Home / Resources / 2 CFR 200.331 explained
Plain-English guide · for nonprofits
2 CFR 200.331, explained in plain English
Updated September 2026
If you pass federal money to another group, §200.331 asks what they are. A subrecipient runs part of your program, so you must watch over their work. A contractor just sells you goods or services. The name on the agreement does not decide it.
Why the label matters
Getting it wrong is expensive in both directions. Call a subrecipient a contractor and you have skipped a monitoring obligation, failed to flow down federal requirements, and left their expenditures out of 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 for the other organization. Subaward expenditures count toward the subrecipient's own single audit threshold under §200.501, while payments received as a contractor do not. A misclassification can change whether they needed an audit at all.
What the regulation asks you to look at
§200.331, part of the Uniform Guidance, opens by acknowledging that one entity may concurrently receive federal awards as a recipient, a subrecipient and a contractor. It puts the determination on the pass-through entity, 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 sentence that settles arguments
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.
Three examples
A smaller nonprofit delivers part of your program in a neighboring county
They decide who is served, they report on program outcomes, they make programmatic calls. Subrecipient.
An evaluation firm runs your outcome survey
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.
A partner organization provides counseling sessions at a fixed price per session
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.
Document the decision, not just the outcome
The most useful thing you can produce here is a short written determination for each agreement: the characteristics you considered, which way each pointed, and the conclusion. It is short, 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.
If it is a subaward, what follows
- Required data elements in the subaward, including the identifiers and terms §200.332 lists.
- A risk assessment of the subrecipient, and monitoring proportionate to it.
- Flow-down of federal requirements, including the ones you would rather not explain.
- Their expenditures counted in your reporting, and disbursements to them counted as expended by you.
- Their indirect rate honored. A subrecipient with a negotiated rate, or one electing the 15% de minimis rate, is entitled to it.
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.
The Ember tool for thisEmber Grants
Ember Grants keeps every award, deadline and report in one place. You can see what you owe each funder, and when. Unlimited users on every tier.
Sources: 2 CFR Part 200 (eCFR), §200.331 and §200.332. Verified August 2026. Read the sections themselves before relying on any summary.