Playing by the Rules Ch. 3
Chapter 3
Procurement and Contracting
Contents Page
3.1 General Procurement Requirements ......................................................................................................3-3
3.2 Permitted Approaches to Procurement .................................................................................................3-5
3.3 Bonding Requirements ................................................................................................................................3-7
3.4 Use of Local Businesses, Contracting with Small, Minority, and/or
Women-Owned Businesses .................................................................................................................................3-8
Exercise for Chapter 3—Procurement and Contracting Questions ................................................... 3-10
Exercise for Chapter 3—Procurement and Contracting Answers....................................................... 3-11
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Chapter 3: Procurement and Contracting
In this chapter, you will fnd the requirements for purchasing materials, products, or services
with CDBG funds. Regardless of whether you are a small agency purchasing ofce supplies or a
large organization contracting for millions of dollars of construction services, the requirements
for the purchasing process ensure that you:
• Follow a free and open competitive process in acquiring products or services.
• Properly document your purchasing activities and decisions.
• Observe the special rules for specific types of purchases (micro and small purchases,
competitive sealed bids, competitive proposals, and sole source procurements).
• Properly bond and insure large construction contracts and/or subcontracts.
• Use local businesses and contract with small, minority, and/or women-owned busi-
nesses whenever feasible.
When spending taxpayers’ money, no matter
the amount, you must confrm that you are
paying competitive prices and getting the best
value for your community. The rules require
that you pay a fair price; they do not require
that you get the latest technology at the low-
est possible cost, but they do require that you
shop based on price and that you get what
you paid for. You should use CDBG funds to
buy only what is necessary under the terms
of your Subrecipient Agreement. You need to:
1) ensure the integrity of your purchasing de-
cisions; 2) document the history, results, and
decisions of all your purchases; 3) follow the
rules for certain kinds of transactions; and 4)
ofer opportunities to local and disadvantaged
Observing basic rules makes purchasing decisions more efficient.
Example
Set up a standardized purchasing system for
getting price quotes and preparing purchase
orders.
Results
• Avoids reinventing the wheel every time
you buy materials and supplies.
• Stretches limited budgets.
• Documents fair price paid for every pur
chase.
frms to respond to your purchasing needs. By following these requirements, you ensure that
CDBG funds are not being wasted.
Whenever you use CDBG funds to purchase materials or services, you need to document that
you followed the rules to get the lowest price. To avoid disallowed costs and/or repayment for
ineligible expenditures, document the circumstances, need, and details of every purchasing
decision, whether it involves renting an ofce or buying two-by-fours. Initially, this may be
burdensome, but full documentation will help you avoid serious problems in the long run.
AS YOU READ THIS CHAPTER, THINK ABOUT…
1. Setting up a purchasing system designed to confrm that you are getting the best value for
your money.
2. Creating or updating the list of vendors and contractors from whom you plan to purchase
materials, supplies, equipment, and services over the next 12 months.
3. Developing or updating a written procurement manual describing your procedures and a
code of conduct for all employees involved in purchasing.
4. Identifying ways to confrm that all purchasing documents cost and price solicitations,
purchase orders, contracts, delivery receipts, invoices, payables records, and check vouch
ers—are integrated into one system.
5. Ensuring the honesty and fairness of all your vendor relationships and purchasing decisions.
faster than progress is attained).
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Chapter 3: Procurement and Contracting
3.1 General Procurement Requirements
The procurement standards and procedures are to certify that supplies, equipment, construc-
tion, and other services acquired in whole or in part with Federal funds are:
• Obtained as efciently and economically as possible.
• Acquired in a manner that provides open and free competition (2 CFR 200.319(a)).
Your solicitations must clearly explain all requirements that the bidder/oferor must achieve
for you to further consider his or her bid/ofer. Requests for goods and services must contain a
clear and accurate description of the material, product, or service to be purchased, eliminating
any features which unduly restrict competition. Examples of restrictive competition include:
• Placing unreasonable qualifying require-
ments on frms. STATES: 24 CFR 570.489(g) and (h) require
that States develop policies and procedures • Requiring unnecessary experience and ex-for themselves and for their units of general cessive bonding. local government (UGLGs) relating to pro • Inappropriately specifying “brand name” curement and confict of interest, respective
products and not allowing “an equal or ly. These State CDBG regulations give special
similar” product. attention to conficts in procurement, includ
ing the acquisition and disposition of real • Noncompetitive pricing practices between property and the provision of assistance with frms or afliated companies. CDBG funds by the UGLG or its subrecipients, • Noncompetitive awards to consultants on to individuals, businesses and other private
retainer contracts. entities.
