Key Facts
- The test is in 2 CFR 200.331. Substance over form — what you call the agreement doesn't decide it.
- Subrecipient = carries out the program. Makes programmatic decisions, measured against program objectives, subject to federal requirements.
- Contractor = sells goods/services. Operates in a competitive market, serves many buyers, not subject to program compliance rules.
- Subaward triggers 200.332 monitoring. Risk assessment, required data elements, ongoing monitoring, Single Audit verification.
- Contract triggers 200.317–200.327. Competition, cost/price analysis, required contract clauses.
Summary
When you give federal grant money to another organization, you have to decide what kind of relationship it is — a subaward or a procurement contract. It sounds like paperwork. It's not. The classification determines which entire body of compliance rules applies to that money, and getting it wrong creates audit findings no matter which way you err.
Here's the thing people get wrong first: it doesn't matter what you call the agreement. You can title a document "Subaward Agreement" all you want — if the substance is a procurement relationship, it's a contract, and the procurement rules apply. 2 CFR 200.331 forces you to look at what the relationship actually is, not the label you stapled on it. Get the substance right, then follow the rulebook that goes with it.
The 200.331 Test: Subrecipient or Contractor?
2 CFR 200.331 lays out characteristics for each side. You don't need every characteristic to be present — you weigh them and use judgment about the substance of the relationship. Then you document the determination.
A relationship looks like a subrecipient when the entity: determines who is eligible to receive federal assistance; has its performance measured against whether the objectives of the federal program were met; has responsibility for programmatic decision-making; is responsible for adherence to applicable federal program requirements specified in the award; and uses the federal funds to carry out a program of the organization (as opposed to providing goods or services for the pass-through's own program).
It looks like a contractor when the entity: provides goods and services within its normal business operations; provides similar goods or services to many different purchasers; operates in a competitive environment; provides goods or services that are ancillary to the operation of the federal program; and is not subject to the compliance requirements of the federal program as a result of the agreement.
The clean mental shortcut: is this organization doing a piece of the program (subrecipient), or is it selling something the program needs (contractor)? A community clinic running part of your federal health initiative is a subrecipient. The IT vendor you bought laptops from is a contractor. The evaluator you hired to assess outcomes — that one's genuinely arguable, and you document your reasoning either way.
Two Completely Different Compliance Worlds
Once you've classified, you've chosen your rulebook. They barely overlap.
If it's a subaward, you're a pass-through entity with obligations under 2 CFR 200.332. You must include thirteen-plus required data elements in the subaward (the federal award identification, the CFDA/Assistance Listing number, indirect rate, all of it). You must evaluate each subrecipient's risk of noncompliance before making the subaward. You must monitor the subrecipient's activities to ensure the funds are used for authorized purposes and that performance goals are achieved. You must verify the subrecipient gets a Single Audit if it expends $1M or more in federal funds, and follow up on its findings. And you remain responsible to the federal government for what your subrecipient does with the money.
If it's a contract, you're a purchaser under the procurement standards in 2 CFR 200.317 through 200.327. You must follow your documented procurement procedures, ensure full and open competition appropriate to the dollar level, perform a cost or price analysis for procurements above the simplified acquisition threshold, include the required contract provisions in Appendix II, and document the basis for contractor selection. There's no subrecipient monitoring, no Single Audit verification, no programmatic-performance obligation — it's a buyer/seller relationship.
GrantMetric Analysis
- Make the determination in writing, before you sign anything. 200.331 expects a case-by-case judgment, and judgment calls need a paper trail. Write a short determination memo for each significant pass-through: here are the 200.331 factors, here's how this relationship maps to them, here's our conclusion. When an auditor questions whether your "consultant contract" was really a subaward, that memo is the difference between a five-minute conversation and a finding. The determination doesn't have to be perfect — it has to be reasoned and documented.
- Misclassifying down (subaward called a contract) is usually the costlier mistake. If you treat a real subrecipient as a contractor, you skip the monitoring, the risk assessment, the Single Audit verification — all the protections that exist to keep you out of trouble for what they do with federal money. Then they misuse funds, and you're on the hook with no monitoring trail to show you exercised diligence. Calling a contractor a subaward wastes effort and may overburden a vendor, but it rarely leaves federal money unprotected. When genuinely unsure, the safer error is to treat it as a subaward.
- The evaluator and the consultant are the classic grey-zone cases. A program evaluator who's measuring whether the program met its objectives can look a lot like a subrecipient — but if they provide evaluation services to many clients in a competitive market and aren't making programmatic decisions, they're a contractor. Don't default to "consultant = contract." Run the 200.331 factors. The label on the invoice doesn't decide it; the substance of what they're doing does.
Required Subaward Data Elements (200.332)
If you've determined it's a subaward, 200.332(a) requires you to include specific information in the subaward agreement at the time of the award. Leaving these out is itself a finding, separate from any monitoring failure. The list includes: the subrecipient's name and unique entity identifier; the federal award identification number and date; the federal award name and Assistance Listing (CFDA) number; the amount of federal funds obligated by this action; the indirect cost rate; and all federal award requirements that flow down to the subrecipient. You also have to identify whether the award is R&D, and provide the total amount of the federal award.
And you have to make sure the subrecipient knows the requirements apply to them. Flow-down isn't automatic in their understanding just because it's automatic in law — spell it out in the agreement.
Classification Checklist
- Ask the core question: is this entity doing part of the program, or selling something the program needs?
- Run the 200.331 factors for both subrecipient and contractor characteristics. Weigh, don't tally.
- Write a determination memo before signing. Document the reasoning, not just the conclusion.
- If subaward: include the 200.332 data elements, assess risk, set up monitoring, verify Single Audit.
- If contract: follow 200.317–200.327 — competition, cost/price analysis, Appendix II clauses.
- When genuinely unsure, lean toward subaward — it keeps federal funds protected.