The subrecipient vs contractor determination is made by a Federal award recipient or subrecipient when deciding to issue either a subaward or a contract to another organization for work associated with the prime Federal award.
This information applies to:
All grants and cooperative agreements
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Overview
A recipient of a Federal financial assistance award must determine the proper role of organizations they partner with to carry out the work under the prime Federal award. Depending on the role established, the partnering organization may be either a subrecipient or contractor. This determination is important in that each award instrument type (subaward or contract) has differing Federal regulations related to administrative practices and documentation, allowability of costs, and other Federal Federal compliance requirements. The incorrect determination by the pass-through entity could result in audit findings, such as the repayment of improper costs, or even affect their future Federal funding opportunities.
Authorities
2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
§200.1 Subrecipient and Subaward.
Subrecipient means an entity that receives a subaward from a pass-through entity to carry out part of a Federal award. The term subrecipient does not include a beneficiary or participant. A subrecipient may also be a recipient of other Federal awards directly from a Federal agency. Subaward means an award provided by a pass-through entity to a subrecipient for the subrecipient to contribute to the goals and objectives of the project by carrying out part of a Federal award received by the pass-through entity. It does not include payments to a contractor, beneficiary, or participant. A subaward may be provided through any form of legal agreement consistent with criteria in with § 200.331, including an agreement the pass-through entity considers a contract.
§200.1 Contractor and Contract.
Contractor means an entity that receives a contract. Contract means, for the purpose of Federal financial assistance, a legal instrument by which a recipient or subrecipient conducts procurement transactions under a Federal award. For additional information on subrecipient and contractor determinations, see § 200.331. See also the definition of subaward in this section.
Click to open paragraph toolsmeans, for the purpose of Federal financial assistance, a legal instrument by which a recipient or subrecipient conducts procurement transactions under a Federal award. For additional information on subrecipient and contractor determinations, see § 200.331. See also the definition of subaward in this section.
[78 FR 78608, Dec. 26, 2013]
§200.331 Subrecipient and contractor determinations.
An entity may concurrently receive Federal awards as a recipient, a subrecipient, and a contractor. The pass-through entity is responsible for making case-by-case determinations to determine whether the entity receiving Federal funds is a subrecipient or a contractor. The Federal agency may require the pass-through entity to comply with additional guidance to make these determinations, provided such guidance does not conflict with this section. The Federal agency does not have a direct legal relationship with subrecipients or contractors of any tier; however, the Federal agency is responsible for monitoring the pass-through entity's oversight of first-tier subrecipients. All of the characteristics listed below may not be present in all cases, and some characteristics from both categories may be present at the same time. No single factor or any combination of factors is necessarily determinative. The pass-through entity must use judgment in classifying each agreement as a subaward or a procurement contract. In making this determination, the substance of the relationship is more important than the form of the agreement.
(a) Subrecipients. A subaward is for the purpose of carrying out a portion of the Federal award and creates a Federal financial assistance relationship with a subrecipient. See the definition of Subaward in § 200.1. Characteristics that support the classification of the entity as a subrecipient include, but are not limited to, when the entity:
(1) Determines who is eligible to receive what Federal assistance;
(2) Has its performance measured in relation to whether the objectives of a Federal program were met;
(3) Has responsibility for programmatic decision-making;
(4) Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
(5) Implements a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.
(b) Contractors. A contract is for the purpose of obtaining goods and services for the recipient's or subrecipient's use and creates a procurement relationship with a contractor. See the definition of contract in § 200.1. Characteristics that support a procurement relationship between the recipient or subrecipient and a contractor include, but are not limited to, 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 implementation of a Federal program; and
(5) Is not subject to compliance requirements of a Federal program as a result of the agreement. However, similar requirements may apply for other reasons.
Frequently Asked Questions
Whose responsibility is it to make the subrecipient vs contractor determination?
