Federal Infrastructure Grant Compliance: 2 CFR 200, Single Audit, and Best Practices

Winning a federal infrastructure grant—whether for an airport, port, or transit project—is only the first milestone. The real work begins with execution: managing grant funds according to federal rules, maintaining meticulous records, and surviving audit.

This is where many project sponsors stumble. Federal infrastructure grants come with a complex compliance framework—primarily the Uniform Administrative Requirements (2 CFR Part 200), program-specific rules, and extensive audit requirements. Failure to comply can result in grant clawback, suspension from future federal funding, or reputational damage that undermines future applications.

This guide explains the compliance architecture that governs federal infrastructure grants, the most common findings, and how to build a robust compliance program that will satisfy auditors and protect your organization.

The Compliance Framework: An Overview

Federal infrastructure grant compliance operates at multiple levels:

Layer 1: 2 CFR Part 200 (Uniform Administrative Requirements)

Codified in 2 CFR Part 200 (Uniform Guidance), this regulation applies to all federal grants flowing to state, local, and tribal governments and non-profits. It covers:

Allowable and unallowable costs
Procurement standards
Equipment management
Financial reporting
Audit requirements
Subrecipient monitoring
Record retention

2 CFR 200 is the foundation. If you receive a federal grant, you operate under 2 CFR 200.

Layer 2: Program-Specific Rules

Individual grant programs (FAA AIP, ATP, MARAD PIDP, FTA CIG, etc.) have their own supplemental rules layered on top of 2 CFR 200. These define:

Eligible project types and costs
Federal share and match requirements
Environmental clearance standards
Grant agreement terms
Reporting and closeout procedures

You must comply with both the general rules (2 CFR 200) and the program rules.

Layer 3: Grant Agreement Terms

Your specific grant agreement with the federal agency (FAA, MARAD, FTA, etc.) sets conditions unique to your project:

Project scope and budget
Timeline and milestones
Reporting and documentation requirements
Right to audit and inspect
Termination provisions

Your grant agreement is a legal contract. Violating its terms can result in immediate suspension or recapture of funds.

Uniform Administrative Requirements (2 CFR 200): Key Provisions

1. Allowable Costs and Cost Principles

Under 2 CFR Part 200, Subpart E, only allowable costs can be charged to a federal grant. Allowable costs are those that:

Are necessary and reasonable for project execution
Conform to the terms of the grant agreement
Are consistent with policies and procedures applied uniformly across the organization
Are allocable (directly or indirectly) to the grant
Meet specific cost eligibility criteria

Categories of costs that ARE allowable:

Salaries and fringe: Employee compensation for work on the project
Consultant fees: Directly related professional services (engineering, legal, planning)
Equipment: Items with a useful life >2 years and cost ≥$5,000 (lower thresholds for some programs)
Supplies and materials: Direct project materials (steel, concrete, signage, etc.)
Travel: Project-related travel for staff and officials
Contractual services: Design, construction, professional services
Indirect costs: Administrative overhead (if covered by negotiated indirect cost rate agreement)

Categories of costs that are NOT allowable:

Lobbying: Direct or grassroots lobbying activities
Contingency: Budget contingency or design contingency (typically capped at 5-10% and must be pre-approved)
Unallowable indirect costs: General overhead not allocable to the project
Fines and penalties: Traffic fines, legal settlements
Liquor and entertainment: Alcohol, meals for conferences
Donations: Charitable contributions
Bad debts: Uncollectible receivables
Underutilized equipment: Equipment purchased but not used

Common mistake: Allocating general administrative overhead to a grant. This is only allowable if your organization has a Negotiated Indirect Cost Rate Agreement (NICRA) with a federal cognizant agency.

2. Cost Allocation and Indirect Cost Rates

If your organization allocates costs across multiple projects or funding sources, you must use an approved cost allocation methodology.

For small organizations (typically <$35M in federal funding annually), a simplified allocation method is acceptable:

Pro-rata allocation (e.g., 30% of salary allocated to grant based on time spent)
Function-based allocation (e.g., 40% of IT costs allocated to project-related IT)

For larger organizations, a Negotiated Indirect Cost Rate Agreement (NICRA) with a federal cognizant agency (typically OMB or DOD) is standard. The NICRA establishes an overhead rate (e.g., 25% of salaries, 15% of direct costs) that can be applied uniformly across federal grants.

Important: Do not allocate costs to a grant without a documented methodology. Auditors will challenge allocations that lack support.

