The Infrastructure Investment and Jobs Act (IIJA) signed into law by President Biden on November 15, 2021 authorized $1.2 trillion for a wide variety of infrastructure and climate-related initiatives. As of November 15, 2022, only approximately $185 billion of those funds had actually been authorized by the White House for allowable projects. This means plenty of money is still available for funding initiatives in the following categories: clean water, broadband access, roads and bridges, public transit, and reducing greenhouse gas emissions. While the allowable program goals and activities under each category are vastly different, one thing remains constant—the risk of noncompliance and mismanagement of these newly authorized funds.
Historically, spending on large infrastructure projects has been susceptible to cost overrun, fraud, waste, and abuse. One such instance involved a utility company that received federal grants to expand high-speed internet to rural communities. The company adopted an ethics policy that prevented its personnel from accepting anything of value from vendors or customers. However, management did not enforce this policy and began soliciting gifts from vendors in exchange for awarding contracts. The company also used federal grant monies to pay for employee country club memberships and requested vendors falsify invoices to underwrite golf tournaments. These and a variety of other issues led to hefty fines for the company and criminal charges for company leadership.
Although this is an extreme case wrought with gross mismanagement and fraud, it highlights the importance of being prepared. Unprepared organizations are more vulnerable to fraud, waste, and abuse of federal funds. The first step that organizations should take to prepare for IIJA grant funding is to perform a review of their existing policies and procedures pursuant to Uniform Guidance (UG) 2 C.F.R. 200. Key policies for organizations to consider are procurement, allowable costs, and compensation, just to name a few.
The UG establishes robust procurement requirements for nonfederal entities. However, if a state or local government has a more restrictive procurement policy than the federal standard, the most restrictive policy must be followed. Organizations should have procurement policies in place that are compliant with federal guidelines.
The UG purchasing thresholds identify procurement methods for different types of purchases:
- Micro-Purchases – Under $10,000. Quotes are not necessary so long as the price is reasonable.
- Small Purchases – Between $10,000 and $250,000. Price quotes from an adequate number of sources should be retained along with documentation of why the vendor was chosen.
- Formal Procurement – Anything above $250,000, or a lower amount can be designated by the organization. There are two types of formal procurement:
- Sealed Bids – Preferred method for construction procurement. The bids must be publicly solicited and the lowest responsive bidder that meets the criteria should be awarded.
- Competitive Proposals – Used when conditions are not appropriate for sealed bids. Price and other factors will be considered in the award decision.
- Noncompetitive Procurement – May only be used under certain criteria outlined at 2 CFR 200.320.
Regardless of what procurement type is chosen, organizations should remain cognizant of any real or perceived conflicts of interest. As seen in the case study, it is important to implement and enforce these conflict policies.
Build America, Buy America Act (BABA)
Groups receiving federal grant funds for infrastructure projects also may need to consider the applicability of the BABA included in the IIJA within their procurement processes. The BABA requires that iron, steel, manufactured products, and construction materials used in infrastructure projects be produced in the United States. At least 55% of the implements that make up manufactured products must be made in the U.S. for the product to meet the BABA requirement. The BABA requirement applies to all federally funded infrastructure projects. As part of the implementation of the BABA, the Office of Management and Budget (OMB) created an office that deals directly with the application of the BABA. Its Made in America website provides a helpful Q&A as well as a listing of approved waivers to the BABA.
Further, OMB issued guidance on April 18, 2022 to federal agencies regarding the applicability of the BABA requirements. Some of the highlights include:
- The BABA applies to nonfederal entities that are recipients of federal financial assistance. For-profit entities are not considered nonfederal entities and, therefore, the BABA does not apply to them.
- The definition of infrastructure under the BABA includes roads, bridges, public transportation, dams, ports, railways, airports, utilities, broadband, buildings, and equipment that distributes energy. The BABA applies to these items and more listed in the OMB guidance.
- The BABA requirements still apply to infrastructure projects that are only partially funded with federal assistance.
Determining allowable costs is essential to maintaining compliance with the federal award. Organizations are required by UG to have written procedures for determining cost allowability. The UG provides a list of general principles that can help nonfederal entities determine allowability. UG 2 CFR 200.403 requires costs under federal awards:
- Be necessary and reasonable for award performance
- Conform to UG and the federal award
- Be consistent with existing policies and procedures governing both federal and nonfederal funds
- Cannot be duplicated
- Follow GAAP unless the nonfederal entity is a state, local, or tribal government
- Cannot be used to meet cost sharing or matching requirements of any other federally financed program
- Be adequately documented
- Be incurred during the period of allowability
Prior to receiving funds, organizations should identify a process for determining the allowability of each expenditure charged to the grant. All charges should be reviewed by multiple people and supported with purchase orders, invoices, and proof of payment. Retain documentation that proves purchased goods were physically received and consistent with the specifications requested in the solicitation. Validating the physical goods received can help in the prevention of fraud. Expenditures that cannot be fully documented should not be charged to the grant award.
Staffing to carry out the federal award is an allowable cost. However, there are specific rules for what activities are considered allowable. Compensation may only be allocated to the federal award for services rendered during the period of performance. This compensation can include fringe benefits. Compensation follows a similar framework for determining allowability as other expenditures in that it must be reasonable, conform to written policies, and be consistently applied to federal and nonfederal activities.
Entities expending funds under federally funded infrastructure projects are subject to the Davis-Bacon Act, which requires contractors and subcontractors performing on federally funded projects exceeding $2,000 to pay the locally prevailing wages and benefits for similar work in the area. If your organization is planning to receive IIJA funds, reviewing the Davis-Bacon compliance standards on the U.S. Department of Labor website can help you determine if your policies meet the requirements.
Documenting activities performed by staff in advancement of the federal program objectives is crucial as UG requires time charged to federal grants be allocable to the work performed. Therefore, only the hours spent working on the federal program may be charged to the grant. In addition to compliance with Davis-Bacon and UG, organizations should keep in mind specific grant awards may impose additional requirements surrounding compensation. Organizations must understand the requirements of each federal award prior to expending funds.
FORVIS Can Help
Understanding the rules and regulations associated with spending IIJA funds to improve your community goes beyond simply applying UG. Federal agencies awarding the funds will have their own program-specific guidance that organizations should follow along with any applicable state guidance. Pre-planning and designing policies to adhere to the funding requirements can help your organization avoid the pitfalls that can impact infrastructure spending.
FORVIS’ dedicated National Grants Management Team is ready to assist you with any phase of the grant life cycle. If you have questions or need assistance, please reach out to a professional at FORVIS or submit the Contact Us form below.