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Recent Federal Uniform Grants Guidance Addresses Contracting With Nonprofits

State Controller Issues Letter Highlighting 2 CFR-200 Uniform Grants Guidance

March 23, 2017
The state Controller recently issued a letter to cities and counties designed to increase awareness of federal regulations affecting contracting with nonprofits that were adopted in 2015.
While the prospects of continued federal funding remain challenging, the Controller’s letter highlights provisions known as Uniform Grants Guidance (2 CFR 200) that outlines allowable practices for the reimbursement of administrative, direct and indirect costs incurred by nonprofit  organizations in the delivery of services funded through federal dollars.
The regulations replace a number of previous Office of Management and Budget (OMB) circulars that addressed monitoring and management of grant recipients. In addition to addressing the areas of monitoring and management, the regulations impose new requirements with respect to risk assessment and payment of indirect costs (overhead or administrative services) of the nonprofit. Prior to these regulations, a nonprofit’s indirect costs were not required to be paid and the allegation is that some agencies did not provide for these costs to be paid or paid them at a rate that was not sufficient for the nonprofit to fully cover these costs.
Under the new regulations, cities are “pass-through entities” and nonprofits receiving the grants are “sub-recipients.” The regulations require that the pass-through entities include funding of the nonprofit’s reasonable indirect costs at a minimum of 10 percent of the nonprofits total direct contract costs. The pass-through entity can agree to a higher rate but cannot require the nonprofit to accept a lower rate. There are two exceptions: where the nonprofit has negotiated a rate with the federal government or there is a specific rate in the federal statute that created the funding source. The negotiated or statutory rate applies in these two cases.
It is difficult to assess the financial impact on cities as this would appear to vary from grant to grant and from nonprofit to nonprofit. However, it appears clear that the intent of the regulations is to provide for reimbursement at the 10 percent rate at a minimum. Because previously this was not a requirement, cities administering federal grant funds may have varying reimbursement practices.
Cities that receive federal dollars and contract with nonprofits for the delivery of services with those funds should review the Controller’s letter and the recently revised federal requirements. 

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