The Super Circular: Is It Reform or Something Else?

Introduction

The release of the super circular by the U.S. Office of Management and Budget (OMB) in the December 26, 2013, issue of the Federal Register has ushered in the largest rewrite of pre- and post-award grant policy since the origin of the circular management system in the early 1970s.

In this second of eight briefings on the new super circular, The Grantsmanship Center turns its attention to the big picture of federal grant reform. With a regulatory guidance document of this length, it’s easy to get so lost in the many particular items of change as to lose sight of the way grants, as we have known them to be especially during the last 40-plus years, will change overall.

The new super circular fills 103 three-column pages in the Federal Register. But what exactly is it? Is this truly reform? Or is it something else masquerading as reform? Does it really change the nature of grants? Or is it merely a big exercise rearranging the furniture?

Change—especially one this large—generates many questions. But the over-arching question is this: What do the changes in the super circular really mean for grantseekers, grant recipients, and the awarding agencies?

The Nature of Grants Is Fundamentally Changed

My thesis is that, when they have been fully implemented by the end of 2014, the super circular and a variety of related Executive Branch actions will fundamentally change grants as we have known them to be. From Colonial times to the first decade of the 21st Century, grants have been viewed as “gifts with strings attached.” This is no longer the case.

As gifts with strings attached, grants allowed a great deal of flexibility in the grantor and grantee relationship. Both sides proposed ideas, some of which involved considerable risk. Outcomes were based on one’s best efforts to implement what the grant proposal promised to deliver. Although it rarely happened, a recipient could abandon his gift with little consequence. At its most radical, the grants-as-gifts paradigm allowed the acceptance of a grant to be construed as a soft promise. You didn’t have to do anything in a contractual sense.  This was, of course, an extreme view, but there is a measure of truth in it.

With the coming of the super circular, the pendulum, after gradually picking up speed over the past 45 years, has completed its swing in the opposite direction. Grants are now “assistance agreements” whose terms and conditions bind you to deliver what you have promised as you also carry out a variety of added-in national policy requirements, continuous certifications and assurances, federal agency priorities, and Executive Branch priorities reflected in OMB Circular A-11 and the President’s Budget.

The “gift” is now an agreement that really does bind you, just as a contract does under the Federal Acquisition Regulation (FAR). Default or substantial noncompliance with the grant’s terms and conditions carries serious short- and long-term consequences.

What is important for awarding agencies and recipients to understand is the practical impact of the super circular.  

Impact of the Changes

Consolidation

OMB and the Council of Financial Assistance Reform (COFAR) have made much of the fact that the recipient community will be well served by one comprehensive set of “streamlined” grant guidance to replace eight others. There is merit to a consolidation in the Code of Federal Regulations (CFR) that puts everything in one place (Title 2 CFR). This is a noteworthy achievement.

But once you’ve read through all the super circular’s provisions, two conclusions are inescapable. First, about 60 per cent of the text is furniture rearrangement. It draws heavily from the former OMB Circular A-110, with a nod to the procurement and records provisions of the former Common Grant Rule. But the remaining 40 per cent of the consolidated super circular does contain the many additions, clarifications, and changes that will transform the nature of grants.   

From Gifts to Assistance Agreements

With this super circular, grants have ceased to be gifts with strings as historically understood. Because grants are now “assistance agreements” with many benefits but equally as many burdens and risks, they will be virtually indistinguishable from contracts under the FAR. Some examples from the super circular guidance will illustrate my point.

First, let’s take the concept of mutual claims against each other (2 CFR 200.14) as the term “claim” is defined in the super circular. This language clearly is now more consistent with claims as currently understood in the FAR. The concept of disputes in grants is, of course, not new. But with the notable exception of the Department of Health and Human Services, which has a Grant Appeals Board, few federal awarding agencies have developed formal procedures for consistent use in adjudicating grant disputes.

Agencies who have not established more formal mechanisms for adjudicating grant disputes will need to do so. The likely choices are to use the existing Boards of Contract Appeals that exist in some agencies, use their agency administrative law judge systems or establish a grant appeals board staffed by law judges. It is quite possible that some agencies may well opt to have money claims disputes heard by their boards of contract appeals largely out of convenience. From a grant perspective, this means that such disputes will be decided by adjudicators who think much like the contracts world, having little or no experience in the world of grants.

Finally, what happens after this agency decision—especially if the grant recipient feels that they are correct in the face of an adverse agency administrative decision? The answer is that a recipient would have to file suit in the Federal Court of Claims. The Court of Claims is a special court of law that is the forum for filing claims against the United States. Additionally, claims above $50,000 have to be certified pursuant to the 1887 Tucker Act.

Second, the cost principles and selected items of cost have been revised in countless ways so that they are much closer to their FAR cousins in 48 CFR Part 31. Now, all types of recipient organizations must certify their costs, as has been the case with contracts under the FAR for many years. This required certification places greater compliance and business risk on all grant recipients.

Third, initial and continuous representations and certifications both when the grant is awarded and throughout its life cycle will be a universal requirement. This trend was already in play with grant awards from the Department of Transportation (DOT) and the department of Energy (DOE), to cite two notable examples. But the concept of initial and continuous representations and certifications is now part and parcel of every contract solicitation and award pursuant to the FAR. Just take a look at schedules H, I and K of the universal solicitation and award format (Standard Form 33) for confirmation of this fact.

Fourth, cost administration and management will place much greater burdens on recipients at every phase of the grant process, audit of grants, and closeout. Cost errors in terms of certification, allocation, and charging can lead to questioned costs, disallowed costs, and subsequent disputes. Cost-charging errors are likely to be treated as improper payments to be recovered as a debt to the federal government. (See 2 CFR 200.345.) While this, in and of itself, is not entirely new, the requirements associated with cost management will be stricter under the super circular.

