.1 Hospital.

31 2 C.F.R. § 200.1 Nonprofit organizations.

Non-State Entities https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#p-200.318(a)

$250,000 as of June 2018.32 However, it may be the case that the applicable state, local, and/or Indian Tribal procurement standards and regulations do not permit small purchase procedures for acquisitions over $100,000. Which acquisition threshold is a non-state entity required to comply with in this scenario?

Answer: In such a circumstance where there is a difference between state, local, and/or Tribal procurement standards and these federal procurement under grant standards, the non-state entity is required to follow the rule(s) that allows compliance with all applicable levels of governance. A more permissive federal procurement standard would not control over a more restrictive applicable state, local, and/or Tribal standard. In this scenario, complying with the $100,000 threshold allows for compliance at all levels.

NOTE: This concept of differing and following the rule that allows compliance with all applicable levels only applies to non-state entities. This underscores the importance of an NFE’s evaluation of whether it is a state or non-state entity as defined under the federal procurement rules. State entities will always follow the procurement standards found at 2 C.F.R § 200.317, which directs them to utilize their own procurement standards, take socioeconomic affirmative steps at 2 C.F.R. § 200.321, provide a preference for the purchase of goods, products, or materials produced in the United States as required by 2 C.F.R. § 200.322, comply with applicable guidelines regarding procurement of recovered materials as set forth in 2 C.F.R. § 200.323, and include all necessary contract provisions required by 2 C.F.R. § 200.327. Conversely, non-state entities must adhere to their own procurement policies and procedures, applicable state and/or Tribal laws, and the federal procurement under grant requirements found at 2 C.F.R. §§ 200.318-200.327.

Example: Differing Procurement Standards for State vs. Non-State Entities – Geographic Preference

Scenario: The President declares a major disaster for the State of Z as the result of a hurricane, and the declaration authorizes Public Assistance (PA) for all counties in the

State. The hurricane damaged a building of the State Z Agency of Transportation. Following approval of a Project Worksheet to repair the damaged building, State Z Agency of Transportation procures the services of a contractor to complete the repairs to the building by following the same policies and procedures it uses for procurements from its non-federal funds when it procures construction services. The State Z Agency, when evaluating the bids for the work, uses a state statutorily imposed geographic preference and awards a contract, and the contract includes all clauses required by federal law, regulation, and executive order. Is the use of the geographic preference by State Z Agency permissible under 2 C.F.R. § 200.317?

32 See 2 C.F.R. § 200.1; 48 C.F.R. § 2.101. While the SAT is periodically adjusted for inflation, it was adjusted to $250,000 as of June 2018. OMB Memo (M-18-18), available at https://www.whitehouse.gov/wp-content/uploads/2018/06/M-18-18.pdf https://www.fema.gov/sites/default/files/2020-06/fema-public-assistance-damage-description-and-scope-of-work-continuation-sheet_form009-0-91A_06-2020.pdf https://www.whitehouse.gov/wp-content/uploads/2018/06/M-18-18.pdf https://www.whitehouse.gov/wp-content/uploads/2018/06/M-18-18.pdf

Answer: Yes, the use of the geographic preference is permissible under 2 C.F.R. § 200.317. The federal regulation at 2 C.F.R. § 200.317 provides, in relevant part, that a state must follow the same policies and procedures it uses for procurements from its non-federal funds when it procures property and services under a FEMA award. In this case, the State Z Agency of Transportation followed these procedures, which included adhering to a statutorily imposed geographic preference when evaluating the bids.33

NOTE: It is important to recognize that the procurement standards are different for state and non-state entities. As it relates to non-state entities, the federal procurement standards under the Uniform Rules at 2 C.F.R. § 200.319(c) prohibit the use of statutorily or administratively imposed state, local, and/or Tribal geographic preferences in the evaluation of bids or proposals, except in those cases where applicable federal statutes expressly mandate or encourage geographic preferences. However, because the state is not subject to regulation at 2 C.F.R. § 200.319, the regulation bears no applicability to the question presented in this scenario.

Example: Waivers of State, Local, and/or Tribal Procurement Standards for Non- State Entities

Scenario: As a result of, or in anticipation of, a disaster or emergency, NFEs may, pursuant to their own rules, waive their own procurement standards or regulations.

Do such waivers apply to the federal procurement under grant rules for non-state entities?

Answer: No. Even though the appropriate NFE may have waived state, local, and/or Tribal procurement standards or regulations, the NFE cannot waive the applicable federal procurement under grant standards. Where state, local, and/or Tribal procurement standards or regulations have been waived pursuant to the NFE’s own legal requirements, the federal procurement under the Grant Rules found at 2 C.F.R. §§ 200.318-200.327 continue to apply to a non-state entity regardless of such a waiver by an NFE.

