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the Office of Science and Technology (OST), Presidential memorandums to heads of agencies, and Executive orders. This guidance is not issued systematically through a medium similar to procurement regulations.
Almost all agencies acknowledge the need for Government-wide guidance on grant-type activities, provided that the guidance is well conceived and administered. The need for guidance is reflected in the complaints voiced by recipients, particularly universities, that OEO, HUD, and DOT do not understand the special nature of educational institutions and try to impose on them arrangements which are appropriate only for commercial procurements. An example cited is the insistence by DOT on the use of contract provisions requiring that a recipient institution "guarantee performance” in a procurement sense, even though the institution regards the transaction as one of Federal support for research of general public interest.
The problem is that the agencies and the recipients often differ on whether a transaction or relationship is assistance or procurement. This problem is becoming more noticeable because some agencies’ "grants” are more complicated than other agencies' contracts. The agencies often see their role as more than “grantors." Yet the relationships are not procurement relationships. This problem compounds the confusion and adds to the frustration felt between these agencies and recipients. Representatives of State and local government are especially emphatic and vocal about the
need for making the whole system more rational.
Regulations governing Federal procurement are intended to provide all prospective contractors with a fair opportunity to meet Federal procurement needs. It is intended that anyone can pick up the procurement regulations and their implementing policies and procedures and generally determine what his rights and obligations will be if he chooses to compete for a contract award. He can also determine how to bid or propose, what the basic evaluation criteria will be, and what safeguards are built in to ensure fairness. Requests for proposals frequently specify the weights to be assigned various evaluation factors, and the contractor usually has a right to be debriefed if he is unsuccessful.
Most assistance procedures call for making awards in a different but equally fair fashion; however, the fact that the standards governing grant-type assistance are not widely understood generates suspicion of assistance awards. Criticisms of procurement awards can focus on failures to meet the published standards for procurement. Many persons in the business community regard the various agency procedures under which assistance awards are made as devices to circumvent procurement procedural requirements that are intended to ensure fairness. Thus, a standard set of assistance award procedures should be developed to promote more efficient administration of Federal grant programs in an improved atmosphere of public trust.
Assistance and Procurement Relationships
The Government pursues its objectives in a variety of ways. Many functions are performed “in-house” by Government personnel. Needed goods and services are often purchased under contract with non-Federal sources. Other Federal objectives are attained by supporting or stimulating certain activities of State and local governments, other organiza
tions, and individuals. These activities relate le to functions which historically have been
performed and can be best undertaken by nonFederal governments, organizations, and individuals. The term "Federal assistance" generally designates Federal support or stimulation of these activities, and “grants” and "grants-in-aid" are instruments by which much Federal assistance is provided.
Assistance, while similar to procurement in some respects, is significantly different. from procurement. Assistance is intended to:
• Help a recipient carry out its functions
functions and objectives supported through assistance be carried out by State and local governments, educational institutions, other nonprofit organizations, and individuals rather than by or under the direct control of the Government. One reason for this policy is the belief that the meaningful participation of organizations and individuals tends to insure that the programs consider and serve local or public requirements, values, and needs in the most desirable and direct manner, while accomplishing the broader purposes or objectives of Congress.
Congress, by statute, generally establishes basic program objectives, requirements, and standards and then appropriates funds to be awarded by the agencies under arrangements such as "grants” or “grants-in-aid.” Thus, congressional intent, as well as particular program purposes, distinguish grant-type assistance from procurement.
In addition to the differences in basic intent and purpose between assistance, which is to support, stimulate, or aid another party's activities, and procurement, which is to purchase or buy goods and services primarily for Government use, other differences help to distinguish assistance from procurement.
In many, if not most, grant-type assistance relationships, the Government asks the recipient to define what it will do to achieve the objectives of the program. This often is accomplished through submission of a proposal or through a State or local plan. The recipient usually is responsible for deciding what it will do or how it will do something. In most procurements the Government specifies what it wants or how it wants something done as clearly and in as detailed a fashion as it can,
Congress normally has preferred that the
* For a detailed treatment of the "make-or-buy" decision, see Part A, Chapter 6. The use of GSA sources is treated in Part D, Chapter
* Assistance is also provided by loans, insurance, direct payments, nonfinancial forms such as the furnishing of property or technical assistance, and even via the procurement process in the form of preferences for small business or for labor surplus areas.
thus assuming responsibility for specifying the project scope. (There are, of course, exceptions to this in the procurement of research.)
