The right tools: What the procurement team needs to do when your local jurisdiction obtains federal funds and grants

Written by Michael Keating

Local agencies can access more federal funding because of recent legislation such as the American Rescue Plan Act, Bipartisan Infrastructure Law and the Inflation Reduction Act. Are local governments up to the task of competently and successfully administering federal funds—especially entities that have obtained federal dollars for the first time?

“The first thing that pops to mind is the struggle that so many local governments are having in dealing with the complexities of using federal funds. Tons of questions out there,” says Terry McKee MPA, procurement director, procurement division at Knoxville’s (Tenn.) Community Development Corporation (KCDC). McKee co-wrote the text for NIGP’s “Using Federal Grant Funds,” and served on the panel that drafted an NIGP Global Best Practice on the topic. McKee has also conducted a primer on using federal prevailing wages for the Tennessee Association of Public Purchasing (TAPP) and may offer this presentation to other NIGP chapters and entities.

Yes, it seems more local entities are relying on federal funds and grants. McKee says this trend appears to be true. “Many agencies that have previously received very little or no federal funding are now trying to properly expend a lot of federal funding. My experience is that public procurement officials want to conduct their business in the proper model, and thus we often feel anxiety when we are unfamiliar with rules and expectations.”

McKee tells Government Procurement that using grant funds (whether federal, state local or even private grants) adds complexity and time to the procurement process. “However, with careful planning, thoughtful reading of the paperwork and guidance from the grantor and colleagues, using grants is very doable. Procurement staff members need to take a deep breath and then proceed.”

McKee says good things can happen, but local administrators need to be attentive and vigilant with the new inflows. “While the monies will enable your entity to serve your citizens to a greater extent, there are a lot of strings attached to federal dollars, and their rules must be followed, or you may end up having to repay the funds. It is critical that your entity read the grant document thoroughly and understand the requirements.”

As a first step upon being notified that they are federal grant recipients, cities and counties should get a copy of the grant document itself, McKee explains. “Obtain a copy as soon as possible and have the procurement team carefully read it. This is important since every grant, while probably similar to past ones, may have its own nuances and special requirements. While grant documents are typically very long and mostly not pertinent to procurement, there are

typically some nuggets in the grant document that are very important to procurement.” Those nuggets, he adds, may include items such as the date by which the funds must be obligated, the date by which the funds must be expended and any special reporting requirements.

Many federal agencies deliver grants, McKee says. Key federal granting agencies include Education, Energy, Health & Human Services, Homeland Security, Housing & Urban Development, Justice and Transportation.

“One common grant pool that has been around many years is the Community Development Block Grants (CBDG) from Housing & Urban Development. These grants are available for states, cities and counties to develop viable urban communities by providing decent housing and a suitable living environment.” CBDG grants, adds McKee, help to expand economic opportunities, principally for low- and moderate-income persons.

One wrinkle in government finances that can add complexity for cities and counties as they manage federal grants is when fiscal years differ between levels of government. The federal fiscal year runs from October 1 to September 30, while the most common months for local government fiscal years to end are the last month of each calendar quarter. About 26 percent of local governments have a fiscal year-end on June 30 and 50 percent have a fiscal yearend on December 31, according to the U.S. Census Bureau.

McKee adds that there are two important dates for procurement officials to understand and comply with as the federal grant is expended. “First, there is the requirement that the funds be obligated by a certain date (often 12 months, 18 months or 24 months). This simply means that a contract (inclusive of a purchase order) [will] be issued to a vendor committing to spending the funds by the stated date.”

The second critical date, says McKee, is the expended-by date. “No matter when the funds are obligated, they must be expended by a certain date as stated in the grant. If they are not, your entity can lose the grant funds, or the portion not expended.”

There are some slipups, McKee says, that can be avoided as local governments manage federal grants. “From the procurement perspective, one mistake is not realizing that your local rules must be in compliance with the federal rules. For instance, your entity may allow local preference in procurement, but generally the federal rules do not allow for local preference (there are some narrow exceptions).”

Another area where confusion may result is bid thresholds, McKee explains. “While the federal thresholds for sealed bids are typically set at a much higher level than those of local governments, the federal rules generally require an entity to use the more restrictive of the two.”

Reading and understanding the grant paperwork is crucial, McKee says. “Because if the grantor agency has reporting requirements that your software cannot accommodate, your entity needs to immediately begin finding a way to provide that reporting to meet the requirements. It is not acceptable at the end to just say ‘Sorry, our software does not allow us to provide that information.’” McKee advises: “The local entity must ensure that they have the ability to report information back to the grantor in the format the grantor wants the information.”

Technology has come to the rescue, McKee tells Government Procurement. “I am aware of specialized software that enables tracking and reporting Prevailing Wage requirements for these grants. The federal Department of Labor has approved a few software packages, and entities can use these to replace the labor-intensive paper-based process.” He adds that most major enterprise resource planning (ERP) packages allow the tracking of federal grant expenditures.

Local governments may consider using federal funds on their cooperative contract purchases. “Generally, the federal guidance encourages local governments to use cooperatives to leverage procurement volume and thus reduce costs. Additionally, using cooperatives reduces staff time,” McKee explains. He cautions: “However, it is critical that the local government read the grant and understand what the grantor expects concerning cooperatives. Some grants discourage the usage of cooperatives (generally this is a small number) but even if the grant encourages the usage of cooperatives, it is critical to document why your entity is using a cooperative.” McKee adds that it is important that the local government can demonstrate and document that they conducted their due diligence to ensure that the cooperative award meets all the federal requirements.

Cities and counties that have won federal grants need to be especially vigilant against cyber-crime, McKee says. “Cyber-protection is critical in general because governmental agencies, large and small, are prime targets for cyber-attacks. I suspect that a press release stating that ‘My city just won a $50-million grant’ might raise a cyber-crook’s interest. But entities should have robust cybersecurity policies and procedures in place though there are no guarantees of safety. Even federal agencies such as the U.S. Marshals Service and the Department of Defense (DOD) have experienced cyber-incidents!”

There’s no shortage of sources that can help local government administrators get a handle on federal grants management, McKee explains. “No one person, (including me) knows everything about using federal funds. However, between NIGP and its chapters, Government Finance Officers Association of the United States and Canada (GFOA), National Association of State Procurement Officials (NASPO) and other similar entities and other procurement colleagues, there is a wealth of information available to guide your entity.”

NIGP has some useful tools for this topic. They include a Specialization Certificate: Using Federal Grant Funds. NIGP also has a Global Best Practices section on its site that covers related topics. The NIGP Headliner Series offers an on-demand program titled “Navigating Multiple Federal Funds Guidelines.” The NIGP has established a chat group for this topic on its NSite platform. This platform also allows for the sharing of documents and samples.

McKee offers this additional advice for procurement and local government administrators who are now dealing with federal grants: “With all of that said, while it is a whole new discipline for many public procurement officials, it is learnable and doable, so do not be intimidated. Read, read, read and ask questions.”

Michael Keating is senior editor for American City & County. Contact him at [email protected].

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Editor’s Note: This article originally appeared in the June 2023 issue of Government Procurement.