Procurement Standards for Federal Grant Funds: Purchasing Compliance

Why Procurement Standards Matter for Grant Recipients

Every organization that receives federal grant funds must follow specific procurement standards when purchasing goods and services with those funds. These standards, established in 2 CFR 200.317 through 200.327, are designed to ensure that federal dollars are spent efficiently, that competition is maximized, and that the procurement process is free from conflicts of interest and favoritism. Procurement violations are among the most common audit findings for federal grantees, and they can result in disallowed costs that must be returned to the federal government.

Many organizations make the mistake of assuming that their existing purchasing policies are sufficient for federal grants. In most cases, they are not. Federal procurement standards impose requirements that go beyond what most nonprofit or government purchasing policies address. Understanding these requirements before you make your first grant-funded purchase is essential for avoiding costly compliance errors. For a broader look at how costs must be managed under federal awards, see our guide on federal cost principles and grant budgets.

General Procurement Standards

Before examining the specific methods of procurement, it is important to understand the general standards that apply to all grant-funded purchases. These overarching requirements form the foundation of federal procurement compliance.

Written procurement procedures: Your organization must maintain documented procurement procedures that reflect applicable federal, state, and local laws and conform to the standards in 2 CFR 200.
Full and open competition: All procurement transactions must be conducted in a manner providing full and open competition. This means you cannot restrict competition through unreasonable requirements, organizational conflicts of interest, or brand-name specifications without adequate justification.
Conflict of interest standards: No employee, officer, or agent of your organization may participate in the selection, award, or administration of a contract if a real or apparent conflict of interest exists.
Documentation: You must maintain records sufficient to detail the history of each procurement, including the rationale for the method of procurement, the selection of contract type, the contractor selection or rejection criteria, and the basis for the contract price.

Methods of Procurement

The Uniform Guidance establishes specific procurement methods based on the dollar value and nature of the purchase. Each method has distinct requirements.

Micro-Purchases

Purchases at or below the micro-purchase threshold (currently $10,000 for most non-federal entities, though this threshold is periodically adjusted) may be made without soliciting competitive quotations. However, the price must be considered reasonable, and you must distribute micro-purchases equitably among qualified suppliers to the extent practicable. Micro-purchases are not exempt from documentation requirements; you must still maintain records showing that the price was reasonable.

Small Purchases

For purchases above the micro-purchase threshold but below the simplified acquisition threshold (currently $250,000), you must obtain price or rate quotations from an adequate number of qualified sources. While the regulation does not specify a minimum number, most auditors expect to see at least three quotes. These quotations do not need to follow formal solicitation procedures, but they must be documented.

Sealed Bids (Formal Advertising)

Sealed bidding is the preferred method for construction contracts and other procurements where a complete, adequate, and realistic specification or purchase description is available, two or more responsible bidders are expected to compete, selection can be made principally on the basis of price, and a firm fixed-price contract can be awarded. The process requires public advertising of the invitation for bids, sufficient time for bidders to respond, and award to the lowest responsive and responsible bidder.

Competitive Proposals

When sealed bidding is not appropriate, competitive proposals are used. This method is common for professional services and other procurements where price is not the sole determining factor. The process requires publicizing the request for proposals, soliciting proposals from an adequate number of sources, having a written method for evaluating and selecting the contractor, and awarding the contract to the offeror whose proposal is most advantageous to the program considering price and other factors identified in the solicitation.

Noncompetitive Proposals (Sole Source)

Sole source procurement is permitted only under specific circumstances: the item is available from only one source, a public emergency exists, the federal awarding agency expressly authorizes noncompetitive procurement, or competition was solicited but resulted in inadequate responses. Sole source procurements require thorough documentation justifying why competition was not feasible. Our post-award compliance guide covers additional documentation practices that support procurement compliance.

Contract Cost and Price Analysis

For every procurement action exceeding the simplified acquisition threshold, the grantee must perform a cost or price analysis. A cost analysis evaluates each element of cost to determine reasonableness. A price analysis compares the proposed price to benchmarks such as published price lists, market surveys, or prices paid for similar items in previous procurements. This analysis must be documented and maintained in the procurement file.

Common Procurement Compliance Errors

Auditors consistently identify the same procurement errors across organizations of all sizes. The most common include:

Splitting purchases to stay below competition thresholds, which is explicitly prohibited
Failing to document the basis for contractor selection when multiple bids or proposals are received
Using brand-name specifications without allowing equivalent alternatives
Not verifying that contractors are not suspended or debarred by checking SAM.gov before awarding contracts
Awarding contracts to parties with organizational conflicts of interest without disclosure and mitigation

Avoiding these errors requires building procurement compliance into your organizational processes. Training procurement staff on federal requirements and conducting periodic internal reviews of procurement files are both effective strategies. Understanding how budget planning connects to procurement decisions is also essential, and our resource on advanced budgeting strategies explores this connection in depth.

Learn more about grant writing strategies at Subthesis.

Build Procurement Compliance Into Your Grant Management Practice

Procurement standards are one of the most technically detailed areas of federal grant compliance. Getting them right protects your organization from audit findings and disallowed costs. Enroll in The Complete Grant Architect course to master procurement compliance alongside every other essential skill for successful grant management.