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thus assuming responsibility for specifying the project scope. (There are, of course, exceptions to this in the procurement of research.)

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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 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 form

ulas

• 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 compar

atively 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.

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

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

contain clauses reflecting the mutual interests in any changes and the nature of both parties' rights to terminate. The specifics of who does what and who is responsible for what would be expressed in the instrument that defines the relationship.

The need for the cooperative agreement mode was recognized while examining projects or programs in which grants and contracts were used interchangeably. It became apparent that the grant/contract confusion could be reduced only by segregating from both grants and contracts the relationships that were causing the confusion. Thus, the concept of a class of cooperative agreements is essential. Without it, there will be: (1) grants with all types of Federal involvement and, thus, a substantially reduced chance of getting a useful degree of Government-wide consistency in the assignment and understanding of respective responsibilities, and (2) a continuation of the pressure to move, under the rationale of the need for agency control, some of the cooperative agreement kinds of transactions into the procurement area.

NEW AUTHORITY FOR GRANT-TYPE RELATIONSHIPS

Enacting legislation to distinguish assistance from procurement by standardizing instruments to reflect types of relationships would be an important step in reducing the present confusion. A second step also is needed. Most agencies do not have authority to use these instruments in the relationship situations that call for them. At present there is no general authority for the use of cooperative agreements, although a few agencies, such as AEC and NSF, have ample authority for such an instrument, and USDA does use such an instrument in some situations. Individual programs have specific grant or grant-in-aid authority for their implementation, but the general grant authority of Public Law 85-934 is restricted, being available only for basic research in institutions of higher education or in nonprofit organizations whose primary purpose is research. The agencies need general authority to use grants, grants-in-aid, and cooperative agreements in relationship situa

tions which, in the judgment of the agencies, call for their use.

In our review of Federal grant-type programs we found that in most programs the agencies were using instruments consistent with our recommendations, that is, based on the need for agency involvement during performance. In a significant number of programs, however, the agencies were not using instruments consistent with our recommendations. This usually occurs because (1) the authorizing statutes require the use of a grant even though the agencies believe that they should be substantially involved with the recipient in performing the work being supported or stimulated, or (2) the agencies lack grant or cooperative agreement authority. These statute-based barriers to consistency discourage agency and executive branch efforts to achieve uniformity.

Statute-caused inconsistency is a serious problem in the newer agencies. HUD's funds are earmarked for grant programs or contract programs. In UMTA and LEAA programs, where the authorizing statutes require the use of grants, there is a great deal of agency and recipient uncertainty or concern as to roles and responsibilities. LEAA is criticized for doing too little and UMTA for doing too much. It is possible that many of these relationships are cooperative-agreement types of situations in which the instruments should be tailored to the requirements of each situation by negotiation between the parties. If the parties knew that the kind of instrument used established the parameters of relationship, a more careful delineation of respective responsibilities, a greater acceptance of respective roles, and more effective performance would result.

Enactment of legislation providing the general authority we have proposed should give the agencies ample authority to assign their projects or classes of projects to the appropriate relationship categories. This does not mean, however, that the same or similar projects need be treated in the same way by all agencies. The relationship category in which a project or class of projects falls will be determined by the mission of the agency and, therefore, by how the agency views the particular project or class of projects. A given project may

be procurement in one agency and assistance in another. But the way an agency classifies its transactions will become a meaningful public statement of how it views both the basic nature of its relationships with the non-Federal sector and its responsibilities. It is probable, therefore, that the adoption of the proposed distinctions would have beneficial effects in that comparisons of various ways of implementing programs would be easier.

The discipline enforced on the agencies by adherence to relationship-based instrument definitions should increase Government productivity. Federal agency involvement would be less a function of personal or agency preference or habit than is now the case. Each agency would have to decide before making grant-type awards what degree of involvement would be required for each class of transaction. Thus, a basic research grant might have standard cost principles, audit requirements, one or two routine types of approval, and standard technical and financial reporting requirements. A cooperative agreement might contain some of the same requirements or standards as the basic research grant, but it would also specify in detail the roles of the recipient and the agency in the light of the needs of the particular kind of project and the particular recipient. It might specify how the agency was to be involved, for example, by approving contracts for certain sorts of procurements or grants for substantive parts of the work; by requiring consultation or mutual agreement on certain types of decisions; by specifying for ongoing programs how new standards or administrative requirements are to be developed and approved.

The grant or grant-in-aid will emphasize the responsibilities of the recipient and the Federal agency in terms of basic Federal requirements and standards. These arrangements will entail routine Federal/recipient interaction during performance. The cooperative agreement would be a more tailored and explicit statement of how the parties will work together during performance to insure success of the project or program. It will entail active and substantial Federal/recipient interaction.

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