In assistance, price or estimated cost plays a small role in the selection of the recipient. Many assistance funds are awarded, for example, on geographical or per capita bases by formula; others are awarded according to need or capability. The reasons for selection of an assistance recipient are in large part a reflection or a function of the objectives of the program. Competition, if it exists, differs considerably from competition in the traditional procurement sense where proposers or bidders compete on the basis of price and other factors for one specific award; and where basic regulations require, for example, that a procurement be awarded to the lowest responsive and responsible bidder. Under procurement, a determination must be made that an organization is “responsible," that is, capable of performing; assistance awards sometimes are made with knowledge that the recipient needs some form of aid or help in order to perform.
Under procurement, a basic arms-length buyer-seller relationship generally is expressed in a formal manner, with the rights and duties of the Government and the performer defined in detail. The Government, in the role of a buyer, has many rights which it may or may not choose to exercise. The Government may control or direct the work through its specifications, changes, inspection, and acceptance procedures; and the Government can terminate for its convenience and, where appropriate, for default. In assistance, however, there is not this buyer-seller relationship as the Government's role is not that of a purchaser but rather that of a patron or partner For this reason, the relationship is more of a cooperative one with responsibilities for assuring performance resting largely with the recipient or shared with the Government. Assistance relationships tend to be less formal and expressed in less detail. The differences in the roles of the parties in assistance and procurement shape the different understandings and expectations of the parties.
Procurement relationships can and do vary in the extent of formality, rights, and control. Cooperative and fairly informal arrangements can be found, especially in the procurement
of research. Nonetheless, procurement processes are colored by the basic purposes they serve, the obtaining of goods and services for Government use. The procurement process is made up of policies, procedures, and requirements to serve that purpose; it involves requirements that seldom apply in assistance; for example, use of formal advertising or requests for proposals; price competition; competitive evaluation of bids or proposals for a specific project; competitive negotiation and selection of a contractor; use of determinations, findings, and other justifications; use of a panoply of standard, optional, and special provisions which spell out the rights and obligations of the parties in detail; and detailed inspection and acceptance procedures.
Although assistance and procurement differ basically in their inherent purposes, other differences lie in types of recipients, bases for selection, roles and responsibilities of the parties, and basic processes and requirements. Such secondary characteristics tend to complicate the picture, but congressional intent and program purpose usually determine whether an activity should be regarded as assistance or procurement.
Agency support or stimulation of a recipient's activities, or agency cooperative participation or involvement to aid a recipient differs from Federal procurement for Federal use. Of course, the Government may wish to build a flood-control system for a community and then donate it to the community. This method, although occasionally necessary for technical reasons, is an exception to the general rule that assistance functions be carried out so far as possible by or under the direction of the recipient. That is, it is intended that the Government assist and not perform or procure.
Relationships and New Authority
Recommendation 1. Enact legislation to (a) distinguish assistance relationships as a class from procurement relationships by restricting the term “contract” to procurement relationships and the terms "grant,” “grant-in-aid,” and “cooperative agreement”
to assistance relationships, and (b) authorize the general use of instruments reflecting the foregoing types of relationships.
GRANT-TYPE ASSISTANCE RELATIONSHIPS
To distinguish among grant-type relationships in a way that would reduce the confusions we found, we examined a number of characteristics which are often used to distinguish among grant-type transactions. “Discretionary” project grants, in which the agency determines who gets an award and the amount of the award, are often contrasted with “nondiscretionary" formula grants for which the statutes specify recipients and/or amounts. In examining “nondiscretionary” transactions, we found a variety of formula transactions, including those which:
• Provide funds solely on the basis of formulas • Match the amounts spent by the recipient for specified purposes • Permit agencies to increase the amounts determined under a formula by increments based on the “needs” of the recipient • Require agency approval of State or local plans prior to providing funds • Permit the recipient to make discretionary grants or contract out significant amounts • Provide basic formula amounts and additional discretionary project amounts.
The agencies have more discretion in these formula-type grant situations than is apparent from the term “formula.” Although parts of the formula process may be mandatory or mechanical, the discretion left to the agency in negotiation, in rulemaking, or in establishing procedures is significant. The Department of Agriculture (USDA), for example, under some grant programs distributes funds to States based on a formula specified in the enabling legislation but requires State Experiment Stations to obtain USDA approval of individual projects before the stations can spend grant funds.
