Are You Prepared for the OMB Supercircular?

The Federal government places many requirements on entities seeking government funding, whether through grants or by contract. For grant recipients, the regulatory landscape is disparate and complex, with numerous rules and guidelines governing the accounting and administrative functions for a variety of recipient categories. Hospitals are governed by a different set of cost principles than universities, and state and local agencies are subject to a third. Anytime one requirement changes within one category, the process needs to be reassessed from the beginning. This system, while inelegant, has gained stability through usage. The marketplace, by necessity, has adapted to this complicated, inconsistent regime. Grant recipients have trained their compliance professionals and other staff to their own particular stovepipe of rules and practices. Entities that meet multiple definitions and government offices that administer multiple types of grants have gained expertise over time in determining which requirements apply to which category.

Now, change is on the way in the form of an omnibus OMB circular—colloquially referred to as the “Supercircular”–that will consolidate this constellation of regulations and (hopefully) provide consistent guidance for both the recipients and issuers of Federal grants. OMB hopes to publish the final rule, accounting for any comments, by the end of 2013, with the rule fully implemented for new awards in “mid-2014.” The new requirements will apply to continuing awards as of the start of the 2014-2015 fiscal year on October 1, 2014. With the advent of this new guidance, grant recipients and administrators must carefully re-evaluate their grant practices to determine what is likely to remain the same and what may change. Below, we outline just a few of the major changes on the horizon:

Reforms to Procurement Standards. For some recipients, these reforms may represent a significant increase in the administrative burden of awarding contracts to vendors who are essential for their grant operations. The Supercircular requires a formal, almost FAR (Federal Acquisition Regulation)-like process for ensuring competition, presumably to ensure the most efficient use of grant dollars. The Supercircular also requires recipients to offer disappointed offerors for grant-funded contracts an opportunity to protest the failure to the grantee, and, in the case of a violation of Federal law, to the awarding agency itself. A robust and effective procurement process will be critical to the success of navigating these new administrative burdens.

Subrecipient Monitoring and Management. The Proposed Guidance places increased emphasis on assessing and monitoring subrecipients.  This, too, will require a rigorous, FAR-like approach similar to the subcontractor monitoring practices currently employed by for-profit organizations.

New Choices for the Recovery of Indirect Costs. For recipients who strategically position themselves, these choices may offer significant advantages. Notwithstanding the current method of negotiating indirect rates, higher education institutions and nonprofit organizations may now be able to use negotiated lump sums for indirect expenses, predetermined multiyear indirect rates, negotiated fixed rates with carryforward provisions, and even fixed rates by award. Determining which solutions work best for your organization now will help you to quickly incorporate this new approach into your estimating process as soon as the final rule is issued.

Eric Sobota is a managing director with BDO’s Government Contracting practice. He can be reached at esobota@bdo.com.

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