3. Procurement Standards (2 CFR 200.320)

When procuring goods or services using federal grant funds, you must follow competitive bidding and cost-effective purchasing practices.

Required processes for construction contracts:

Sealed competitive bid (lump-sum contracts): Invite multiple contractors, accept low responsible bidder
Design-bid-build: Architect designs, then open bid for construction
Design-build: Single entity handles design and construction (allowed if justified)
Public notice: Post request for bids in newspapers and relevant publications (21 days minimum lead time)
Documented evaluation: Document why you selected the winning bid (lowest responsive bid, or if using best value, justify evaluation criteria)

Required processes for consulting/professional services:

Request for Proposals (RFP): Solicit multiple qualified firms; document selection rationale
Minimum of 3 quotes: Obtain competitive quotes for smaller consulting projects
No sole-source procurement: Cannot award directly to a single firm without federal approval (exceptions: emergency, sole source justification)

Compliance documentation:

Maintain bid packages (RFP, bid notice, received bids, evaluation memo, award letter)
Document why low bidder was selected (or why another bidder scored higher if using best-value)
Maintain copies of signed contracts

Common mistake: Awarding contracts to favored vendors without competitive process. This is prohibited even if the selected vendor is qualified. Auditors will flag sole-source awards without proper justification.

4. Equipment Management (2 CFR 200.313)

Equipment purchased with grant funds (items >$5,000 with >2 year useful life) must be:

Inventoried and tagged: Create a fixed asset register listing all grant-purchased equipment
Maintained: Kept in safe, usable condition
Tracked: Physical inventory performed annually; discrepancies reconciled
Disposition: When equipment is retired or sold, proceeds return to the federal government (or are shared per grant terms)

Record requirements:

Equipment description
Cost and date of purchase
Acquisition funding source (grant + match)
Unique identifier (serial number or tag)
Location and responsible party
Condition and maintenance history

Example: A transit agency purchases new signal control equipment ($150,000) funded 80% by FTA grant + 20% local match. The agency must tag the equipment, enter it in the fixed asset system, perform annual inventory verification, and when the equipment is eventually replaced (in 10-15 years), either return the equipment to FTA or share the salvage proceeds proportionally (80% to federal government, 20% retained locally).

5. Subrecipient Monitoring (2 CFR 200.331)

If your organization passes federal funds to contractors, consultants, or other entities (subrecipients), you must monitor their compliance.

Subrecipient vs. Contractor:

Contractor: Provides goods/services to you (you control the specification and outcomes). Can be paid from grant funds without subrecipient monitoring.
Subrecipient: Receives federal funds directly to perform project work under your supervision. You must monitor their compliance.

Example distinction:

Contractor: Design engineer hired to create preliminary design (you specify what's needed; engineer provides service)
Subrecipient: Regional port authority that passes airport improvement grant funds to smaller airport in their region

Monitoring requirements for subrecipients:

Confirm they have compliant procurement procedures
Review their invoices and supporting documentation
Ensure they maintain adequate records
Monitor their progress toward project completion
Verify they comply with federal regulations

Documentation: Maintain monitoring records showing you verified subrecipient compliance.

6. Record Retention (2 CFR 200.334)

Federal grants require meticulous record retention:

Duration: 5 years after final grant closeout
Content: Procurement documents, invoices, contracts, timesheets, equipment inventory, environmental approvals, meeting notes, correspondence
Format: Paper or electronic (both acceptable if authentic)
Access: Must be provided to federal auditors upon request

Many organizations underestimate the volume of records required. A $50 million construction project will generate thousands of pages of documentation. Plan for document management from day one.

Single Audit: The Annual Compliance Checkup

What Is a Single Audit?

A Single Audit (formally, an audit under the Single Audit Act, codified at 31 U.S.C. §7501) is a comprehensive audit of an organization's federal funding, including all federal grant programs.

Who must have a Single Audit?

Any entity (government, non-profit) that spends $750,000 or more in federal awards in a fiscal year

Who doesn't need an audit?

Entities spending <$750K in federal funds (though they may do a simplified audit or no audit)

For airport authorities, port authorities, and transit agencies, a Single Audit is typically required because they manage multiple federal grants (AIP, ATP, AIG, PIDP, CIG, etc.) that collectively exceed $750K annually.

What Does the Auditor Review?