NOTE: NFEs must follow the federal procurement requirements found at 2 C.F.R. §§ 200.317-

200.327. However, federal regulations allow for noncompetitive procurements under certain circumstances, including when a non-state entity determines that immediate actions required to address the public exigency or emergency cannot be delayed by a competitive solicitation. More information regarding emergency and exigency circumstances are addressed later within this Manual.

33 Whether or not a geographic preference regime imposed by a state raises Constitutional issues under the dormant commerce clause is outside the scope of this Manual.

https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#p-200.319(c)

Related Tools and Resources

State Entity FAQs Federal Procurement Under Grant Standards Electronic Federal Cost Principles (2 C.F.R. Part 200, Subpart E)

PAPPG

https://www.fema.gov/sites/default/files/2020-07/fema_pdat_state_faq.pdf https://ecfr.federalregister.gov/ https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200 https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200 https://www.fema.gov/sites/default/files/documents/fema_pappg-v4-updated-links_policy_6-1-2020.pdf

Chapter 3: General Procurement Under Grant Standards

The general procurement under grant standards at 2 C.F.R. § 200.318 set forth various standards for non-state entities, some of which are mandatory and some of which are encouraged. There are eleven general procurement standards: eight are mandatory and three are encouraged. Chapter 3 will discuss T&M Contracts and each of the following general procurement standards:

Mandatory Standards Non-state entities must use their own documented procurement procedures which reflect applicable state, local, and Tribal laws and regulations, provided the procurement conforms to applicable Federal law and the standards set forth in 2 C.F.R. Part 200.

NOTE: Non-state entities must comply with all other applicable Federal laws, regulations, and executive orders when procuring services or property under a FEMA award. The requirements identified in this Manual only address the federal procurement standards. Additional information regarding FEMA remedies to address NFE noncompliance is outlined in Chapter 14 of this Manual.

Mandatory Standards

Maintain Oversight Written Standards of Conduct o Gifts o Conflict of Interest

Need Determination Contractor Responsibility

Determination Maintain Records Settlement of Issues

Encouraged Standards

Use of Federal Excess/Surplus Property

Value Engineering Use of Intergovernmental or Inter-

Entity Agreements

Non-State Entities https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#section-200.318

Maintain Oversight A non-state entity must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.34 If a non-state entity lacks qualified personnel within its organization to undertake such oversight as required by 2 C.F.R.

§ 200.318(b), then FEMA expects the non-state entity to acquire the necessary personnel to provide these services.

Contractors selected to perform procurement functions on behalf of the non-state entity are subject to the Uniform Rules. Examples of this oversight include making sure contractors comply with contract terms and conditions, invoices are correct, and goods and services are received.

Written Standards of Conduct FEMA expects a recipient or subrecipient, when contracting under a FEMA award, to ensure that procurement transactions are conducted with impartiality and without preferential treatment.35 The regulations require non-state entities to have written standards of conduct covering conflicts of interests and governing the actions of employees engaged in the selection, award, and administration of contracts. These standards must include disciplinary actions in the event of violations of the standards of conduct.36

Gifts The officers, employees, and agents of non-state entities may neither solicit nor accept gifts or gratuities, favors, or anything of monetary value from contractors or parties to subcontracts. This would include entertainment, hospitality, loans, and forbearance. This also includes services as well as gifts such as training, transportation, personal travel, lodgings, and meals, whether provided in-kind, by purchase of a ticket, payment in advance, or reimbursement after the expense has been incurred.37

DE MINIMIS GIFTS EXCEPTION

A non-state entity may set standards for accepting gratuities in situations in which the financial interest is not substantial, or the gift is an unsolicited item of nominal value. Federal regulations do not provide any additional clarity as to what constitutes “substantial” or “nominal intrinsic value,” such that the content of any such exception is left to the discretion of the non-state entity. The Standards of Conduct for Employees of the Executive Branch provide a useful guide in analyzing a

34 2 C.F.R. § 200.318(b).

35 2 C.F.R. § 200.318(c)(1)(2).

36 2 C.F.R. § 200.318(c)(1).

37 Id.

https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#p-200.318(b) https://ecfr.federalregister.gov/current/title-2/subtitle-A/chapter-II/part-200#p-200.318(b) https://ecfr.federalregister.gov/current/title-5/chapter-XVI/subchapter-B/part-2635 non-state entity’s exception.38 However, the non-state entity will need to look to applicable state, local, and/or Tribal requirements and consult its servicing attorney to determine if other applicable rules speak to a specific dollar amount for a de minimis exception.

Conflicts of Interests No employee, officer, or agent may participate in the selection, award, or administration of a contract supported by a federal award if he or she has a real or apparent conflict of interest. The purpose of this prohibition is to ensure, at a minimum, that employees involved in the award and administration of contracts are free of undisclosed personal or organizational conflicts of interest—both in fact and appearance.39

REAL CONFLICT OF INTEREST

A real conflict of interest arises when an employee, officer, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the aforementioned individuals, has a financial or other interest or a tangible personal benefit from a firm considered for a contract.