Make your contract award to the bidder/ofer-
or whose bid/ofer is most responsive to your solicitation when taking into account price and
other factors. You may reject any or all bids with documented reasons. You must confrm that
awards are made only to responsible contractors possessing the ability to perform successfully
based on the terms and conditions of the proposed procurement. You must also review the
contractor’s integrity, compliance with public policy, record of past performance, and fnancial
and technical resources.
The Federal contracting guidelines ensure that contracts are structured and managed consis-
tently with good administrative practices, using sound business judgment.
The Federal procurement requirements are at Uniform Guidance 2 CFR Part 200, Subpart D,
Procurement Standards and include the following:
• All procurement transactions for the acquisition of property or services must be conducted
consistent with the standards in 2 CFR 200.318 and 2 CFR 200.319, and one of the procure-
ment methods at 2 CFR 200.320.
• All organizations must maintain records detailing the history of your procurement (2
CFR 200.318(2)(i)). These records should include your rationale for the method of procure-
ment used, selection of contract type, contractor selection/rejection process, and the basis
for the contract cost or price.
• Pre-qualified lists of vendors/contractors, if used, must be current, must be developed
through open solicitation, must include several qualifed sources, and must allow entry of
other frms to qualify at any time during the solicitation period (2 CFR 200.319(e)).
• To eliminate an unfair competitive advantage, you must exclude contractors that develop or draft specifications, requirements, statements of work, invitations for bids (IFB), and/or
requests for proposals from competing for such procurement (2 CFR 200.319(b)).
• You must certify that awards are not made to any party which is debarred or suspend-ed or is otherwise excluded from or ineligible for participation in Federal assistance
programs under Executive Order 12549, “Debarment and Suspension” (24 CFR 570.609 and
2 CFR 200.214).
• You must check the Federal Government’s System for Award Management (SAM) and
conduct a public search before making an award.
Playing by the Rules: CDBG Administrative Systems | Chapter 3-4
Notes
Chapter 3: Procurement and Contracting
• You must have clear written selection procedures for procurement transactions (2 CFR
200.319(d)) and confrm that:
• You are avoiding the purchase of unnecessary or duplicate items. Where appro-
priate, you should analyze whether a lease or a purchase is more cost-efective (2 CFR
200.318(d)).
• To foster greater economy and efciency, you should consider entering into state or lo-
cal intergovernmental agreements for procurement for common or shared goods
and services (2 CFR 200.318(e)) or using Federal excess and surplus property when
feasible and reduces project costs (2 CFR 200.318(f)).
• As appropriate, you should provide a preference for the purchase or use of goods produced in the United States, including but not limited to such items as iron, alu-
minum, steel, cement, glass, lumber, plastics, and other manufactured products. Lan-
guage to this efect must be included in all subawards, such as contracts and purchase
orders for work or products (2 CFR 200.322).
• Authorized official(s) of your organization have signed all purchase orders and contracts as required by your procurement procedures.
• Items delivered and paid for are consistent with the purchase order and/or con-
tract for the goods or services.
• Timely payment to vendors occurs once the order is delivered, inspected, and accept-
ed, and the payment is authorized.
• A cost or price analysis is performed for every procurement action—including contract
modifcations—and documented in your fles. The method and degree of analysis are
dependent on the facts surrounding the particular procurement situation. You must
make independent estimates before receiving bids or proposals (2 CFR 200.324(a)).
• Profit or fee is negotiated separately from price where competition is lacking. To es-
tablish a fair and reasonable proft, consideration will be given to the following factors:
• The complexity of the work to be performed.
• The risk borne by the contractor.
• The contractor’s investment.
• The amount of subcontracting.
• The quality of past performance.
• Industry rates for the area (2 CFR 200.324(b)).
• Contract provisions described in Appendix II to Part 200 must be included in any con-
tracts, as applicable.
• Your organization must not use “cost plus a percentage of cost” pricing for contracts (2
CFR 200.324(d)). You may use “time and material” type contracts only after you have docu-
mented that no other contract is suitable, and the contract includes a ceiling price that the
contractor exceeds at its own risk. The cost is the sum of the actual materials, direct labor
hours, general administration, and proft (2 CFR 200.318(j)(1-2)).
• You must have procedures in place to handle and resolve protests and disputes relating to
your procurement and in all instances report such disputes to the grantee (2 CFR 200.318(a)).
• You must have a documented system of contract administration for determining the
adequacy of contractor performance (2 CFR 200.318(h)).
