Wednesday, December 4, 2013

Documenting Individual Consulting Agreements for Audit

One of the common recent audit findings under Contracts and Assistance Awards has been Contractor/Recipient non-compliance with procurement standards and documentation standards for Individual Consulting Agreements (including cost/price analysis, justification for sole source etc).

For both Contractors and Recipients, Independent Consultants fall into the category of “procurement actions” or “vendor contracts” therefore subject to procurement standards and competition in subcontracting regulations as well documentation requirements, applicable under those procurement standards.  These are in addition to the requirements for documentation applicable by relevant cost principles.

For Profit Contractors:

Procuring services of an independent consultant is subject to the cost principles at FAR 31.205-33 Professional and Consultant services, which basically set out the requirements and justification parameters that need to be considered in employing consultants vs employees, as well as standards for documenting the fees paid to the consultants, including copies of agreements, adequacy of terms and conditions of the agreement, invoicing detail and copies of work products as follows:

(d) In determining the allowability of costs (including retainer fees) in a particular case, no single factor or any special combination of factors is necessarily determinative. However, the contracting officer shall consider the following factors, among others:
(7) The qualifications of the individual or concern rendering the service and the customary fee charged, especially on non-Government contracts.
(8) Adequacy of the contractual agreement for the service (e.g., description of the service, estimate of time required, rate of compensation, termination provisions).

(f) Fees for services rendered are allowable only when supported by evidence of the nature and scope of the service furnished [..]. However, retainer agreements generally are not based on specific statements of work. Evidence necessary to determine that work performed is proper and does not violate law or regulation shall include—
(1) Details of all agreements (e.g., work requirements, rate of compensation, and nature and amount of other expenses, if any) with the individuals or organizations providing the services and details of actual services performed;
(2) Invoices or billings submitted by consultants, including sufficient detail as to the time expended and nature of the actual services provided; and
(3) Consultants’ work products and related documents, such as trip reports indicating persons visited and subjects discussed, minutes of meetings, and collateral memoranda and reports.

FAR 31.205-33 defines Professional or Consulting Services to mean those services rendered by persons who are members of a particular profession or possess special skill and who are not officers or employees of the contractors.

The definition implies to individuals or concerns (i.e. companies) (See FAR 31.205-33 (d) (7)).


Non-Profits are required to comply with the Cost Principles for Professional Services Costs at 2 CFR 230 Appendix B §37 in procuring Consultant Services

In determining the allowability of costs, the cost principle requires several factors to be considered without any single factor or a combination of factors being determinative (2 CFR 230 Appendix B §37 (b)). For the purpose of establishing a fair rate, (b) (7) of the cost principle requires that the qualifications of the individual rendering the service be reviewed and compared to the customary fees charged for similar services on other federal and non-federal awards.  All of the items similar to the same For-Profit Cost Principle described above.

It further defines Professional Services to mean those services rendered by persons who are members of a particular profession or possess special skill and who are not officers or employees of the non-profit organization.  The term applies to both individuals and concerns (2CFR230 Appendix B.37 (b)(7)).

Under Contracts with USAID (all Contractors regardless of type):

FAR 44.101 define Subcontractor as “any supplier, distributor, vendor or firm that furnishes supplies or services to or for prime contractor or another subcontractor”.

Subcontract is defined as “contract” at FAR 2.1, which means any mutually signed agreement.

This means Consultant Agreements are Subcontracts and require consent per 52.244-2.

This also means that as with all subcontractors, the procurement of consultant services must be documented including cost/price analysis, justification for sole-source etc.  (See FAR 44.202-2).

Under Cooperative Agreements and Grants (all Recipients regardless of type)

22 CFR 226.40-49 defines “procurement standards” for procuring services from vendors. 

OMB Circular A-133 defines a vendor as “a dealer, distributor, merchant or other seller providing goods or services that are required for the conduct of a Federal program. These goods or services may be for an organization's own use or for the use of beneficiaries of the Federal program.”

Although A-133 at _§210 further elaborates on “vendors” and refers to “organizations” only, most auditors have been finding that Individual Consultants are in fact “vendors”, because they do not meet the definition of “recipient” (or sub-recipient) but do meet the definition of “vendor” at A-133.

As such, since the vendor is subject to procurement regulations, audit findings have been pointing to 22 CFR226.45, which requires that some sort of “price/cost” analysis be on file for all consultant agreements of any value.

This seems to correspond to the treatment of consultants under USAID contracts.

However, unlike subcontractor consent requirements under USAID contracts, Individual Consultant Agreements under Assistance Awards do not require approval by USAID's AO per 22CFR226.25.8.(c), even though all vendor contracts for services with organizations do require such approval.  This is thanks to USAID 1994's AAPD, which states that approval of individual consultants is not required.

Moral of the story:

Document Individual Consultant Agreements with consent to subcontract (may be in form of technical/rate approval of consultants), cost/price analysis, sole source justification, copies of trip reports, work products and close-out forms.

Make it part of your procurement policy and make sure your staff has received training on how to do this most effectively.

 Be able to say “Of course, here it is!” to the auditors and see their faces turn sad :-( a little for losing such a low hanging fruit in non-compliance findings….