The Single Audit covers three areas:

1. Compliance Audit

The auditor tests compliance with 2 CFR 200 and program-specific rules:

Allowable costs: Sample invoices and verify costs comply with cost principles
Procurement: Test a sample of procurements; verify competitive process was followed
Equipment: Verify equipment inventory is complete and accurate
Subrecipient monitoring: Confirm you monitored contractors and subrecipients
Environmental clearance: Verify NEPA and environmental documentation
Time and effort: For salary expenses, verify time allocation is supported by timesheets

2. Financial Audit

The auditor audits the financial statements:

Are grant revenues properly recorded?
Are expenses properly classified?
Is the Statement of Revenues and Expenditures accurate?
Are outstanding liabilities properly disclosed?

3. Internal Controls Assessment

The auditor evaluates whether internal controls are adequate:

Does the organization have segregation of duties (e.g., purchase requisition separate from approval)?
Are there checks on expenditure authority?
Is grant accounting separate from general accounting?

Common Audit Findings

The most frequent findings auditors report for infrastructure grant recipients:

Finding Type 1: Inadequate Documentation

Issue: Invoices lack supporting documentation (e.g., material receipts, time allocation)
Risk: Auditor cannot verify costs are legitimate and allocable
Fix: Require contractors to submit invoices with supporting detail. Maintain organized file for each invoice.

Finding Type 2: Unsupported Cost Allocation

Issue: Salary or overhead allocated to grant without documented methodology
Example: Manager's salary charged 50% to grant without timesheet evidence
Fix: Establish and document a cost allocation methodology (e.g., salary allocated based on % time per timesheet). Require timesheets from key staff.

Finding Type 3: Procurement Noncompliance

Issue: Contract awarded without competitive bidding or sole-source justification
Example: Engineer hired without RFP; airport justified as "sole source" without adequate explanation
Fix: Ensure all procurements >$25,000 have competitive RFP or documented sole-source justification.

Finding Type 4: Equipment Inventory Inaccuracy

Issue: Fixed asset register does not match physical inventory
Example: Audit found equipment tagged in system but not located during physical verification
Fix: Perform annual physical inventory. Reconcile to fixed asset system. Investigate and document discrepancies.

Finding Type 5: Grant Closeout Delays

Issue: Grant remains open 2+ years after project completion; final drawdown and closeout documentation not submitted
Risk: Outstanding liability on books; potential clawback of unspent funds
Fix: Establish grant closeout timeline. Prepare final report within 12 months of project completion.

Finding Type 6: Subrecipient Monitoring Deficiency

Issue: Subrecipient received federal funds but you did not verify their compliance
Example: State airport development grant passed to local airport without auditing their procurement practices
Fix: Establish subrecipient monitoring plan. Document communications with subrecipients. Review invoices and progress.

Audit Management Tips

To minimize audit findings:

Document early and often: Do not wait until audit to assemble records. Maintain organized files as work proceeds.
Implement a grant accounting system: Separate grant revenues from general revenues. Track expenses by grant number and cost category.
Require supporting documentation: When contractors submit invoices, require supporting detail (timesheets for labor, receipts for materials, etc.).
Conduct an internal audit: Before the external auditor arrives, conduct your own audit checklist. Identify and fix obvious issues.
Communicate with auditors: Maintain open dialogue with the audit firm. Respond promptly to information requests.
Establish a compliance committee: Assign someone to monitor compliance. Schedule quarterly reviews of grant files.

Building a Robust Grant Compliance Program

For a medium-to-large infrastructure organization (e.g., airport authority, port authority, transit agency managing $100M+ in federal grants), a formal compliance program is essential.

Compliance Program Components

1. Policy and Procedures Manual

Document your organization's policies on:

Cost allocation and allowable costs
Procurement process (RFP, sealed bid, etc.)
Equipment acquisition and inventory management
Grant accounting and financial reporting
Subrecipient monitoring
Record retention and documentation

Develop with: Your CFO, general counsel, and federal grant manager.

2. Compliance Checklist for Each Grant

Create a template checklist for each new grant:

Grant number and program (AIP, ATP, PIDP, etc.)
Total award amount, federal share, match
Key milestones and deadlines
Procurement thresholds (what requires competitive bid)
Reporting requirements and due dates
Audit requirements
Equipment purchased (if any)

Use to: Track compliance as project progresses.

3. Document Management System

Implement a system to organize and store grant records:

Folder structure by grant number
Subfolders for procurement, invoices, payroll/time allocation, equipment, reports, correspondence
Electronic indexing (spreadsheet listing all grant files)
Retention schedule (ensure records kept 5+ years post-closeout)

Tools: SharePoint, OneDrive, or dedicated grant management software (Oracle, Alteryx, etc.).

