Internal Control Tip: Sole Source Vendors – Are They Truly Your Only Source?

Have these types of statements been expressed by various departments/campuses at your school district?

“Vendor X has the most robust testing materials and so it’s a sole source vendor.”

“We have funds left over in our budget that must be used by the end of year (which happens to be one week away) and Vendor Y is the only one that can deliver the goods in time. After all, it is an emergency and that’s a valid reason to forego competitive procurement and use the sole source vendor exception. I’ll just ask for the vendor to provide me with an affidavit. “

If so, I wouldn’t shout it from the roof tops.

As an auditor I tend to cringe a bit when I hear these types of comments/reasons. Why? Well, we now have the ability to Google anything and everything and with a click of a button, we can quickly see that almost every vendor has a competitor. As such, there are very limited circumstances when a vendor is truly a sole source. Before you shoot the messenger, remember that we have to comply with local, state and federal law. The Office of Management and Budget’s Uniform Guidance (also known to us as EDGAR in the school biz) has made it more difficult for entities to use the sole source vendor exception to competitive procurement.

Here are the parameters set by the Uniform Guidance at 2 CFR 200.320(f) regarding noncompetitive procurement:

Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one source and may be used only when one or more of the following circumstances apply:

(1) The item is available only from a single source;

(2) The public exigency or emergency for the requirement will not permit a delay resulting from competitive solicitation;

(3) The Federal awarding agency or pass-through entity expressly authorizes noncompetitive proposals in response to a written request from the non-Federal entity; or

(4) After solicitation of a number of sources, competition is determined inadequate.

The Texas Education Agency’s (TEA) EDGAR Frequently Asked Questions further clarifies this issue in Question 7.16. TEA states that the affidavit or sole source letter from a vendor is not sufficient documentation to issue a noncompetitive procurement. TEA continues by stating that “attorneys have indicated that under the new regulations, sole source must be proven and adequately documented, and will seldom be used in federal procurements.”

The real question is: How do I “adequately document” that a vendor is a sole source? A Houston-area school district developed a sole source justification form that begins with the requesting campus/department level answering eight (8) questions. At the end of the form, the documentation and explanation has to be sufficient enough to gain approval from not just the Director of Purchasing, but also the Chief Financial Officer, and the Superintendent. Yikes!

I would recommend developing such a form to ensure that your district doesn’t overuse this method of procurement, which a few years ago led to the imprisonment of a Texas school district Superintendent. The Board can also get involved if the Superintendent has been delegated the purchasing authority. Just yesterday, I was perusing through a district’s policies and read its CH (Local), which delegates such authority to the Superintendent. However, the policy includes an exception where the Board will approve purchases greater than $100,000 acquired through a sole source vendor. A very wise move.

Whether you are the director of purchasing or the chief financial officer, I would take an inventory of sole source vendors. If the number of sole source vendors is in the double digits, take a moment and ask what truly makes those vendors a sole source. The purchasing department is the gate keeper, but it takes team effort and training across the district to ensure school districts are handling source vendors properly and holding all end users accountable.

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