Because there are discretionary elements in
most formula programs, many of the distinctions between the formula grant and the discretionary project grant break down. They are not useful for our purpose of distinguishing among grant-type relationships. Similarly, distinctions such as cost-sharing or matching, type of recipient, or the extent and character of pre-award negotiations do not seem to be useful in distinguishing among grant-type relationships. They are characteristics of granttype transactions or relationships, but they are not characteristics which individually or in combination sort the grant-type universe into classes of transactions which would reduce the confusions and help resolve the problems we find.
However, one important characteristic does permit grant-type transactions to be divided into two meaningful classes: grant-type transactions vary according to the extent and type of interaction that occurs between the Government and the recipient during performance of the supported activity.
One class requires little or no Federal involvement during performance; for example, support of most activities at educational institutions, support of the work of individual artists or the travel of individual scholars, or support or stimulation of ongoing activities of State and local governments. These recipients can exercise maximum discretion in performing provided they spend funds for the purposes for which they were awarded. In some programs the purposes to be achieved are outlined and negotiated before award (resulting in an agreed-upon scope of work or a State or local plan). If there is little or no need for agency involvement during performance, the recipient is responsible for performance in accordance with the agreed-upon scope and with certain specified standards and requirements. This first class includes the largest number of grant-type transactions.
The second class is characterized by significant Federal involvement during performance. The programs or projects found in this second class of grant-type relationships are of such a nature that Federal/recipient interaction is necessary or desirable during performance to assure the solving of a problem or the production by the recipient of a useful product or service. While these transactions are comparatively few in number, they constitute an important class of grant-type relationships. This class includes those grant-type programs or projects in which:
• Federal “project management” or Federal program or administrative assistance would be helpful because of the novelty or complexity involved (for example, in some construction, information system development, and demonstration projects) • Federal/recipient collaboration in performing the work is desirable (for example, in collaborative research, planning, or problemsolving) • Federal monitoring is desirable to permit specified kinds of direction or redirection of the work because of interrelationships among projects in areas such as applied research • Federal involvement is desirable in the early stages of ongoing programs, such as HEW welfare activities or LEAA programs, where standards are being developed or the application of standards requires a period of adjustment until recipient capability has
been built. These categories are not mutually exclusive. They are intended to illustrate the kinds of projects which may require substantial Federal/recipient interaction during performance.
tract" should be used for a procurement relationship regardless of who the parties are (for example, contracts should be used for procurements accomplished by Federal grantees under their grants).
The terms "grant” and “grant-in-aid” should be restricted to assistance relationships in which the responsibility for performance rests basically with the recipient and, thus, little or no Federal involvement or participation during performance is required. The extent to which “grants” and “grants-in-aid” should differ from each other is not clear. However, it would be useful to standardize terminology for these types of assistance in one of the following ways:
• Use "grants-in-aid” for transactions between units of Government and “grants" for all other transactions • Use “grants-in-aid” when the method of selection is based on a formula and “grants” when it is not • Use "grants-in-aid” when significant costsharing or matching is required and “grants” when it is not The first alternative is preferable and the most meaningful. The type of performer is easily determined and there are significant differences between units of Government and other classes of performers. The method of selection would be a poorer basis because it would denote nothing unique: many "formula” transactions, for example, are characterized by the use of substantial amounts of agency discretion. Cost-sharing or matching also is a poor criterion because there are no unique and consistent reasons used for obtaining cost-sharing or matching.
Finally, cooperative or participatory Federal/non-Federal assistance relationships in which substantial Federal involvement is needed during performance form a distinct class of relationships and they should not be referred to as "grants," "grants-in-aid," or "contracts.” The term "cooperative agreement” should be used to reflect relationships requiring Federal/recipient interaction during performance. Rather than containing the unilateral Federal rights to change or terminate a contract, a "cooperative agreement” would
CHOICE OF INSTRUMENTS
To clarify the distinction between granttype assistance and procurement and to distinguish between the two classes of grant-type assistance, different instruments should be used for each of these three kinds of relationships.
The term "contract” should be restricted to procurement relationships. The term should not be used to express assistance-type relationships regardless of the type of recipient being assisted. Price-competition considerations should be kept in the procurement area. The justifications required for procurement should not complicate the processing of assistance transactions where competition, if it exists, takes a form different from competition in procurement situations. But, a “con