FINANCIAL INTEREST

Although the term “financial interest” is not defined or otherwise described in the Uniform Rules, a financial interest can be considered to be the potential for gain or loss to the employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of these parties as a result of the particular procurement. The prohibited financial interest may arise from:

Ownership of certain financial instruments or investments like stock, bonds, or real estate; or

A salary, indebtedness, job offer, or similar interest that might be affected by the procurement.

Example: Real Conflict of Interest

Scenario: During its annual review of historic properties, the J County identified several structural problems to its historic courthouse. Working with its State Historic

Preservation Office, J County formed a committee to issue a Request for Proposal (RFP) to rebuild the courthouse. One of the County Commissioners is selected to serve as the chair of the committee.

The County Commissioner’s brother owns a prominent construction company in J County called Historic Renovation & Construction Co. This company submitted a proposal for the project, and J

38 Cf. 5 C.F.R. § 2635.203(b) (defining “gift” under the Standards of Conduct for Employees of the Executive Branch).

39 2 C.F.R. § 200.318(c)(2).

County awarded it the contract to rebuild the courthouse. Did J County violate the federal procurement regulations?

Answer: Yes. The regulation at 2 C.F.R. § 200.318(c)(1) prohibits real conflicts of interest which includes, among other things, awarding contracts to any employee or member of his or her immediate family with a financial interest in a firm considered for a contract. Here, the County Commissioner’s brother, a member of their immediate family, has a financial interest in Historic Renovation & Construction Co. because he owns the company. Therefore, J County violated the federal procurement regulations.

APPARENT CONFLICT OF INTEREST

An apparent conflict of interest is an existing situation or relationship that creates the appearance that an employee, officer, or agent, any member of his or her immediate family, his or her partner, or an organization which employs or is about to employ any of the parties indicated herein, has a financial or other interest in or a tangible personal benefit from a firm considered for a contract.

Example: Apparent Conflict of Interest

Scenario: Town of Y procured concrete from Company Z because Company Z offered the best rates and the most competitive delivery schedule. The owner of Company Z and the Town of Y’s Purchasing Officer were college roommates. Did Town of Y violate the federal procurement regulations?

Answer: Yes. The regulations at 2 C.F.R. § 200.318(c)(1) prohibit both real and apparent conflicts of interest. Even though Town of Y procured goods from Company Z based on its rates and delivery schedule, the relationship between owner of Company Z and Town of Y’s Purchasing Officer creates the appearance that an employee of Town of Y has a personal interest in awarding the contract to Company Z. Therefore, Town of Y violated the federal procurement regulations.

ORGANIZATIONAL CONFLICTS OF INTEREST

If a non-state entity has a parent, affiliate, or subsidiary organization that is not a state, local government, or Indian tribe, the non-state entity must also maintain written standards of conduct covering organizational conflicts of interest. One type of organizational conflict of interest occurs when, because of relationships with a parent company, affiliate, or subsidiary organization, the non-state entity is unable or appears to be unable to be impartial in conducting a procurement action involving a related organization.40

40 2 C.F.R. § 200.318(c)(2).

Example: Organizational Conflict of Interest

Scenario: A hospital in the Town of E sustained structural damage during a hurricane.

The hospital owns several subsidiary companies, including a local construction firm.

Because of its relationship with the hospital, the construction firm is privy to detailed information regarding the work needed. The hospital issued an Invitation for Bids (IFB) and decided to award its contract to the local construction firm. Did the hospital violate the federal procurement regulations?

Answer: Yes. The regulation at 2 C.F.R. § 200.318(c)(2) requires written standards of conduct regarding these types of organizational conflicts of interests, and 2 C.F.R. § 200.319(b)(5) prohibits procurements involving organizational conflicts of interests. This means that a non-state entity is unable or appears to be unable to be impartial in conducting a procurement action because of a relationship between a parent company, affiliate, or subsidiary organization that is not a state, local government, or Indian tribe. In this case, the hospital was unable or appeared to be unable to be impartial in awarding a contract to its subsidiary construction firm, which was not a state, local government, or Indian tribe. Therefore, the hospital violated the federal procurement regulations.

Disciplinary Actions The standards of conduct must provide for disciplinary actions to be applied for violations of such standards by officers, employees, or agents of the non-state entity.41 For example, the disciplinary action for a non-state entity employee may be dismissal.

Another possible way to resolve a conflict of interest, if allowed under the non-state entity’s procurement procedures and other applicable laws, is recusal. A recusal may be appropriate when an employee involved in awarding a contract has a financial interest or other business or personal relationship with a contractor bidding for the award. By removing that employee from the contractor selection process, a non-state entity may be able to resolve the conflict. A non-state entity is encouraged to check its state and local procurement rules regarding conflicts of interest and document any recusals in writing to include in its procurement file.

Example: Recusal

Scenario: Nonprofit X suffered significant flooding to its headquarters building following a hurricane in City Y. As a result, Nonprofit X issued an IFB for mold remediation companies to assess the damage.