It is the responsibility of the pass-through entity to make the correct determination between subrecipient or contractor determination. This determination is to be made on a case-by-case basis depending on the unique relationship of each individual situation. Entities should focus on the substance of the relationship, not the form of the agreement, when making this determination. Entities MUST use judgement in determining whether each agreement is a subaward or a procurement contract (§ 200.331 above).
Why is it important to properly distinguish between a subrecipient and a contractor?
Federal regulations differ between subrecipients and contractors. One of the biggest reasons is that subrecipients are required to comply with applicable Federal compliance requirements, which are passed down from the pass-through entity to the subrecipient. Contractors are not subject to the same compliance requirements of the Federal program. It is the responsibility of the pass-through entity to identify the subaward to the subrecipient and include the information listed in § 200.332(b)(1) in the associated agreement document.
Our organization uses a "contract" as the legal instrument to enter into agreements with both subrecipients and contractors. Therefore we consider all of our relationships as contractors. Is this acceptable?
No. Many recipients, particularly State agencies, call all of their legal instruments "contracts". A non-Federal entity may concurrently receive Federal awards as a recipient, subrecipient, and a contractor, depending on the substance of its agreement with the Federal agency and pass-through entities. Therefore, a pass-through entity must make a case-by-case determination whether each agreement it makes for the disbursement of Federal program funds casts the party receiving the funds in the role of a subrecipient or a contractor. Pass-through entities need to reflect upon the nature of each agreement's relationship to determine if the relationship is that of a subrecipient or a contractor.
What guidance can you provide in order to help distinguish between a subrecipient or contractor?
§ 200.331(a) provides characteristics which generally support the classification of a non-Federal entity as a subrecipient. Characteristics generally supportive of a contractor are listed in 2 CFR 200.331(b).
What are some of the characteristics indicative of a subrecipient relationship?
Characteristics that support the classification of the entity as a subrecipient include, but are not limited to, when the entity:
(1) Determines who is eligible to receive what Federal assistance;
(2) Has its performance measured in relation to whether the objectives of a Federal program were met;
(3) Has responsibility for programmatic decision-making;
(4) Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
(5) Implements a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.
Some additional characteristics (in reference to research projects) of a subrecipient relationship include, but are not limited to, when:
(1) substantive, programmatic work or an important or significant portion of a research program or project is being undertaken by the other entity;
(2) the other entity participates in a creative way in designing and/or conducting the research;
(3) a principal investigator has been identified at the entity and functions as a "Co-Investigator";
(4) there is an expectation that the entity will retain ownership rights in potentially patentable or copyrightable technology or product that it products in the course of fulfilling its scope of work;
(5) publications may be created or co-authored at the entity; and (6) the entity provides cost sharing or matching funds for which it is not reimbursed by pass-through entity.
What are some of the characteristics indicative of a contractor relationship?
Characteristics that support a procurement relationship between the recipient or subrecipient and a contractor include, but are not limited to, 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 implementation of a Federal program; and
(5) Is not subject to compliance requirements of a Federal program as a result of the agreement. However, similar requirements may apply for other reasons.
Some additional characteristics (in reference to research projects) of a contractor relationship include, but are not limited to, when:
(1) the entity has provided little or no independent decision-making in the design and conduct of the research being completed;
(2) the entity commits to deliverable goods or services, which if not satisfactorily completed will result in no payment;
(3) the entity does not expect to have its employees credited as co-authors on papers or publications that result from the research; and
(4) the work will not result in any potential patentable or copyrightable products.
Can you provide an example of a scenario where a pass-through entity enters into a relationship with a subrecipient?
