You’ve been awarded a grant–now what?
Federal infrastructure grants provide funding that cities can put to good use for all sorts of projects, but they also come with a complex set of requirements that can be overwhelming to navigate. This guide is for local governments who have received federal competitive grant funding and want to stay compliant with federal rules and regulations, avoid the most common pitfalls of infrastructure grant implementation, and manage federal dollars responsibly and effectively.
1. Double Check Your Award Details
Before moving forward with any grant-related planning or spending, take the time to confirm that the information in your award package is correct. Validating these details early makes it possible to correct mistakes quickly and prevents downstream reporting and audit issues.
Every grant award should be given a careful review, but as a first step, double check that the following are listed correctly:
- Lead applicant and project name
- Award amount (including any cost sharing or match obligations)
- Project period and important related dates like obligation and expenditure deadlines
Adding the Federal Award Identification Number (FAIN) to data systems used for spending funds or billing personnel time as soon as possible can also prevent future delays in processing funds.
2. Familiarize Yourself with Federal Spending Rules
The core federal rules for spending, procurement, financial management, and oversight can be found in the Code of Federal Regulations section often referred to as 2 CFR 200. How the federal government manages its grants is clarified further in the Uniform Grants Guidance.
One important aspect of these regulations is the definition of what counts as an allowable cost for spending federal grant money. Specifically, every expense charged to your award must be:
- Necessary and reasonable;
- Within the awarded budget;
- Consistent with federal as well as state and local policies and procedures;
- Treated consistently (for example, indirect costs must be calculated the same way across grants);
- Allocated only to the grant (for example, you cannot count the same spending for 2 federally-financed grants); and
- Adequately documented, including keeping records of authorizations, financial obligations, unobligated balances, assets, expenditures, income, and interest of any federal grant awards.
Other key federal regulations
In addition to 2 CFR 200, recipients of federal grants must also comply with cross-cutting federal laws and regulations, including:
- Title VI of the Civil Rights Act of 1964, which prohibits discrimination based on race, color, and national origin and related US DOJ guidance;
- Americans with Disabilities Act (ADA), which protects the rights of people with disabilities;
- The guidance of the Equal Employment Opportunity Commission (EEOC), which is responsible for enforcing federal laws that make it illegal to discriminate because of race, color, religion, sex, national origin, age, disability, or genetic information;
- National Environmental Policy Act (NEPA), which requires evaluations of the environmental impact of some projects prior to making decisions; and
- Occupational Safety and Health Administration (OSHA) which creates requirements to ensure safe and healthy workplaces.
If you have questions about how federal laws and regulations might impact your project and, or if the city does not have a general counsel that is able to provide a definitive answer, you can reach out to your DOT contact for the grant for clarification.
3. Understand how to use your award
Most federal programs operate on a reimbursement system, meaning your city pays costs up front and submits for reimbursements to cover costs. Advance payments happen occasionally but only in certain circumstances and under strict controls.
Follow best practices for drawdown of federal funds
Detailed recordkeeping and timely turnarounds will save time in the long run by ensuring you are prepared for monitoring, audits, and reporting. This includes keeping an organized system for tracking timesheets, invoices, and procurement records as well as how any spending falls within the approved budget for the project. Making smaller, more frequent drawdowns and limiting the time between receiving federal funds and paying expenses can be more time consuming initially, but will also have long-term financial tracking benefits.
Following Generally Accepted Accounting Principles (GAAP) like those created by the Financial Accounting Standards Board or the Government Accounting Standards Board is another way to ensure transparent tracking of federal funds.
Calculate local match and cost sharing accurately
Most federal grant programs require that the recipient pay for a portion of their project using nonfederal resources. This match or cost share must also meet federal spending standards. Specifically, match contributions must:
- Cover spending that is reasonable, allowable, and allocable;
- Come from approved sources;
- Be tracked using the same accounting system as grant dollars;
- Be spent within the period of performance;
- Only be spent on approved project activities related to the award; and
- Documented and verifiable (this is especially true for in-kind matches like volunteer time, donated property, etc).
