Many organizations grapple with one of the simplest procurement methods of all - micro-purchases. More precisely, establishing an appropriate dollar threshold for micro-purchases.

Is it $3,000? $3,500? $10,000? Could it be even more?

There's a lot of grey around this very simple method.

In this article, I will clear up the confusion while giving you some options for right-sizing a threshold that works best for your organization.

Background on Micro-purchases

Micro-purchases are small-scale procurements where competitive quotes (and certain other procurement provisions) are not required.

The original micro-purchase threshold was set at $2,500 in the ‘90s. It remained that way until 2006 when it was increased to $3,000. It then got another bump in 2015, when it increased to $3,500.

That’s a mere $1,000 increase in just over 20 years!

Needless to say, many in the grant community felt the threshold was too low, creating unnecessary administrative burdens for very small procurements.

With the sweeping UG changes of 2020, the threshold finally got the boost it needed. The ‘default’ threshold was raised from $3,500 to $10,000, a substantial increase.

The changes didn’t stop there. Additional provisions allowed nonprofits to increase the threshold even higher based on “internal controls, an evaluation of risk, and documented procurement procedures.”

For those wanting to increase the threshold, there were two options.

Option 1. Establishing a Micro-purchase Threshold up to $50,000

Organizations could raise their threshold up to $50,000 by self-certifying annually. Self-certification required defining the threshold, providing a justification for the increase, and verifying the organization:

• qualified as a low-risk auditee in its most recent audit,
• conducted an annual internal institutional risk assessment to identify, mitigate, and manage financial risks, or
• was a public institution that has established a higher threshold consistent with state law.
  In all cases, the self-certification and supporting documentation had to be made available for review by an awarding agency, a pass-through entity (if applicable), and auditors.

Option 2: Establishing a Micro-purchase Over $50,000

In some cases, an organization could set an even higher threshold if written approval was provided by the cognizant agency responsible for reviewing and approving the organization’s indirect cost rate.

To get this approval, an organization would need to submit a request to the cognizant agency justifying the increase and provide the appropriate supporting details. If approved, the higher threshold would remain valid as long as the conditions used to justify it didn't change.

Choosing a Threshold That is Right for You

Right-sizing your micro-purchase threshold is as important as ever. It can streamline procurement processes, reduce administrative burden, and enhance efficiency. However, it's essential to balance these benefits against potential risks.

Here are a few factors to consider when choosing a micro-purchase threshold for your organization.

• Volume - How many purchases do you make between your current threshold and $50,000 (the 'sweet spot')? How much time and effort could you save by increasing your threshold by $5,000? $10,000?
• Risk - What types of goods and services do you buy in the sweet spot? Are they primarily low risk commodities, high risk technology and services, or some combination of both? Weigh the benefits of increased flexibility and reduced administrative burden against the potential small purchases that may carry a lot of risk.
• Culture - What is your organization’s procurement culture? Do employees value compliance, risk mitigation, and ethical standards. A solid culture makes the decision to increase your threshold much easier.

One final note. Don’t shy away from a lower threshold if you feel it is better for you. Some clients maintain thresholds under $10,000 given where they operate geographically and their overall procurement culture.

Remember, one size does not fit all. Evaluate the various factors applicable to your organization and make sure your micro-purchase threshold feels right for you!

Need Assistance?

Vendor Centric has partnered with some of the largest (and smallest) nonprofits to make important policy decisions and right-size their procurement operations.

Book a call to schedule a complimentary consultation.