• Your organization must have a written code of conduct for all persons engaged in the
award or administration of contracts. Such standards must ensure that no employee,
ofcer, or agent may participate in the selection, award, or administration of a contract
supported by a Federal award if he or she has a real or apparent confict of interest (2 CFR
200.318 (c)(1)).
Playing by the Rules: CDBG Administrative Systems | Chapter 3-5
Notes
Chapter 3: Procurement and Contracting
3.2 Permitted Approaches to Procurement
Depending on the scarcity of an item or service desired, and the size of the purchase, you may
use diferent methods of procurement under the Federal regulations.1
Permitted Procurement Approaches
Method Preferred for: Type of Purchases Other Requirements/Notes
Micro-pur-When your For supplies or You must distribute purchases equitably
chases total purchase services. among qualifed suppliers (2 CFR 200.320(a)
(2 CFR is less than (1)).
200.320(a) $10,000. See 2
(1)) CFR 200.1 for
the defnition of
micro-purchase
threshold.
Small
purchases
(2 CFR
200.320(a)
(2))
Simple and
informal
purchasing
decisions.
Buying services,
supplies, or other
property that does
not exceed the
simplifed acquisition
threshold2 amount
(currently $250,000)
You must receive price quotes from several
qualifed sources
Your procurement of more than $250,000
over the simplifed acquisition threshold may
not be broken up into smaller parts solely
to qualify for this less complicated process
under the “small purchases” approach.
Competitive Firm, fxed-price Preferred for but not Two or more responsible bidders are willing
sealed bids contract (lump limited to construc-and able to compete (2 CFR 200.320(b)(1)(i)
(formal sum or unit tion services. (B)).
advertise-
ment, 2 CFR
200.320(b)
(1))
price) where
the selection
is based on
price (2 CFR
200.320(b)(1))
You must solicit bids from an adequate
number of sources and provide sufcient
response time. Local and tribal governments
must publicly advertise invitations for bids. (2
CFR 200.320(b)(1)(ii)(A)).
Your IFB must include complete, accurate,
and realistic specifcations and clear defni-
tions of items or services needed that are
sufciently detailed for bidders to properly
respond, plus any pertinent attachments (2
CFR 200.320(b)(1)(ii)(B)).
Bids must be opened publicly at the time and
place stated in your IFB (2 CFR 200.320(b)(1)
(ii)(C)).
If awarded, the contract must be given to the
lowest responsive and responsible bidder
(you can decide to reject all bids, document-
ing the reason, along with the reason for
rejecting any bids [2 CFR 200.320(b)(1)(ii)(D)
and (E)], and retain this documentation in the
fle.)
1 Subrecipients need to be aware, however, that local or state laws or policies may require additional procedures
or set lower dollar-value thresholds for some forms of procurement. Therefore, it is important to check with your
grantee to learn whether any such additional procurement provisions apply.
2 Simplifed Threshold is set by the Federal Acquisition Regulation at 48 CFR Subpart 2.1 (defnitions) and in accor-
dance with 41 U.S. C. 1908 and is periodically adjusted for infation. See OMB Memorandum 18-18.
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Notes
Chapter 3: Procurement and Contracting
Permitted Procurement Approaches
Method Preferred for: Type of Purchases Other Requirements/Notes
Competitive A fxed price Most professional Used only when conditions are not appropri-
proposals or cost-reim-services, technology ate for sealed bids. Mo re than one source
(2 CFR bursement systems, software, must be solicited from an adequate number
200.320(b) contract where etc. of qualifed sources.
(2)) the award is
based upon
an evaluation
process and not
solely on price.
Your Request for Proposal (RFP) must clearly
and accurately state the technical require-
ments for the goods and services required
and be publicized, identifying all evaluation
factors with their relative importance (2 CFR
Architectural/Engi-
neering
Services (A/E)
200.320(b)(2)(ii)).
You may negotiate with the bidders who
are deemed responsive, responsible, and
within a competitive price range, based on
your evaluation of the bidders’ pricing and
technical proposals. After negotiations, you
may allow these bidders to submit a “best
and fnal” ofer.
You must award the contract to the respon-
sible oferor whose proposal is most advan-
tageous to your organization, with price and
other factors considered (2 CFR 200.320(b)(2)
(iii)).
You may use competitive proposal proce-
dures for qualifcations-based procurement
of A/E professional services; in such cases,
you evaluate the frm’s qualifcations and
select the most qualifed oferor, subject to
negotiation of fair and reasonable compen-
sation. You may use this method, where you
do not use price as a selection factor, only in
the procurement of A/E professional services.