When calculating and spending the local match, it is important to avoid common pitfalls by ensuring the funds come from an allowable source and are only spent on allowable activities within the project. In the case of in-kind contributions, match funds must be well-documented and assigned appropriate value.
Know the difference between contracts and subawards
Cities often use federal funding to partner with nonprofits, utilities, or community organizations to deliver services. It’s critical to distinguish whether these relationships are considered subawards or contracts, as the federal rules and reporting requirements are different.
Subawards go to subrecipients to carry out a portion of the federal program or project. Subrecipients must follow all applicable federal rules and reporting requirements. When funding is given out through a contract to provide goods or services, the vendor or contractor is not subject to programmatic federal compliance. It is important to understand the distinction because misclassifying partners is a very common audit finding.
Integrate indirect costs into your budget
Indirect costs are costs that are not directly or solely related to the grant but are necessary for the functioning of your city, including the grant-funded project. They are categorized as “facilities,” which includes things like buildings or equipment used for multiple projects, and “general and administrative costs,” which includes things like the human resources and accounting departments.
Many recipients of federal funds work with agencies to develop a Negotiated Indirect Cost Rate Agreement (NICRA). This simplifies indirect cost calculations because the same rate can be used across projects. If a grant recipient doesn’t have a NICRA, another common way to calculate indirect costs is by using 15 percent of total direct costs with a few adjustments (this worksheet provides an example of how to calculate Modified Total Direct Costs (MTDC)).
This indirect cost guide form the Government Finance Officers Association is also a helpful reference on this topic.
Avoid common drawdown mistakes
Plan ahead and set strong internal controls to avoid frequent and costly errors:
- Understand the drawdown rules before spending;
- Plan for internal cash-flow needs;
- Disburse federal dollars expediently;
- Retain no more than $500 per year of interest earned on Federal funds, which must be used for administrative expenses;
- Maintain detailed documentation and complete financial records;
- Learn the federal payment system early; and
- Make smaller, more frequent drawdowns to avoid too many late-stage drawdowns.
4. What to Expect from Federal Monitoring
One of the responsibilities of federal agencies is to monitor federal grants to ensure they are being used in compliance with federal laws and regulations, and to assess progress and performance during the grant period. This type of oversight is routine and inquiries from federal agencies should not be taken as a sign that something is wrong. As a recipient of federal grant you can expect one or more of these types of monitoring:
- Meetings and check-ins with your grant officer;
- Desk reviews of documentation;
- On-site visits;
- Review of procurement files, drawdowns, and reports; and
- Financial and programmatic audits, especially if your city exceeds the $1M annual threshold for a single audit.
Many of the recommendations in this document — like keeping your financial documentation clear, complete, and up to date — can ensure you are prepared for monitoring meetings and visits.
5. What to do if You Need to Change Something
If you find that you need to make changes to your project scope, timing, or budget structure, it often requires a modification or amendment of your grant agreement. Before making any adjustments to your project or budget, you should contact your federal program officer to discuss the change. You will then need to prepare and submit a formal grant modification request. It is important to wait for federal approval and verify that your updated award documentation reflects your requested changes before implementing any shifts in your project. If a grant recipient assumes they can make a change, but does not check with their granting agency, it can cause compliance issues.
6. How to Prepare for Reporting
All federal grants require some forms of reporting, some of which is listed in the notice of funding opportunity. Successful reporting starts long before the deadline, and preparing early can save your time later on. To stay on track:
- Know your funder’s guidelines, required forms, and reporting timeline;
- Maintain a running file of invoices, progress updates, photos, deliverables, and performance metrics; and
- Track both required data (e.g., outputs and expenditures) and supporting narrative information that helps demonstrate progress.
Collecting these materials continuously makes quarterly and final reporting far easier and will also strengthen your city’s overall story of impact.
Successfully managing a federal grant requires attention to detail, strong financial controls, and clear communication with federal partners, subrecipients, and your internal team. By understanding your award requirements, following federal cost and drawdown rules, and preparing for monitoring and reporting, your city can focus less on compliance and more on turning federal dollars into lasting community impact.