Fifth, explaining away audit findings—especially questioned and disallowed costs—will get much harder under the super circular. Disallowed costs (2 CFR 200.31) and questioned costs (2 CFR 200.84) will give rise to cost claims that will constitute a debt to the federal awarding agency. Federal awarding agencies will have less discretion in handling questioned and disallowed costs under the management decision provisions of the super circular (see 2 CFR 200.521).

Realizing that the bite of audits and audit findings is likely to be much sharper in future years, OMB and COFAR do envision a transition process of cooperative audit resolution (see 2 CFR 200.25 and 200.513 (c) (3) (iii) ), where the awarding agencies and recipients work together to strengthen the compliance profile of grant recipients.

Assistance Agreements: Servants of the Federal Budget Development and Execution Process

For many years the General Accountability Office (GAO) has argued that the Executive Branch agencies have needed better evaluative tools to determine whether the federal programs funded by the federal budget are achieving results. This, of course, includes contracts and grants.

During the era of grants as gifts, the grant relationship was much more flexible in terms of outcomes. Outcomes were based largely on the best efforts of the grant recipient. As one colleague once said to me, “When you get a grant, you don’t have to do anything.” As long as grants were seen as gifts made in expectation of the recipient’s best efforts to fulfill mutual expectations, this statement had a grain of truth.

But, beginning about 20 years ago, four major statutes ushered in a climate of greater accountability with an emphasis on results that would demonstrate the effectiveness of federally funded programs. Respectively, these laws are the Government Performance and Results Act of 1993 (P.L. 103-62), the Chief Financial Officers Act of 1990, (P.L. 101-576) the Federal Funding and Transparency Act of 2006, and to a lesser extent the Federal Financial Assistance Improvement Act of 1999 ( P.L. 106-107).

It took time but OMB, the agency Chief Financial Officers (CFOs), the Council on Federal Assistance Reform (COFAR), and the federal audit community have converged to make grants subservient to presidential and agency budget priorities with a focus on performance results. Exhibit A for this new emphasis on program worth and results is OMB Memorandum M-13-17, “Next Steps in the Evidence and Innovation Agenda,” issued July 26, 2013. The articulated purpose of M-13-17 is to deliver a government that is smarter, more innovative, and more accountable administratively and financially. Awarding agencies are now required to shift the emphasis and focus of federal programs to funding projects based on evidence-based practices and innovation.

At its very best, this shift has the potential to improve the impact and performance of federal assistance programs. At its worst, the grants funding agenda can become wholly captive to agencies with preconceived policy agendas, in which case the role of the recipient community will be to fit its needs to the aims of the federal granting agencies, whether or not they match.

Attachment A, Section C, to M-13-17 instructs awarding agencies to use innovative outcome-focused grant designs based on approaches with strong evidence of effectiveness and evaluation methodologies that build on what has proven to work. It suggests the following grant design approaches: (1) pay for success; (2) tiered-evidence grant designs; (3) performance partnerships with waiver demonstrations; (4) using competitive grants to encourage evidence-based strategies in formula grants; and (5) multi-phased grant competitions.

Once again, if you come to the grants profession with a federal contracts background, the footprints of the FAR are clearly visible in these suggested grant designs. But small non-profits—especially new organizations—may be unable to compete well in this new world of highly competitive assistance agreements.

One thing is certain: Grant-seekers of all types will face a variety choices concerning the methods of delivery of grant opportunities, not just program types and fundable activities.

As these neo-FAR-based approaches to grants acquisition are rolled out, they prompt a series of important questions:

1. How much freedom will grantseekers have to define the needs of their organizations and their clients and to write winning grant proposals based on those actual needs?

2. Will these “new” approaches to awarding assistance agreements really promote innovation?

3. Will those who win these grants be mere supplicants to agency policy and budget priorities? Will the needs of the community--and applicant ideas for meeting these needs--be overlooked? Or can the needs of the community take center stage?

4. Will newly formed and smaller organizations be able to compete successfully in this new grant design environment? Or will they become assistance-agreement sub-recipients living off the scraps from larger organizations? Worse yet, will many small organizations just fade away simply because they won’t be able to compete successfully in an assistance-agreement environment where only the strongest will survive?

5. The over-arching question for every would-be grant recipient is, “Can I remain independent while competing for and getting one of these assistance agreements, or must my organizational autonomy be surrendered to Washington in exchange for dollars?”

Summing Up

This is by no means a wholesale argument against the reforms. Many of the changes brought about by the super circular have practical value or other merit.

But the unmistakable conclusion is that grants as we have known them to be for more than 200 years will be different. They are no longer gifts but “assistance agreements” whose provisions and behavior will be barely distinguishable from contracts under the FAR.

Grantseekers and recipients of grants must operate now in a grant environment where they face considerably more pre- and post-award risk associated with grant funding. The granting agencies will face greater pressure to prove that their grant programs and the assistance that they award are worthwhile in terms of both the results they achieve and the degree to which they advance key federal budget and management priorities set forth in OMB Circular A-11 and in various federal statutes relating to performance and accountability.

—Henry Flood, Senior Advisor

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Links:

2CFR 200 Super Circular Dec 26, 2013: http://www.gpo.gov/fdsys/pkg/FR-2013-12-26/pdf/2013-30465.pdf

I. Introduction, para. 1: to “super circular”: http://www.gpo.gov/fdsys/pkg/FR-2013-12-26/html/2013-30465.htm]

II-B, para. 4:  to “Standard Form 33”: http://www.acquisition.gov/far/html/FormsStandard10.html.]

II_C, para. 5: to “OMB Memorandum M-13-17”: http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-17.pdf ]