Understand the legal framework of privity in federal grant agreements, particularly the absence of a direct legal relationship between federal agencies and subrecipients. Grasp the critical role pass-through entities play as the sole parties with privity to both the federal agency and subrecipients.
Key Insights
- Privity establishes a direct legal relationship between two parties in a contractual agreement, excluding others outside that relationship.
- Under 2 CFR 200, federal agencies do not hold privity with subrecipients; only pass-through entities have privity with both federal agencies and subrecipients.
- Pass-through entities bear legal responsibility for compliance issues such as cost disallowances or deobligation of federal funds involving their subrecipients.
This lesson is a preview from our Grants Management Certificate Program. Enroll in a course for detailed lessons, live instructor support, and project-based training.
Let's discuss the concept of privity. Privity is a legal concept that establishes a relationship between parties in a grant agreement. It is most often phrased as meaning that certain parties have a direct relationship with each other with respect to any type of contractual agreement in which they may engage, where other parties not in the direct line of privity do not have such a relationship.
The most recent revisions in 2 CFR 200 make it expressively clear that there is no privity. There's no direct legal connection between federal agencies and subrecipients. This is vitally important, especially if you are a manager from a pass-through entity, knowing that you are the critical nexus.
What does that mean? There's a legal relationship between you and the federal agency. There's a direct legal relationship between you and your sub-recipient, but there's no direct relationship between the federal agency and the sub-recipient. Your pass-through entities are that critical nexus with privity on both sides.
This is essential when it comes to things such as cost disallowance or the deobligation of federal funds. And many times it's the pass-through entity that's going to be responsible for either making the federal agency or the sub-recipient whole in these cases.