Procurement Standards for Federal Grants

Why Federal Procurement Rules Exist

Procurement standards under 2 CFR 200 exist to ensure that federal grant funds are spent through open, competitive processes that maximize value and prevent waste, fraud, and abuse. Unlike private organizations that can purchase from any vendor at any price, federal grant recipients must follow prescribed methods that increase as the dollar amount increases. The core principle is straightforward: competition drives better prices and better outcomes for the public investment.

Procurement violations are among the top findings in Single Audits. Common problems include insufficient competition, missing documentation, split purchases designed to avoid thresholds, and failure to check vendor suspension and debarment status. These findings frequently result in questioned costs, which can require repayment to the federal government.

General Procurement Standards (§200.318)

Before diving into specific methods, §200.318 establishes overarching requirements that apply to all procurements under federal awards:

• Organizations must use their own documented procurement procedures, provided those procedures conform to the federal standards in §200.317–327
• Procurement must be conducted in a manner providing full and open competition
• Records must be maintained detailing the history of each procurement, including the rationale for the method used, selection of contract type, contractor selection or rejection, and the basis for the contract price
• Organizations must maintain oversight to ensure contractors perform in accordance with contract terms and conditions
• Organizations are prohibited from using “cost-plus-a-percentage-of-cost” contracts and “time-and-materials” contracts except when no other type is suitable and the contract includes a ceiling price

The Five Procurement Methods (§200.320)

Section §200.320 establishes five procurement methods, organized by transaction size and complexity. Each method has specific requirements for competition, documentation, and approval. The 2024 revisions significantly increased the threshold amounts.

1. Micro-Purchase (§200.320(a))

The simplest procurement method, for acquisitions at or below the micro-purchase threshold. Under the 2024 revisions, the threshold is $50,000 (increased from $10,000). Micro-purchases may be awarded without soliciting competitive quotations, provided the price is considered reasonable based on research, experience, purchase history, or other information. Purchases must be distributed equitably among qualified suppliers to the extent practicable.

While no competitive quotes are required, the organization must still document that the price is reasonable. A simple price comparison from a prior purchase, an online price check, or a catalog reference satisfies this requirement. The equitable distribution requirement means you should not default to the same vendor for every micro-purchase — rotate among qualified suppliers when feasible.

2. Small Purchase Procedures (§200.320(b))

For purchases above the micro-purchase threshold but at or below the simplified acquisition threshold of $250,000. Small purchase procedures require price or rate quotations from an adequate number of qualified sources — generally interpreted as a minimum of three. The quotations do not need to follow formal solicitation procedures but must be documented.

Best practice is to obtain written quotes and document them in the procurement file along with the basis for vendor selection. If fewer than three quotes are available (e.g., the service is highly specialized), document the effort made to obtain quotes and the reasons fewer were available.

3. Sealed Bids / Formal Advertising (§200.320(c))

Required for purchases above $250,000 when a complete, adequate, and realistic specification can be prepared and the award will be made primarily on the basis of price. Sealed bids are the preferred method for construction projects and commodity purchases where specifications are well-defined. Requirements include:

• Public advertisement with sufficient time for bidders to respond
• Bids opened publicly at a stated time and place
• Firm fixed-price contract awarded to the lowest responsive and responsible bidder
• Any or all bids may be rejected if there is a sound, documented reason

4. Competitive Proposals (§200.320(d))

Used for purchases above $250,000 when sealed bids are not appropriate — typically for professional services, consulting, IT systems, and other procurements where factors beyond price (such as technical approach, qualifications, and past performance) are relevant to the selection decision. This is the most common formal procurement method for healthcare organizations purchasing consulting, evaluation, and technical assistance services.

Requirements include a written request for proposals (RFP) distributed to an adequate number of qualified sources, a clear description of evaluation factors and their relative importance, technical evaluation of proposals before price evaluation, and award to the firm whose proposal is most advantageous to the program with price and other factors considered. The evaluation criteria must be established before proposals are received and may not be changed after receipt.

