When should a school district act on product, item, and service delivery substitution issues? An essential internal control is to monitor these issues to help ensure qualitative aspects of programs, activities and services go according to plan. Also, when federal funds are involved, variances that are effectively “contract modifications” must be tracked in accordance with Code of Federal Regulations Title 2, Subtitle A, Chapter II, Part 200, Section 200.324, Federal awarding agency or pass-through entity review (consistent with pre-EDGAR federal provisions). Section 200.324 authorizes the grant awarding agency to request procurement documents for various oversight reasons, including instances wherein “A proposed contract modification changes the scope of a contract or increases the contract amount by more than the Simplified Acquisition Threshold [$150,000].” The frequency of substitutions by vendors, in some instances, may eventually beg the question, “Has the vendor effectively changed the scope of the contract or negated its contract with the district?”
To improve internal controls in this area, contract management issues should be the responsibility of a single employee or office for various practical administrative reasons including:
1.) tracking the dollar impact amounts involved to effectively monitor vendors' performance across all campuses and departments;
2.) providing consistency in addressing vendors' performance issues; and
3.) providing adequate segregation of duties between a vendor, and the department or office that initiated the procurement.
Regardless of the source of funds for various procurements, districts need a documented standard protocol for monitoring vendor performance, in addition to addressing changes and substitutions that are proposed or occurred during the fiscal year to help ensure vendors deliver/delivered products, goods and labor that mirror as closely as practical to the district’s expectations, in accordance with contract terms, conditions and specifications. Documented standards are also necessary in order to meet federal procurement standards in CFR Title 2, Part 200 §200.318(k) requiring “good administrative practice and sound business judgment, for the settlement of all contractual and administrative issues arising out of procurements… [that] include, but are not limited to, source evaluation, protests, disputes, and claims.”
Proactive contract management-related controls are essential, considering annual non-payroll expenditures for all funds involving the delivery of goods, products and services exceeds $15 billion, and as little as, an one percent variance involving vendor substitution issues amounts to $150 million. School districts need to be proactive in their contract management practices and seek legal review as early as possible when issues begin to surface. If legal matters are not addressed promptly at the outset of procurement issues, vendor performance issues can be time consuming and prohibitively expensive for school officials to remedy on the back end of a legal conundrum.
To access the provisions in the U.S. Code of Federal Regulations for procurement standards, click on the link below.
https://www.ecfr.gov/cgi-bin/text-idx?SID=daf9f454d79344ef884779e46a9acd2f&node=pt2.1.200&rgn=div5#sg2.1.200_1316.sg3