You may not use this method to purchase
other types of services through A/E frms
that are a potential source to perform the
proposed project (see 2 CFR 200.320(b)(2)
(iv)).3
Generally, the Federal procurement regulations discourage the use of local geographical preferences
in the evaluation of bids or proposals (except where mandated by Federal statutes), due to the
restrictions on open competition that result. However, in procuring A/E services, you may consider
geographic location as long as this criterion leaves an appropriate number of qualifed frms (2 CFR
200.319(c)).
It is important to note that many states have laws which require the use of qualifcations-based selection (QBS)
procedures when purchasing professional A/E services. Absent a state QBS law, a recipient could opt to use QBS or
competitive proposals. In the latter instance, prices are solicited from all contractors and considered in the selection
process.
3
Playing by the Rules: CDBG Administrative Systems | Chapter 3-7
Notes
Chapter 3: Procurement and Contracting
Permitted Procurement Approaches
Method Preferred for: Type of Purchases Other Requirements/Notes
Noncom-Single source. Noncompetitive negotiations may be used
petitive Public only under very limited circumstances when
proposals/
sole source
(2 CFR
emergency or
condition.
another procurement method is not feasible
because:
• The item or service is only available from a 200.320(c)) single source. (2 CFR 200.320(c)(2)).
• There is a public emergency or condition
requiring urgency that cannot be delayed (2
CFR 200.320(c)(3)).
• The Federal awarding agency or pass-
through entity has authorized noncompeti-
tive proposals upon your written request (2
CFR 200.320(c)(4)).
• After solicitation from several sources,
competition is determined inadequate. (2
CFR 200.320(c)(5)).
For the acquisition of property or services,
the aggregate dollar amount cannot exceed
the micro-purchase threshold.
Among the procurement approaches previously described, the competitive sealed bid resulting
in a frm, fxed-price contract is the preferred procurement approach for construction when:
• There are two or more responsible and qualifed providers (2 CFR 200.320(b)(1)(i)(B)).
• The requirements and specifcations are thoroughly detailed (2 CFR 200.320(b)(1)(i)(A)).
• The selection of the successful bidder can be made principally based on price (2 CFR
200.320(b)(1)(i)(c).
For complicated rehabilitation projects or unique human service activities, other forms of com-
petitive and non-competitive procurement may be necessary or desirable. When the price is
not the single most important objective, it is still important to assure the highest quality of
purchase at the lowest reasonable price through “open and free competition.”
3.3 Bonding Requirements
The requirements for bonding in procurement are as follows:
• For construction or facility improvement contracts or subcontracts exceeding the simplified acquisition threshold, you must ensure that the Federal interest is adequately
protected. You may accomplish this by meeting the following minimum Federal requirements
(see 2 CFR 200.326),4 for bid guarantees, performance bonds, and payment bonds.
• A bid guarantee from each bidder equal to 5 percent of the bid price must be a frm
commitment in the form of a bid bond, certifed check, or other negotiable instrument
provided at the time of the bid as assurance that the bidder is prepared to execute a
contract within the time specifed for the bid amount (2 CFR 200.326(a)).
• A performance bond from the (sub)contractor must be for 100 percent of the con-tract price to secure the contractor’s fulfllment of all obligations under the contract (2
CFR 200.326(b)).
• A payment bond from the (sub)contractor must be 100 percent of the contract price to assure payment of all persons supplying labor and material under the contract
(2 CFR 200.326(c)).
For the current Simplifed Acquisition Threshold, see OMB Memorandum 18-18. 4
Playing by the Rules: CDBG Administrative Systems | Chapter 3-8
Notes
Chapter 3: Procurement and Contracting
3.4 Use of Local Businesses, Contracting with Small,
Minority, and/or Women-Owned Businesses
Federal regulations, both CDBG and non-CDBG, require that you make every efort to use local
business frms and contract with small, minority-owned, and/or women-owned businesses in
the procurement process. Specifcally,
• You must take afrmative steps to use small frms, minority-owned frms, women-owned
frms, or labor surplus area frms in your CDBG-fnanced activities (2 CFR 200.321). Afrma-
tive eforts you should make include:
• Placing these businesses on solicitation lists as potential sources (2 CFR 200.321(b)
(1)).
• Ensuring that such businesses are solicited as potential sources (2 CFR 200.321(b)(2)).
• Dividing total requirements and/or delivery schedules into smaller tasks, when
economically feasible, to permit maximum participation of such businesses (2 CFR
200.321(b)(3) and (4)).
• Requiring prime contractors, when subcontracts are let, to take afrmative steps to
contract with these frms (2 CFR 200.321(b)(6)).
