Are You a Subrecipient or a Contractor? What Broadband Providers Need to Know

Why subrecipient versus contractor status determines grant audit risk

This is Article 4 of 5 in of our series on navigating grant-funded broadband growth, covering grant audits, compliance triggers, and audit-readiness best practices. Upcoming articles focus on accounting challenges and scaling operations efficiently.

If your broadband company is working on a grant-funded project, even if you did not apply for the funding directly, one commonly overlooked compliance consideration is: Are you a subrecipient or a contractor? This distinction affects reporting, compliance, and potential grant audits.

A “grant audit” reviews whether your internal controls, documentation, and spending practices comply with federal rules. Your classification as a subrecipient or contractor determines which compliance obligations apply and whether an audit could be required.

The basics: What the Uniform Guidance says

The distinction between a subrecipient and a contractor comes from the Uniform Guidance (2 CFR Part 200), the federal regulation governing how grant funds are managed.

• A subrecipient carries out a portion of the grant program. They help meet the goals of the funding.
• A contractor (or vendor) provides goods or services to the grant recipient under a commercial relationship, as part of their normal business operations.

In other words, a contractor is hired to deliver something; a subrecipient is helping fulfill the grant’s mission.

Why classification matters

Your classification determines:

• Whether you are subject to compliance requirements under Uniform Guidance
• Whether your expenditures could trigger a grant audit
• The level of oversight the primary recipient must maintain over your work

If you are a subrecipient, the bar is higher. You may:

• Need to follow federal procurement rules
• Have to track and report performance outcomes
• Even face your own grant audit if federal expenditures exceed thresholds for details on thresholds)

If you are a contractor, your role is generally simpler:

• Deliver goods or services under the contract
• Get paid for deliverables
• Not subject to Uniform Guidance or grant audit requirements (unless you separately receive federal funds under another award)

Note: If your customer undergoes an audit, your work may still come under review.

Real-world examples for broadband providers

Suppose your company is building a last-mile network in a rural area. You did not receive the Broadband Equity, Access, and Deployment (BEAD) Program award directly, but you are being paid by a local government or nonprofit that did.

If you are simply constructing the network under a fixed-scope contract, you may be a contractor, but if the agreement requires you to make program-level decisions, meet federal goals, or report outcomes, you could be a subrecipient, even if the agreement does not explicitly use that terminology.

Red flags that suggest subrecipient status include:

• Having discretion in how funds are spent
• Being accountable for program goals, not just outputs
• Required compliance with federal rules as part of your agreement
• Reporting performance metrics tied to the program’s success

These characteristics align more closely with program implementation. not a simple commercial transaction.

Review the award agreement carefully

These designations are not always clearly labeled in contracts or memoranda of understanding (MOUs). Many agreements do not use the terms “subrecipient” or “contractor” at all.

Instead of looking for a label, review the scope of work and responsibilities. The subrecipient and contractor determinations section (2 CFR §200.331) is a helpful reference. It is not a strict test, but it gives you a framework to assess your role.

If you are a subrecipient

You may be subject to:

• A grant audit if your federal expenditures exceed thresholds
• Detailed documentation requirements (funding use, cost allowability, procurement compliance)
• Ongoing monitoring from the primary recipient

You will also need auditors who understand how grant compliance integrates with your operations, especially if you are recording the funding as deferred revenue or matching costs to milestones.

If you are a contractor

Your obligations are usually limited to the contract itself. You are not responsible for compliance with federal grant rules. Still, expect the primary recipient to retain documentation of your work, especially if their audit scope includes your contract.

What to do next

If your broadband company is working on any grant-funded infrastructure projects, you should:

1. Review your agreements. What’s your scope of responsibility? Who sets direction?
2. Compare to the Uniform Guidance role determinations list. Use §200.331 to test your classification. Avoid relying solely on labels; instead, assess the substance of the arrangement.
3. Document your conclusion. Keep a memo in your files, especially if you determine you are a contractor.
4. Talk to your CPA or audit team. This determination has real compliance and financial reporting implications.

Bottom line

Many broadband providers assume that if they did not apply for the grant, they are simply a vendor. That assumption can be risky. Misclassifying yourself as a contractor when you are actually a subrecipient could expose you to compliance gaps, audit findings, or clawbacks.

It is essential to make this determination correctly from the outset.

At Keiter, we provide audit and advisory services for companies working on federally funded broadband projects, educate teams on subrecipient versus contractor roles, and offer practical guidance on how agreements affect reporting, documentation, and audit readiness. Contact your Keiter Opportunity Advisor | Email | Call 804.747.0000 to discuss how your role and agreements may affect your compliance obligations.

Looking forward:

Next, we will show the steps to figure out if your broadband project triggers a grant audit, including how to check agreements, confirm your role, track spending, and prepare your team.

Broadband Providers: Do You Actually Need a Grant Audit?

Resources and further reading

• 2 CFR Part 200 – Uniform Guidance (eCFR)
  Governs administrative and cost principles for federal awards, including audit requirements. Key sections: §200.331 (Subrecipient and contractor determinations), §200.502 (Federal Awards Expended), and §200.507 (Program-Specific Audits).
• Office of Management and Budget (OMB) Compliance Supplement – Office of Federal Financial Management
  Official compliance guidance used by auditors and recipients of federal funding, including the most recent updates to federal grant audit thresholds.
• Federal Register – 2024 Uniform Guidance Revisions (PDF)
  Official announcement of the 2024 updates to 2 CFR Part 200, including the federal grant audit thresholds increase and effective dates.
• BEAD Notice of Funding Opportunity (NOFO) – Audit Requirements (Section G)
  Details audit requirements for recipients of BEAD funding, including when Generally Accepted Government Auditing Standards (GAGAS)-compliant or program-specific audits are required for for-profit recipients.