Federal procurement standards under the Uniform Guidance are codified at 2 CFR Part 200 and apply to any non-federal entity spending federal grant money: state, local, and tribal governments, non-profit organizations, and institutions of higher education.1eCFR. 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards The rules set dollar thresholds that dictate how you buy, require competition and documentation at every level, mandate specific contract clauses, and give federal agencies real teeth when things go wrong. A major revision took effect on October 1, 2024, moving several thresholds upward. Getting this wrong leads to disallowed costs, clawbacks, or debarment from future awards.
The Dollar Thresholds That Drive Everything
Almost every procurement decision under a federal award starts with the dollar amount. Three thresholds do most of the work.
The micro-purchase threshold is $10,000. Purchases at or below that amount can be awarded without competitive quotes as long as the price is reasonable, and you should spread these purchases equitably across qualified suppliers rather than steering them to one vendor.2Office of the Law Revision Counsel. 41 USC 1902 – Micro-Purchase Threshold3eCFR. 2 CFR 200.320 – Procurement Methods Organizations can self-certify a higher micro-purchase threshold up to $50,000 annually if they qualified as a low-risk auditee on their most recent audit, performed an annual internal risk assessment, or (for public institutions) can show that a higher threshold is consistent with state law. Thresholds above $50,000 require approval from the cognizant agency for indirect costs.
The Simplified Acquisition Threshold (SAT) is $350,000 as of October 1, 2025.4Acquisition.gov. Threshold Changes – October 1st, 2025 Between the micro-purchase threshold and the SAT, simplified acquisition procedures apply: you must obtain price or rate quotations from an adequate number of qualified sources. Auditors typically read that as at least two or three independent quotes.
Above the SAT, formal procurement is required, and a cost or price analysis becomes mandatory.
Choosing a Procurement Method
2 CFR 200.320 organizes procurement into three categories, not the five that some compliance guides describe: informal methods (micro-purchase and simplified acquisition), formal methods (sealed bids and competitive proposals), and noncompetitive procurement.3eCFR. 2 CFR 200.320 – Procurement Methods
Sealed Bids
Sealed bidding fits construction and other work where you can write a complete specification and price is the only meaningful evaluation factor. You advertise publicly, open bids at a stated time and place, and award to the lowest responsive and responsible bidder. No negotiation happens after opening.
Competitive Proposals
Competitive proposals apply when factors beyond price matter: qualifications, technical approach, past performance. You issue a written request for proposals, evaluate against predetermined criteria, and can negotiate with offerors. This is the more common formal method for professional services and complex projects.
Noncompetitive (Sole-Source) Procurement
Noncompetitive procurement is tightly restricted. You can use it only when one of the following applies:
- Only one supplier can fulfill the requirement.
- A public emergency won’t allow time for competitive solicitation.
- The federal awarding agency or pass-through entity authorizes it in writing.
- You solicited bids and received too few responses to produce real competition.
Whichever method you use, document each step: how you chose the method, how you evaluated vendors, and why you selected the winner. Missing documentation is the single most common procurement finding in federal audits.
Competition Rules You Cannot Bend
All procurement under a federal award must provide full and open competition.5eCFR. 2 CFR 200.319 – Competition That rules out unnecessary bidder qualifications, excessive experience or bonding requirements, and any solicitation structured to steer the award to a preferred vendor. Solicitations must state technical requirements clearly and identify every factor you will use to evaluate submissions.
Geographic preferences are prohibited. You cannot favor local or in-state firms in bid evaluation, even where state or local law encourages it. The one exception is architectural and engineering services, where geographic location can be a selection factor as long as enough qualified firms remain in the competition.
Prequalified vendor lists must stay current and hold enough sources for open competition. You cannot lock out potential bidders from qualifying during a solicitation period, and price and cost factors have to inform how you build and update those lists.
Cost or Price Analysis and Prohibited Contract Types
Every procurement above the $350,000 SAT requires a cost or price analysis. Before you receive any bids, develop your own independent cost estimate. That estimate becomes the benchmark for judging whether the prices you receive are reasonable and gives you a basis to negotiate or reject a bid that comes in significantly higher.6eCFR. 2 CFR 200.324 – Contract Cost and Price
When a contract lacks price competition, or when you perform a cost analysis, profit must be negotiated as a separate element rather than folded into the total price. Consider the complexity and risk of the work, the contractor’s investment, subcontracting levels, past performance, and profit rates on similar work in the area.
Two contract types are flatly prohibited: cost-plus-a-percentage-of-cost and percentage-of-construction-cost. Both let the contractor’s profit rise with every additional dollar spent, and a single one of these can torpedo an award.
Conflict of Interest and Written Standards of Conduct
Every organization spending federal grant dollars must maintain written standards of conduct covering employees, officers, agents, and board members involved in selecting, awarding, or administering contracts.7eCFR. 2 CFR 200.318 – General Procurement Standards No one with a real or apparent conflict of interest can take part in any contract decision supported by a federal award. A conflict exists when the employee, an immediate family member, their partner, or an organization that employs any of those parties has a financial interest in the firm under consideration.
The written standards must also bar employees from soliciting or accepting gifts, favors, or anything of monetary value from contractors or potential contractors. You can carve out exceptions for gifts of nominal value or interests that are not substantial, but the exceptions have to be spelled out. Violations must carry documented disciplinary consequences.
