August 2020 Uniform Guidance Changes: Key Takeaways from the Five-Year Update

Our Feldesman Tucker Leifer Fidell LLP (FTLF) grant law attorneys have completed an initial review of the recent changes to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”), 2 C.F.R. Part 200.

As this update represents the federal government’s first five-year update of the critical and still relatively new government-wide Uniform Guidance, there are a number of noteworthy changes.  Below is information on effective dates, as well as our assessment of the most significant changes.

Effective Date:

The effective date of the Uniform Guidance revisions is November 12, 2020, with some exceptions and caveats:

  • First, the effective date of regulations implementing the Section 889 (the “Huawei Ban” discussed below) are effective immediately, i.e., August 13, 2020, the issuance date of the Final Guidance.
  • Second, the revisions are not applicable to awards of federal financial assistance issued prior to August 13, 2020, including funding under the awards under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act of 2020 (Pub. L. 116–136).
  • Third, to the extent that the revisions may impact negotiated indirect cost rate agreements (“NICRAs”) (or underlying costs), they will only go into effect for future NICRAs (any NICRAs in effect as of August 13, 2020, will remain valid until their expiration).
  • Fourth, since the Department of Health and Human Services (“HHS”), has implemented the Uniform Guidance in 45 C.F.R. Part 75 through entirely separate text, the revisions will not technically be effective for HHS awards until HHS implements them. Additionally, to the extent exceptions adopted in other agency-specific regulations might now be impacted by specific updates from these government-wide Uniform Guidance revisions, further clarifying action by those agencies may be necessary.

Noteworthy Changes:

