research grants than ONR does to its basic research contracts. The Economic Development Administration (EDA) of the Department of Commerce closely monitors construction under its grants-in-aid; HEW tries to do so but does not always succeed; OEO states that it does not have the staff to worry about construction under its grants-in-aid. UMTA procedures for administering research, development, and demonstration grants provide for very detailed Government oversight. UMTA officials state that such procedures are necessary because UMTA often deals with small municipalities and transit authorities that lack expertise in project management. HUD officials, however, report that they impose a minimum of administrative control on their Model Cities grants because the municipalities have their own rules and regulations for fiscal, procurement, and other matters. Needless to say, HUD and UMTA sometimes deal with the same municipalities.

The tendency of the executive branch to either over- or under-administer grant-type programs is generally recognized. A recent OMB report notes that:

Federal programs still are too often cluttered by unnecessary controls, regulations, clearances, reports and other impediments

.. Wide variations in agency requirements, each of which may have some logic by itself, result in serious workloads on State and local governments with few or no national benefits which could not be realized under Government-wide standardized procedures and requirements.11

The General Accounting Office (GAO) and congressional committees often note underadministration (or inadequate administration) of grant-type programs. Too much, too little, or the wrong kind of Federal involvement demonstrates uncertainty concerning the relationships of the Government and the recipient in many of these programs.

Grant-type assistance instruments reveal wide variances in agency requirements. The instruments used by some agencies explicitly cover particular subjects; those used by other agencies in similar circumstances do not.

11 U.S. Office of Management and Budget, Basic Plan for the Federal Assistance Review (FAR) Program, 3rd Year, July 1, 1971, pp. 1-2 and D-16.

Further, agency use of a nonstandard procurement provision in a grant instrument does not mean that the standard provision is inappropriate. For example, UMTA and EPA use a shortened version of the "Covenant Against Contingent Fees." This version eliminates the exceptions provided in the basic statute (41 U.S.C. 254) and, therefore, imposes more stringent prohibitions on grantees than are imposed on contractors under the Federal Procurement Regulations (FPR).

Agency practices also differ with respect to "subcontracting" under grants. EDA and HEW review and approve significant subcontracting under their grants-in-aid; the Law Enforcement Assistance Administration (LEAA) and OEO do not. Some State and local government purchasing agents believe that there is considerable waste of Federal funds because the State and local grantees often are not required by their grants to use the procurement services of State and local governments. They also note that Federal "grant" agencies often are not staffed to assist on procurement problems when asked to do so.

There is sometimes insufficient Federal involvement or use of standards when significant procurements occur under grant-type relationships. Agency staffs do not always recognize that some lower-tier procurements under a grant would benefit from the guidance provided by procurement rules, regulations, or standards.

A comparison of clauses ordinarily used in procurement contracts with those ordinarily used in grant-type instruments reveals that:

• Statutory authorizations for grant-type assistance seldom require clauses such as Buy American, Walsh-Healey, Davis-Bacon, Convict Labor, Officials Not to Benefit, and Covenant Against Contingent Fees in granttype instruments. In the absence of Government-wide guidance on the use of such clauses, some of the agencies are using such clauses in grant-type instruments even though their utility in most such instruments is doubtful.

• Some program authorizations contain requirements such as Davis-Bacon, although the organic statutes do not apply the requirements to grant-type transactions. The resulting Government-wide uncertainty could

be reduced if statements of the applicability of requirements were in the organic statutes, not in individual program statutes.

• The clause requirements for grant-type instruments can be, but are not always, much simpler than those in procurement contracts. Government-wide guidance on "procurement-type" clause requirements for grant-type instruments would be useful and relatively easy to provide.

for its training programs, the Department of Labor writes some 7,000 cost-reimbursement contracts with State and local governments because it does not have statutory authority to use grants. In the absence of specific statutory authority, the agencies can (under Public Law 85-934) use grants only for basic research at nonprofit institutions of higher education or at other nonprofit organizations whose primary purpose is the conduct of scientific research.

Statutes

Enabling and appropriation statutes for grant programs cause confusion. As a group they lack consistency in requirements, terminology, level of detail, and emphasis. Because the UMTA statute requires the use of "grants," when the agency feels that it must exercise a good deal of control, it uses "grantcontracts." NIH appropriation statutes provide funds specifically for "grants," thereby limiting agency discretion in making the most suitable arrangements. EPA inherited a number of programs with different statutory restrictions and is having difficulties trying to reconcile them.

The statutes are inconsistent in specifying the circumstances under which they require the use of grants. The agencies generally prefer to use grants for transactions that require little agency involvement or participation during performance. However, in many Federal programs the authorization statutes require the use of "grants" even though the programs require substantial agency involvement during performance as is the case of the Office of Education in its grants for construction of educational facilities; USDA in its grants for water and sewer planning; and LEAA in its grants for information system demonstration projects. The program statutes, by requiring the use of grants in such cases, are a major source of the Government-wide inconsistency, confusion, and uneven management attending Federal grant-type assistance.

Most of the agencies have inadequate statutory authority to employ grant-type instruments in grant-type transactions. Each year,

Federal Control and Guidance

There is uncertainty as to what the roles and responsibilities of the agency and the recipient should be. Agencies often do not know to what extent Congress expects Federal control of, or participation in, a program or the extent to which the agency and its program officials will be held responsible for the activities of recipients. Thus, there is an understandable tendency for Federal administrators to protect themselves by placing excessive requirements on recipients, thereby diminishing the recipient's flexibility to use the assistance effectively. Without clear direction from some source, it is natural for much of the bureaucracy to react in this self-defensive way. An OMB study in 1969 generally found overadministration of research projects at colleges and universities 12 and, as a consequence, OMB issued Circular A-101 limiting the types of approvals the agencies could require recipients to obtain.

Uncertainty at the Federal level is reflected at the recipient level. Recipients who must deal with different requirements of different agencies are uncertain of their roles and responsibilities in complying with Federal procedures.

A variety of media is used to issue Government-wide guidance to granting agencies. What guidance there is occurs in various GSA and OMB issuances, letters to agencies from

12 U.S. Bureau of the Budget, report on the Project Concerning the Policies, Procedures, Terms and Conditions Used for Research Projects at Educational Institutions, June 20, 1969.

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 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.

CHAPTER 3

Proposed Changes

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.1 Other Federal objectives are attained by supporting or stimulating certain activities of State and local governments, other organizations, and individuals. These activities relate 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.2

Assistance, while similar to procurement in some respects, is significantly different from procurement. Assistance is intended to:

• Help a recipient carry out its functions or meet a particular need, the support or stimulation of which accords with prevailing public policy; or

• Bring about social, administrative, or technological change by the provision of Federal funds or other resources to help or encourage recipients to pursue recognized objectives.

Congress normally has preferred that the

1 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 4.

2 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.

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,

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"