• Section 3 of the Housing and Community Development Act of 1968, requires that sub-
recipients make reasonable eforts to award contracts for construction-related work to be
performed by eligible business concerns located in or owned by residents of the target area.
The purpose of Section 3 is to ensure that low- and very low-income persons, especially
recipients of housing assistance, receive maximum beneft from the employment and other
economic opportunities generated by CDBG-assisted activities (see 24 CFR 570.607(b)).
You should note, however, that the desire to award contracts to local frms is not a legitimate
excuse for avoiding an open and competitive procurement process.
Playing by the Rules: CDBG Administrative Systems | Chapter 3-9
Notes
Use the following chart to determine if your project is subject to the requirements
of Section 3 of the Housing and Urban Development Act of 1968, as amended.
Are you a Recipient of an Award of $200,000+ or a contractor/subcontractor for covered
work with a contract of $100,000+?
Must demonstrate good faith effort to meet the numerical goals established in the Recipi-
ent’s Section 3 plan. If your contractors have subcontracts of $100.000+, the subcontractor
must demonstrate a good faith effort to meet numerical goals and must have the Section 3
clause in their contracts.
Will there be training or hiring from this award
or contracting activities?
YESNO NO
Recipient Contractor/Subcontractor
YES Is the funded assistance for housing construc-tion, rehabilitation, or other public construc-tion work?
Section 3 does not apply.
However, you are encouraged
to provide training, employ-ment, and contracting oppor-
tunities to low- and very low-income residents and
businesses.
Must ensure that contrac-tors/subcontractors awarded
$100,000+ demonstrate a good faith effort in providing
training, employment, and contracting opportunities to
low- and very low-income residents and businesses as
established in your section 3 plan.
Must demonstrate a good faith effort in meeting numeri-cal goals established in the
Recipient’s Section 3 plan.
Chapter 3: Procurement and Contracting
Exhibit 3–1: Section 3 Flow Chart
Section 3 requirements apply to the entire project or activity funded with Section 3 covered assistance, regardless of whether the Section 3 activity is fully or partially funded with
Section 3 covered assistance.
Playing by the Rules: CDBG Administrative Systems | Chapter 3-10
Notes
Chapter 3: Procurement and Contracting
Exercise for Chapter 3—Procurement and Contracting
Questions
Circle the correct answer.
1. The reason for Federal competitive procurement requirements is:
a. To ensure that supplies, equipment, and services are acquired efciently.
b. To help guarantee a “fair” price for items or services bought with Federal funds.
c. To give the public confdence in the procurement practices of Federal assistance
programs.
d. To allow more frms, particularly local frms, small businesses, and minority- or
women-owned businesses, to have an opportunity to compete for work under
Federal programs.
e. All of the above.
2. A cost or price analysis and documentation of the procurement process is only required
for major purchases.
TRUE FALSE
3. A governmental subrecipient is justifed in breaking up a procurement into components
of $150,000 or less to utilize the “small purchase” procedures if the procurement process
for each purchase is still competitive.
TRUE FALSE
4. The “Section 3” requirements for awarding work to local business concerns take prece-
dence over the competitive procurement requirements.
TRUE FALSE
The answers are on the next page.
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Notes
Chapter 3: Procurement and Contracting
Exercise for Chapter 3—Procurement and Contracting
Answers
1. (e) All of the above.
2. FALSE. A subrecipient must do a cost or price analysis and maintain documentation of
the procurement process for every procurement. However, the level of complexity of the
analysis and detail of the documentation should vary by the size of the procurement and
the extent of competitiveness in the process. Therefore, the purchase of desktop statio-
nery supplies will require that the subrecipient maintain a very modest level of documen-
tation of how comparative prices were analyzed (such as through catalogs and/or price
quotes). A sole-source procurement, on the other hand, will require much more extensive
documentation to justify the noncompetitive process and to demonstrate that the price
incurred was fair.
3. FALSE. The standard for “small purchases” is that the procurement for services, supplies,
or property does not exceed $250,000 in the aggregate. For example, it is not allowable
to break up arbitrarily a $300,000 procurement of weatherization materials into $100,000
purchases just to be able to use the less complicated “small purchase” procedures, since
the larger purchase volume entailed in a larger purchase may be likely to result in lower
per-unit prices. The purchase of such materials should be handled through a sealed bid
method of procurement.
4. FALSE. Both sets of requirements must be satisfed. Therefore, the competitive procure-
ment procedures adopted by the subrecipient must also be designed to facilitate and
encourage local businesses to compete for the proposed work.