  • Implementing Language for Executive Orders 13891 and 13892 on Guidance Documents: Though not directly referencing E.O.s 13891 and 13892 (Oct. 9, 2019), a new subsection (b) has been added to 2 C.F.R. § 200.105 (Effect on other issuances) to operationalize, for grant programs, the E.O.s’ limitations on “binding” sub-regulatory guidance.  Under the new § 200.105(b) language, it appears that sub-regulatory guidance may still be incorporated into awards, but only if (i) clearly referenced in the award document, and (ii) properly promulgated and published in accordance with the requirements of E.O. 13891.  For most guidance, this means it will have to be publicly accessible on a searchable agency database at the time of award and referenced in some way in the award document.  Guidance which “materially alter[s]” a grant recipient’s rights and obligations would be considered a “significant guidance document” required to go through a notice and comment process.
  • Performance-Based Focus in Award and Evaluation: Language has been amended throughout the guidance to emphasize agency focus on substantive program accomplishment and consideration of data relating to programmatic effectiveness.  While these changes do not appear likely to alter performance risk, it is possible that emphasized data in funding opportunity announcements and required reports may shift slightly as a result.
  • Termination Standards: The bases available for termination of an award have been expanded to include authorization for awarding agencies to terminate an award “to the greatest extent authorized by law, if an award no longer effectuates the program goals or agency priorities.”  The termination language has also, however, been modified to strongly encourage agencies to clearly articulate termination rights and procedures “in applicable agency regulations or in the award [document].”  See Revised § 200.340 (formerly § 200.339).
  • Budget Period Concept: Various textual changes have been made to (i) clarify the concept of funded “budget periods,” and (ii) emphasize the fact that future budget periods are not guaranteed even if referenced as potential future award periods in a notice of award.  These clarifications are likely in response to a number of cases in 2018 and 2019 in which the federal government was blocked by a number of federal courts from ceasing funding to certain Department of Health and Human Services (“HHS”) awards at the end of then-current budget periods.  HHS had ended the funding based upon a policy change in how it desired the programs to be implemented.  When challenged, the courts held that “period of performance” as defined in HHS’s version of the Uniform Guidance was the full potential period of performance, in the cases at hand five-year project periods.  As such, cessation of the awards was viewed as “termination” under 45 C.F.R. Part 75, requiring either concurrence of the grantee or a performance failure on the part of the grantee, neither of which was present.[1]
  • De Minimis Rate Availability Broadened and “No Documentation” Standard Clarified: Revisions to 2 C.F.R. § 200.414(f) expand the availability of the de minimis rate to all entities that do not currently have a negotiated indirect cost rate agreement (“NICRA”).  Additionally, while continuing to caution that directly charged costs must not be recovered twice by application of the de minimis rate, the changes emphasize that, as a matter of grant administration, “[n]o documentation is required to justify the 10% de minimis indirect cost rate.”
  • Publication of Most Grantees’ Key NICRA Information: OMB added § 200.414(h), which calls for publication on an OMB-designated website of each recipient’s rate, base, and rate type.  Tribal governments are excluded from the coverage of this provision.
  • Subaward Matters: While continuing to state that passthrough entities must recognize federally approved NICRAs, 2 C.F.R. § 200.332 (formerly § 200.331) is amended to clarify that in the absence of a federally approved NICRA, passthrough entities are to either negotiate a rate, adopt a rate negotiated by the subrecipient previously with the passthrough entity or another passthrough entity, apply the de minimis rate, or accept a direct allocation methodology employed by the subrecipient.  The revised guidance further clarifies that passthrough entities are only responsible for addressing findings in Single Audit Act audit reports related to their particular subawards.
  • Procurement Matters Generally: Section 200.320 was redrafted to enhance its clarity.  The revised language is clearer with respect to methods of procurement and their relationships to each other, as well as in clarifying that micro-purchases require no competitive process.  The revisions also adopt the increased micro-purchase threshold (“MPT”) of $10,000 and simplified acquisition threshold (“SAT”) of up to $250,000.  Further, and unexpectedly, the revisions authorize grantees with clean audits (or certain other qualifications) to annually elect MPTs of up to $50,000.  With approval of a grantee’s cognizant agency for indirect costs, MPTs may also, at least theoretically, be raised above $50,000.  Finally, a new § 200.322 was added (as proposed in January) to suggest that grantees “should” provide for domestic sourcing preferences “to the greatest extent practicable.”
  • Section 889 of the 2019 NDAA (the “Huawei Ban”): Though considerably scaled back from the January 2020 proposed rule, a new § 200.216 provides for a broad prohibition against purchasing any “equipment, services, or systems that uses [sic] covered telecommunications equipment or services as a substantial . . . component of any system.”  Covered telecommunications equipment or services include such items provided by Huawei Technology Company, ZTE Corporation, or any of their many subsidiaries or affiliates.  When it is to be used for certain public security purposes, such equipment also includes products provided by Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, and Dahua Technology Company, and their subsidiaries and affiliates.  Additional information on this new requirement will be forthcoming through an FTLF client alert dedicated to this matter.  A newly selected item of cost has also been added to implement this requirement at § 200.471.
  • Never Contract with the Enemy: To implement Sections 841-843 of Public Law 113-291, the National Defense Authorization Act (“NDAA”) for Fiscal Year 2015, OMB added 2 C.F.R. Part 183 and 2 C.F.R. § 200.215 – Never Contract with the Enemy, applicable to grants and cooperative agreements in excess of $50,000, that are performed outside the United States and its territories, in support of a contingency operation in which members of the Armed Forces are actively engaged in hostilities.  These provisions prohibit recipients from providing funds, subawards, or contracts to persons actively opposing the United States or coalition forces involved in said contingency operations.
  • Adjustment of Rental Costs Language to Accommodate Accounting Terminology Changes: The terminology used in § 200.465 (Rental costs of real property and equipment) with respect to “capital leases” is amended to account for recent changes in accounting practice, now addressing “finance leases” for private entities and “financed purchases” for governmental entities.
  • Other Notable Changes:

◦  The definitions have been consolidated into a single section at 2 C.F.R. § 200.1;

◦  Guidance has been added regarding the repayment of funds via an electronic letter of credit systems such as HHS’s Payment Management System “PMS”) (2 C.F.R. § 200.305(b)(10));

◦  Pre-award costs are, when authorized, generally to be charged only to the first budget period of an award (§ 200.458);

◦  Publication costs related to research, when authorized, are generally to be charged only to the final budget period of an award (§ 200.461); and

◦  The period available to direct recipients to submit final reports during closeout has been extended to 120 days, while the period for subrecipients to do so remains, absent special circumstances, 90 days (§ 200.344(a)).

◦  OMB now requires, if applicable, that financial assistance applicants provide certain information on their immediate owner and highest-level owner and subsidiaries, as well as on all predecessors that have been awarded a Federal contract, grant, or cooperative agreement within the last three years (§ 25.200).

Authors and Additional Information:

For additional information, please do not hesitate to contact the authors:

In addition, we are hosting a webinar on Monday, August 24, 2020, at 1:00 PM ET to share our observations on the key revisions, highlight particularly impactful changes, and discuss the potential implications for grantees. You can learn more or register here.

[1] See, e.g., Policy and Research, LLC v. U.S. Department of Health and Human Services, 313 F. Supp. 3d 62 (D.D.C., May 11, 2018).