How state broadband leaders can protect distributed capital from the IIJA

The first step in mitigating funding clawback risks is to conduct comprehensive project planning. State broadband leaders must thoroughly assess their states’ broadband needs and prioritize underserved and economically distressed areas. By focusing on areas with the greatest need, states can verify that their broadband projects align with the goals of the IIJA and are less likely to be subject to clawbacks due to misallocation of funds. Grant and award officers should also consider collaborating with other agencies for projects that would have overlap; for example, if a broadband office is considering deploying broadband in a rural setting requiring underground conduits, perhaps this is a chance to determine if electrical wires should also be upgraded. This minimizes the overall burden to the state or territory. Prioritizing the projects of greatest need and coordinating with other agencies provides an effective way to manage fund distribution given limited resources.

Grant size is also an important factor in the planning process. State broadband leaders should consider grant sizes that strike a balance between adequately funding projects and building accountability. Smaller grants may be preferable initially to test project viability and grant recipient competence. As projects demonstrate success, larger grants can be awarded to expand successful initiatives.

Comprehensive planning should include developing robust processes to promote compliance with applicable federal regulations. State broadband leaders can leverage these leading practices for managing federal grant funds:

• Establish clear and consistent accounting policies and procedures specific to federal grants.
• Use a separate accounting system or accounting codes.
• Train staff members on grant requirements and accounting policies.
• Implement strong internal controls.
• Verify eligibility of expenses.
• Keep detailed records.

Choosing the right recipients for IIJA funds is crucial. State broadband leaders should conduct a thorough evaluation of potential recipients and develop a comprehensive set of standard evaluation criteria and acceptable thresholds as the foundation. Overlayed with scoring criteria, governments and agencies will have an indicator of what areas will need to be monitored if recipients are selected. This also creates quantifiable acceptable tolerances for risk management.

Evaluating an organization’s technical expertise, financial stability, track record in broadband deployment, and any technical and/or financial risks can help identify recipients with a higher probability of successful project execution.

To minimize funding clawback risks, state broadband leaders should start by thinking about the big-picture objectives and the milestones/tollgates to achieve them. This should flow into the structure of grant agreements with clear and achievable milestones tied to performance measures, inclusive of reporting requirements. Setting realistic and measurable goals based on benchmarks for project progress, broadband coverage and service quality requires recipients to stay on track and meet the required targets. This approach reduces the likelihood of clawbacks resulting from missed deadlines or incomplete projects. Continued evaluation allows recipients to address challenges throughout the process.

Active subrecipient risk assessment and monitoring to confirm compliance is essential in risk mitigation. This is a necessary discipline that allows recipients to understand their grants and how effectively funds are expended. State and territory broadband leaders should establish a robust monitoring system to provide visibility into project progress and compliance with grant requirements. This allows governments and agencies to review financial and technical progress against the grant agreements on an ongoing basis. Regular reporting and site visits enable early identification of potential issues and allow governments and agencies to take a risk-based approach to engage in timely intervention, rectify the most pressing deviations and avoid potential clawback situations.

Complying with federal procurement guidelines is one of the best ways for state broadband leaders to minimize clawback risk. IIJA recipients must understand their obligations, IIJA eligibility and compliance with federal and awarding agency requirements.

• Fair and open competition (2 CFR § 200.319): All procurements must provide fair and open competition and not require excessive or unnecessary bonding or other unnecessary qualifications that limit competition. Noncompetitive procurement processes may be used if the goods being procured are only available from a single source.
  
  
• Cost reasonableness assessments (2 CFR § 200.404): For IIJA costs to be considered eligible, the costs must be necessary to meet the objective of the program and be considered reasonable. A leading practice is to establish and document cost reasonableness for all procurements where federal funds may be anticipated. Federal grant recipients should create a cost estimate before soliciting the work, analyze costs proposed by vendors prior to awarding work and determine cost reasonableness. Not retaining all necessary documentation to prove cost reasonableness could lead to being required to pay back federal funds received.
  
  
• Domestic preference requirements (2 CFR § 200.322): The IIJA contains domestic preference requirements under Build America, Buy America Act (BABA) provisions that mandate the use of domestically produced iron, steel and manufactured goods for infrastructure projects, including broadband projects. Grant recipients should familiarize themselves with the BABA and confirm that they comply with the requirements prior to purchasing iron, steel and other manufactured goods.

When in doubt, refer to the funding-specific guidelines and 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards for clarification. It is imperative for recipients to monitor federal award guidelines, policies and requirements for clarification and updates to confirm compliance and avoid costs being ineligible.