Today, December 19, 2016, is the second anniversary of the Office of Management and Budget’s announcement of the interim final rule fully implementing the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”).

The grants system has long remained highly fragmented across agencies, lagging behind its highly developed “sister system,” the federal procurement system.  Unification of grant requirements through the Uniform Guidance has been a major systemic improvement, and the OMB should be commended.  While, hopefully, in the coming years we will see the Uniform Guidance become a spring board for further modernization, this two-year mark is a good place to take stock of its immediate impact.  Anecdotally, my observations are:

• Procurement Standards. The most significant substantive change for the majority of recipients has been the increased prescriptiveness of the procurement standards.  Recipients other than states have not only had to update their policies and procedures, but also alter aspects of how they conduct their day-to-day business.  As evidence of the real impact of this change, Institutions of Higher Education (“IHEs”) are poised to secure a statutory relaxation of the new competition requirements in the form an IHE-specific definition of the micro-purchase threshold (making it $10,000 for IHEs, instead of the otherwise applicable $3,500).

• Pass-through Entity Obligations. The Uniform Guidance’s clarified requirements on subrecipeint relationships and pass-through entity responsibilities have garnered a great deal of attention, including increasing attention from agency reviewers.  While this clarification does not seem to have led to significant changes in business practices, it does seem to have led to increased documentation of existing practices.  Also, the Uniform Guidance’s express clarification that pass-through entities must recognize subrecipients’ federally-approved indirect cost rate agreements seems to be helping subrecipients to obtain proper indirect cost reimbursement from state-administered programs.

• Time and Effort Documentation. The Uniform Guidance’s more flexible documentation requirements in support of allocation of labor costs have been of considerable interest to recipients.  The extent to which grant-making agencies and their Offices of Inspectors General will be satisfied with supporting documentation that is less robust than the previously required time and effort reports remains uncertain.   Still, recipients seem generally to view this relaxation as presenting room for streamlined business systems.  In particular, this change seems to have reduced administrative burden where the time of numerous employees of an organization is 100 percent dedicated to a single cost objective.

• Mandatory Disclosure. New mandatory disclosure requirements, and related items like drawing grants and cooperative agreements into the Federal Award and Performance Information System (“FAPIIS”), have yet to sink in.  It is not clear that either agencies or recipients are fully engaged on these items.

• Cost Principles. Subtle word changes in the cost principles occasionally trigger agency interpretations of allowability that would not have been expected under the prior OMB Circulars, even where it seems unlikely that changes from past standards were actually intended.

• Separate Promulgation by the Department of Health and Human Services (“HHS”). Allowing HHS to separately implement the Uniform Guidance in its own portion of the Code of Federal Regulations, 45 C.F.R. Part 75, is already leading to two distinct sets of rules.  Moreover, where HHS’s Part 75 differs from 2 C.F.R. Part 200 is, and will likely remain, unclear to anyone who does not follow its development or laboriously examine the two documents side-by-side.  This is a considerable area of risk to OMB’s commendable effort to unify and streamline grant requirements.

With only two years since the implementation of the Uniform Guidance, we have already observed significant changes and expect that 2017 will bring more.  If you have questions about the Uniform Guidance, federal grants in general, or want to share your observations, please contact me directly at SSheffler@feldesman.com.