Written by Sheryl Soukup, CFRE, President, Soukup Strategic Solutions.
Question: We want to apply for a government grant and want to make sure we are ready. We have created a project budget, and we are working on a purchasing plan. When using government grants, do we have to use approved vendors, or can we purchase from anyone?
Answer: Let’s start this discussion by talking about your financial policies and procedures. It is a great idea to have these financial policies and procedures that govern your purchasing practices in writing, regardless of whether you are going to be using government funds. It is also a good practice to justify purchases that may be questioned later and considered significant in your organization.
Determining what a significant purchase is will vary from one organization to another, so it is crucial to consider where the risk lies, and it is up to the Board of directors to determine the threshold number that determines what is considered a “significant purchase.” Any purchase above the threshold number should require additional scrutiny before the purchase takes place. This will also provide essential documentation if the purchase is questioned in the future.
Another consideration that should be made concerns any real or perceived conflict of interests in your organization’s purchasing practices. One way of justifying an expense, and to make sure that you are using the most const effective solution for your purchase, is to obtain three bids for the potential purchase. Your organization may want to make a request for proposals. When analyzing the bids, ensure that your organization is comparing “apples to apples.” To this point, a request for proposals for larger purchases, especially those that are more complex, might give you an opportunity to specify exactly what you want to see in that proposal.
As to the federal funding portion of the question and what is required, the specifications for allowed methods of procurement come from the Code of Federal Regulations. This code explains how federal funds may be used or spent in your organization. Based on this code, there are a few things to consider when determining how to spend the money that your organization receives. There are informal procurement methods and formal procurement methods. Informal procurement methods cover micro purchases and small purchases. Micro purchases are anything under $10,000. However, there are certain exceptions, so it is crucial to evaluate the Code with each specific purchase.
In contrast, a small purchase is any purchase under the simplified acquisition threshold (currently $250,000). Once your organization hits that $250,000 mark, it is categorized in the formal procurement methods section of the Code. What the federal government looks at is whether your organization uses a fair and open process. Your organization must publicize the opportunity. This can be accomplished by posting a public notice in the newspaper, or the online edition of the local newspaper. Sealed bids are usually the methodology, however, in some cases, your organization can use a less formal process of receiving proposals instead of sealed bids, if sealed bids are not appropriate for some reason.
When evaluating bids, your organization wants to select the lowest responsive bidder as well as the lowest responsible bidder. When considering both bidders, it means selecting the bidder who has complied with all the bid requirements that your organization has put out typically through your request for proposals. Your organization should ensure that the bidder has not made any changes to the specifications to give themself a competitive advantage, like a lower price because they are offering a different product than what you specified. Additionally, it means a bidder who has complied with all the requests for information: their financial capabilities, their experience, their history working with government funding, and a variety of other factors that your organization may have placed in your request for proposals. Ultimately, the selected bidder may very well not be the lowest bidder because the lowest bidder may not have complied with the bid requirements or submitted all required documents. If you are going to spend a large amount of money, whether it’s money from the government or money from a donor, it is crucial that your organization remain cautious and careful in the process of purchasing so that you are selecting the proper recipient of this money.
Finally, if your organization is receiving money from a local or a state grant, their rules may differ from the federal rules. So, it is essential that your organization evaluate whether this is the case and ensure that your organization is following all rules. These rules may be more restrictive. Evaluate whether the funding is flowing from the federal government through the state or local government. In this case, your organization should comply with the most restrictive regulations. The best way to approach this is to read all the documents, and to compare these laws with your internal documents to ensure that your organization’s documents comply with local, state, and federal regulations. This paperwork is essential to ensure that every purchase is well documented, so that your organization has documentation to protect itself from any potential issue in the future.