4. Grants Coordinator or Compliance Officer

Designate a staff member (or hire) to oversee grant compliance:

Track grant deadlines and milestones
Verify procurement compliance before contracts are awarded
Review invoices for allowability
Maintain grant files and documentation
Serve as liaison with federal auditors
Conduct quarterly compliance reviews

Typical workload: 0.5-1.0 FTE for medium authority (managing $50-150M in federal grants).

5. Annual Compliance Review

Conduct an internal review of each significant grant:

Pull last 10-20 invoices; verify supporting documentation is complete
Sample 3-5 procurements; verify competitive process was followed
Verify equipment purchased is tagged and inventoried
Review time allocation for salary expenses; confirm timesheets are complete
Identify any issues; prepare corrective action plan

Schedule: Quarterly for high-risk grants; annually for routine grants.

6. External Audit Coordination

Maintain relationship with auditors:

Provide information requests promptly
Correct identified deficiencies quickly
Document corrective actions
Address auditor questions in writing
Review draft audit report before finalization

Special Topics in Infrastructure Grant Compliance

Buy America Requirements (Infrastructure Grants)

Many federal infrastructure grants include "Buy America" provisions requiring that steel, iron, and manufactured products be produced in the United States.

Applies to: AIP, ATP, AIG, PIDP, FTA programs

Requirements:

Steel and iron articles manufactured in U.S. (100% domestic)
Manufactured products with >55% U.S. content (weighted value)
Exceptions: Domestic unavailability, cost prohibitiveness (>25% price premium)

Your responsibility:

Require contractors to certify compliance
Document Buy America certifications for all materials and equipment
Maintain records of waivers or exemptions granted

Auditor focus: Auditors increasingly scrutinize Buy America compliance. Ensure your procurement contracts specify Buy America requirements and contractors provide certification.

Environmental Compliance and NEPA Documentation

All infrastructure projects require environmental clearance (NEPA). Your grant agreement will specify the level required:

Categorical Exclusion (CATEX): Minimal documentation
Environmental Assessment (EA): 20-50 page document
Environmental Impact Statement (EIS): 100+ page comprehensive analysis

Your responsibility:

Maintain NEPA documentation
Implement mitigation measures (if required)
Maintain environmental compliance records

Common issue: NEPA review incomplete at grant award. This can delay funding and project start.

Prevailing Wage Requirements

Construction contracts often carry prevailing wage requirements (Davis-Bacon Act for federal funding). Contractors must pay workers at least the federally-determined prevailing wage rate for the region.

Requirements:

Prevailing wage rates published for each trade and region
Contractors must pay prevailing wages; cannot pay below
Weekly payroll reporting required

Auditor focus: Auditors sample payroll to verify prevailing wage compliance. Missing certifications or underpayment is a significant finding.

Closeout: Ending Your Grant Relationship

When the project is complete, the grant must be formally closed out.

Closeout process:

Final Invoice: Submit last reimbursement request with all documentation
Final Report: Submit project completion report (certifying project completed as approved)
Financial Reconciliation: Submit final accounting showing all federal and match funds spent
Equipment Listing: Submit final equipment inventory (for grants requiring it)
Closeout Request: Formally request grant closure from federal agency

Timeline: Complete closeout within 12 months of project completion.

Common delay: Final invoices and reports submitted late because project completion documentation is incomplete. Begin gathering closeout documentation 6 months before project end to avoid delays.

Conclusion: Compliance as a Strategic Advantage

Organizations with robust grant compliance programs experience fewer audit findings, faster grant closures, and stronger relationships with federal agencies. This becomes a competitive advantage in future grant applications—agencies reviewing your applications will see a track record of clean audits and efficient execution.

Conversely, organizations with poor compliance records (prior audit findings, late closeouts, documentation deficiencies) will face increased scrutiny on future applications and may be debarred from federal funding.

Action items for your organization:

Develop or update grant compliance policies and procedures
Designate a grants coordinator or compliance officer
Implement a document management system for grant records
Conduct an internal audit of current active grants
Prepare for upcoming Single Audit (ensure records are complete)
Review all active grant agreements for special provisions (Buy America, prevailing wage, etc.)
Establish a quarterly compliance review schedule
Train staff on cost principles and procurement standards

The infrastructure grants that power your organization are valuable resources—but only if you manage them with rigor and discipline. Build the compliance foundation now, and your grants will fund infrastructure for years to come.

This analysis was prepared with AI-assisted research by DWU Consulting. It is provided for informational purposes only and does not constitute legal, financial, or investment advice. All data should be independently verified before use in any official capacity.