5. Noncompetitive Proposals / Sole Source (§200.320(c))

Procurement through solicitation from only one source. Sole source procurement is permitted only under one of four conditions:

• Unique source — the item or service is available from only one source
• Public emergency — the urgency of the requirement will not permit the delay of competitive solicitation
• Federal authorization — the federal awarding agency expressly authorizes a noncompetitive procurement
• Inadequate competition — after solicitation from a number of sources, competition is determined to be inadequate

Sole source justifications must be thoroughly documented. “We've always used this vendor” or “they're the best in the field” are not sufficient justifications. The documentation must demonstrate why competition was not feasible and how the price was determined to be reasonable.

Procurement Thresholds Summary

Competition Requirements (§200.319)

All procurement transactions must be conducted in a manner providing full and open competition consistent with the standards of §200.319. The following practices are specifically prohibited because they restrict competition:

• Placing unreasonable requirements on firms to qualify to do business
• Requiring unnecessary experience or excessive bonding
• Noncompetitive pricing practices between firms or affiliated companies
• Organizational conflicts of interest
• Specifying only a brand name product without allowing “or equal” alternatives
• Arbitrary actions in the procurement process

Geographic preferences are also prohibited, with limited exceptions for architectural and engineering services. Organizations cannot restrict solicitations to vendors in their local area or give preference to in-state firms.

Conflict of Interest (§200.318(c))

Organizations must maintain written standards of conduct covering conflicts of interest and governing the actions of employees engaged in the selection, award, and administration of contracts. No employee, officer, or agent may participate in the selection, award, or administration of a contract supported by a federal award if a real or apparent conflict of interest would be involved. Conflicts arise when the employee, officer, or agent — or any member of their immediate family, partner, or employer — has a financial or other interest in the firm selected for an award.

The standards of conduct must include provisions for disciplinary actions to be applied for violations. Officers, employees, and agents must neither solicit nor accept gratuities, favors, or anything of monetary value from contractors or parties to subcontracts. Organizations may set minimum thresholds where the financial interest is not substantial or the gift is an unsolicited item of nominal value.

Suspension and Debarment (§200.214)

Before awarding any contract under a federal grant, the organization must verify that the vendor is not suspended or debarred from receiving federal funds. This check must be performed through the System for Award Management (SAM.gov) Exclusions database. The verification must be documented for each procurement — a screenshot or printout of the SAM.gov search result showing no active exclusions is the standard documentation method.

This requirement applies to all contracts expected to equal or exceed $25,000 and to all contracts for services that are covered transactions (regardless of amount). Failure to verify suspension and debarment status is a compliance finding, and contracting with a debarred vendor can result in cost disallowances for the entire contract amount.

Required Contract Provisions (Appendix II)

Appendix II to 2 CFR 200 lists the contract provisions that must be included in all contracts made by non-federal entities under federal awards. These are not optional — omitting required provisions is a compliance finding. The provisions vary based on contract amount and type:

Documentation and Record Retention

Every procurement action must be documented sufficiently to demonstrate compliance with federal requirements. At minimum, the procurement file for each transaction should include:

• Rationale for the procurement method selected
• Selection of contract type
• Basis for contractor selection (evaluation criteria and scoring, if applicable)
• Basis for the contract price (quotes, bids, or cost analysis)
• SAM.gov suspension and debarment verification
• Sole source justification (if applicable)
• The executed contract with all required federal provisions

Procurement records must be retained for three years from the date of submission of the final expenditure report, or three years from the date of final disposition of the property acquired, whichever is later. See the reporting and record retention guide for detailed retention requirements.

Common Procurement Audit Findings

Understanding the most frequent procurement findings helps organizations focus their compliance efforts where they matter most:

• Insufficient competition — failing to obtain the required number of quotes or using sole source without adequate justification
• Missing contract provisions — contracts that do not include the required Appendix II provisions
• No SAM.gov verification — failing to check or document suspension and debarment status before award
• Split purchases — dividing a purchase into smaller components to stay below a threshold and avoid competition requirements
• Missing conflict of interest documentation — no written standards of conduct or no evidence that conflicts were evaluated

For guidance on how procurement findings affect your Single Audit, see our audit requirements chapter. For cost allowability of procured goods and services, see the cost principles guide.