Scenario #1:
A state fish and wildlife agency receives a Sport Fish Restoration grant to study the effects of stocking white crappie into a large flood control reservoir in terms of bolstering the population in order to improve abundance for recreational fishing. The state fish and wildlife agency in turn enters into a relationship with a local university to conduct the research as approved in the grant application. Under this scenario, the state fish and wildlife agency acts as the pass-through entity and the university becomes the subrecipient. A subrecipient determination would be adequate in this scenario because the university
(1) has its performance measured against whether the objectives of the Federal program at met;
(2) most likely has responsibility for programmatic decision making;
(3) has responsibility for adherence to applicable Federal compliance requirements; and
(4) uses the Federal funds to carry out a program of the organization as compared to simply providing goods or services.
Scenario #2:
A state environmental protection agency has been designated by the governor to be the state agency to receive Clean Vessel Act (CVA) program funding. The state agency receives a Clean Vessel Act grant to construct marine sewage pumpout facilities at public lakes across the state. The state agency enters into an agreement with a private marina to construct a marine sewage pumpout facility that will be open and available to the boating public. The pumpout facility will safely accept and remove marine sewage from recreational vessels. Under this scenario, the state environmental protection agency acts as the pass-through entity and the private marina owner becomes the subrecipient. This subrecipient determination would be adequate because the private marina
(1) has its performance measured against whether the objectives of the Federal program are met;
(2) has responsibility for programmatic decision making;
(3) has responsibility for adherence to applicable Federal compliance requirements; and
(4) uses the Federal funds to carry out a program of the organization as compared to simply providing goods or services.
Can you provide an example of a scenario where a pass-through entity enters into a relationship with a contractor?
Scenario #1:
A state fish and wildlife agency receives a Wildlife Restoration grant for annual operations and maintenance of its wildlife management areas and facilities located at the areas. The state fish and wildlife agency determines that a new roof is needed on one of its regional wildlife offices located at one of the wildlife management areas. The state agency in turn enters into a relationship with a local business to remove the existing roof and replace with a new roof. Under this scenario, the state fish and wildlife agency acts as the non-Federal entity and the local roofing business becomes the contractor. A contractor determination would be adequate in this scenario because the local roofing business
(1) provides goods or services within normal business operations;
(2) provides similar goods or services to many different purchasers;
(3) operates in a competitive environment;
(4) provides good or services that are ancillary to the operation of the Federal program; and (5) is not subject to compliance requirements of the Federal program.
Scenario #2:
A state fish and wildlife agency receives a Sport Fish Restoration grant to sample, monitor, and manage 50 public recreational sport fisheries across the state. Included in the grant, the state agency requests to purchase five new vehicles and two new electrofishing boats from private businesses. Under this scenario, the state fish and wildlife agency acts as the non-Federal entity, while both the vehicle dealership and the electrofishing boat manufacturer become contractors, respectively. A contractor determination would be adequate in this scenario because both entities are
(1) providing goods and services within normal business operations;
(2) providing similar goods or services to many different purchasers;
(3) operating in a competitive environment;
(4) providing goods or services that are ancillary to the operation of the Federal program; and
(5) not subject to compliance requirements of the Federal program.
Scenario #3:
A state fish and wildlife agency receives a Sport Fish Restoration grant to compare growth, mortality, and recruitment of northern-strain vs Florida-strain largemouth bass in Lake Bobber. The state fish and wildlife agency will use its internal research biologist staff to conduct the research. However, they do not have the equipment and expertise to run the genetic samples from all largemouth bass collected. They enter into a relationship with a university that will perform the genetic testing of samples to determine which largemouth bass are northern-strain vs Florida-strain. Once completed, the university will provide the results back to the state fish and wildlife agency staff who will in turn then perform the data analysis and develop the final report. Under this scenario, the state fish and wildlife agency acts as the non-Federal entity and the university acts as a contractor. A contractor determination is appropriate because the university is
(1) providing goods or services within normal business operations;
(2) providing similar goods and services to many different purchasers;
(3) providing goods or services that are ancillary to the operation of the Federal program; and
(4) not subject to compliance.
Learning Aids
Related Pages
Risk Assessment Requirements for Pass-Through Entities
