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The subrecipient vs contractor determination is made by the pass-through entity when entity (or, PTE) when electing to work with another non-Federal entity on entity (or, NFE) on a Federal financial assistance award. These two roles have different purposes and Federal requirements; therefore, improper identification of the relationship could result in disallowed costs and/or unnecessary financial audits and/or reviews. 

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The requirement placed on Federal financial assistance award recipients to determine relationships with other non-Federal entities NFEs they work with on those awards is an important one: failure of the pass-through entity PTE to establish the correct award instrument with the non-Federal entity as either a subaward or a contract could mean subsequent audit findings that require repayment of improper costs (in the case of a subaward treated as a contract), or unnecessary audits that cost both time and money to the PTE and its partner in the relationship (in the case of a contract treated as a subaward). Federal award recipients should consult 2 CFR 200 for guidance on making the correct determination.

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