Home / Resources / 2 CFR 200.331 explained
Updated August 2026
The section that decides whether the organization you passed money to is a subrecipient you must monitor, or a contractor you simply paid.
If you pass federal money to another organization, §200.331 makes you decide what you created. A subrecipient runs part of the program and inherits the federal rules, and you owe them monitoring. A contractor sells you a good or service they sell to everyone else. What the agreement is called does not decide it.
Getting it wrong is expensive in both directions. Call a subrecipient a contractor and three things go wrong. You skip a monitoring obligation. You fail to flow down federal requirements. And their spending is missing from your schedule of federal awards. Call a contractor a subrecipient and you have imposed compliance machinery on a company that will either refuse or charge you for it.
It also compounds. Subaward expenditures count toward your single audit threshold under §200.501. A misclassification can change whether you needed an audit at all.
§200.331 starts by noting that one entity can be a recipient, a subrecipient and a contractor at the same time. It then puts the decision on you, case by case.
| The regulation's characteristics | |
|---|---|
| Subrecipient | Determines who is eligible to receive federal assistance; has its performance measured against the objectives of the federal program; exercises programmatic decision-making; is responsible for compliance with applicable federal requirements; uses the funds to carry out a program for a public purpose in the authorizing statute, rather than to provide goods or services for your benefit. |
| Contractor | Provides the goods and services within its normal business operations; provides similar goods or services to many different purchasers; normally operates in a competitive environment; provides goods or services ancillary to the operation of the federal program; is not subject to the compliance requirements of the federal program. |
The regulation directs that the “substance of the relationship is more important than the form of the agreement,” that not all of the listed characteristics will be present in every case, and that no single one is necessarily determinative. You are expected to use judgment.
So a document titled “Subaward Agreement” can create a contractor relationship, and a purchase order can create a subaward. Auditors read the substance, and so should you.
They decide who is served, they report on program outcomes, they make programmatic calls. Subrecipient.
They sell evaluation services to many clients, compete on price, and make no programmatic decisions. Contractor, even though the work is deeply tied to the grant.
Harder. If they simply deliver a defined service at a unit price and eligibility is decided by you, that leans contractor. If they screen participants and are held to program outcomes, it leans subrecipient. Write down which characteristics you weighed.
Write a short determination for each agreement. List the characteristics you weighed, which way each pointed, and what you concluded. It takes ten minutes and it converts a judgment call into a defensible one. An auditor who disagrees with a documented determination has a conversation with you. An auditor who finds no determination at all has a finding.
This is general information, not legal or accounting advice. Federal grant rules change and are applied differently by different agencies and auditors. Check with your auditor, your grant officer, or an attorney before relying on any of it.
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A subrecipient carries out part of a federal program, makes programmatic decisions, has its performance measured against program objectives, and is subject to federal compliance requirements. A contractor provides goods or services within its normal business operations to many purchasers in a competitive environment and is not subject to program compliance requirements.
No. 2 CFR 200.331 says the substance of the relationship is more important than the form of the agreement. A document called a subaward can create a contractor relationship and vice versa.
That is expected. The regulation states that not all characteristics will be present in every case and no single one is necessarily determinative. You exercise judgment and should document the determination.
Yes. Under 2 CFR 200.502, disbursements to subrecipients are federal awards expended by the pass-through entity, so they count toward the $1,000,000 threshold in 200.501.
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Sources: 2 CFR Part 200 (eCFR), §200.331 and §200.332. Verified August 2026. Read the sections themselves before relying on any summary.