If your organization has a non-governmental parent, affiliate, or subsidiary, you also need a separate policy on organizational conflicts of interest covering situations where a related-party relationship makes the procurement look partial.
Your procurement procedures must also guard against waste. Review each purchase to avoid duplicative buys, consider whether consolidating or breaking out procurements would produce a better price, and evaluate lease-versus-purchase alternatives.
Required Contract Clauses by Threshold
Appendix II to Part 200 lists provisions your contracts must contain, with specific clauses triggered at different dollar levels:8eCFR. Appendix II to Part 200 – Contract Provisions for Non-Federal Entity Contracts Under Federal Awards
- Contracts above $10,000 need termination provisions for both cause and convenience.
- Contracts involving mechanics or laborers above $100,000 must comply with the Contract Work Hours and Safety Standards Act (40-hour workweek, overtime at one-and-a-half times base pay).
- Contracts above $150,000 must include Clean Air Act and Federal Water Pollution Control Act clauses, with violations reported to the awarding agency and the EPA.
- Contracts above the SAT must include administrative, contractual, or legal remedies for contractor violations, plus appropriate sanctions and penalties.
- Federally assisted construction contracts must include equal employment opportunity clauses under Executive Order 11246.
- Construction contracts above $2,000 must comply with the Davis-Bacon Act and pay locally prevailing wages as determined by the Department of Labor.9U.S. Department of Labor. Davis-Bacon and Related Acts
Additional Appendix II provisions cover rights to inventions made under the contract and the Byrd Anti-Lobbying Amendment, which bars using federal funds for lobbying. Missing clauses are one of the most frequently cited procurement deficiencies, and a standard contract template that pulls in each applicable clause by threshold prevents almost all of them.
Checking Contractor Eligibility Before Award
Before you award a contract, verify that the contractor is not suspended, debarred, or otherwise excluded from federal awards.10eCFR. 2 CFR 200.214 – Suspension and Debarment This applies to any contract expected to equal or exceed $25,000, plus any contract that requires consent from a federal official or involves federally required audit services regardless of amount.11eCFR. 5 CFR Part 919 – Governmentwide Debarment and Suspension (Nonprocurement)
Search the contractor’s name in SAM.gov, save the results in your procurement file, and move on. Awarding to a debarred entity is one of the more serious compliance failures because it can trigger proceedings against your own organization.
Domestic Preference and Disadvantaged Business Obligations
Under 2 CFR 200.322, grant recipients must give preference, to the greatest extent practicable, to goods, products, and materials produced in the United States, including iron, aluminum, steel, cement, and other manufactured products.12eCFR. 2 CFR 200.322 – Domestic Preferences for Procurements For iron and steel, “produced in the United States” means every manufacturing step from initial melting through application of coatings occurred domestically. Infrastructure projects carry additional Build America, Buy America obligations under 2 CFR Part 184. The preference flows down to subawards, contracts, and purchase orders.
2 CFR 200.321 requires affirmative steps to give small businesses, minority-owned businesses, women’s business enterprises, veteran-owned businesses, and firms in labor surplus areas a fair shot at contract dollars.13eCFR. 2 CFR 200.321 – Contracting with Small Businesses, Minority Businesses, Women’s Business Enterprises, Veteran-Owned Businesses, and Labor Surplus Area Firms Include those firms on solicitation lists, break large contracts into smaller pieces where feasible, structure delivery schedules that encourage participation, use the Small Business Administration and the Minority Business Development Agency, and require prime contractors to apply the same steps to subcontracts. These are affirmative duties, not suggestions, and undocumented “consideration” is not enough.
Records, Equipment, and the Single Audit Threshold
Financial and procurement records must be kept at least three years from the date you submit the final financial report on the award.14eCFR. 2 CFR 200.334 – Record Retention Requirements Litigation, audit findings, or claims that arise before the three years expire extend the clock until every issue is resolved. Property and equipment records run three years from final disposition of the item, not from award closeout. The federal agency can direct you in writing to hold records longer.
Equipment bought with grant money brings its own requirements under 2 CFR 200.313: detailed property records, a physical inventory reconciled to those records at least every two years, a control system against loss and theft, and documented disposition when the item is no longer needed.15eCFR. 2 CFR 200.313 – Equipment
Organizations that spend $1,000,000 or more in federal awards during a fiscal year must undergo a Single Audit. The threshold rose from $750,000 in the October 2024 revisions. Even below the threshold, your records must remain available to federal agencies, pass-through entities, and the Government Accountability Office.16eCFR. 2 CFR 200.501 – Audit Requirements
What Happens If You Get It Wrong
Federal agencies use a graduated set of remedies when a grant recipient falls out of compliance. The first step is usually specific conditions imposed on the award. If that fails, the consequences escalate:17eCFR. 2 CFR 200.339 – Remedies for Noncompliance
- Payments withheld until you take corrective action.
- Specific costs disallowed and absorbed with non-federal funds.
- Suspension or termination of the award.
- Suspension or debarment proceedings that bar your organization from all federal awards.
- Future funding, including continuation awards, blocked.
Disallowed costs are the most common outcome for procurement violations, and they can be large. An auditor who finds that you failed to compete a $200,000 contract can disallow the full $200,000, not just what proper competition might have saved. The prevention costs less than the penalty: written standards of conduct, method selection tied to the threshold, competitive quotes or a documented cost analysis, the right Appendix II clauses in every contract, a SAM.gov check on file, and records that survive an audit three years after closeout.