At a glance: This guide provides an overview of subgranting Part C funds under the Individuals with Disabilities Education Act (IDEA), including how this funding relationship differs from contracting and key state responsibilities.
What types of funding relationships can states use?
When a state lead agency (LA) works with early intervention providers to implement the IDEA Part C program, the funding relationship generally falls into one of two categories: a contractor (procurement) relationship or a subrecipient relationship (see text box). The distinction depends on the nature of the relationship and the responsibilities assigned to the provider.
2 CFR §200.331 Subrecipient and contractor determinations
“(a) Subrecipients. A subaward is for the purpose of carrying out a portion of the Federal award and creates a Federal financial assistance relationship with a subrecipient. See the definition of Subaward in § 200.1. Characteristics that support the classification of the entity as a subrecipient include, but are not limited to, when the entity:
- (1) Determines who is eligible to receive what Federal assistance;
- (2) Has its performance measured in relation to whether the objectives of a Federal program were met;
- (3) Has responsibility for programmatic decision-making;
- (4) Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
- (5) Implements a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.
(b) Contractors. A contract is for the purpose of obtaining goods and services for the recipient’s or subrecipient’s use and creates a procurement relationship with a contractor. See the definition of contract in § 200.1. Characteristics that support a procurement relationship between the recipient or subrecipient and a contractor include, but are not limited to, when the contractor:
- (1) Provides the goods and services within normal business operations;
- (2) Provides similar goods or services to many different purchasers;
- (3) Normally operates in a competitive environment;
- (4) Provides goods or services that are ancillary to the implementation of a Federal program; and
- (5) Is not subject to compliance requirements of a Federal program as a result of the agreement. However, similar requirements may apply for other reasons.”
In a contractor relationship, the state purchases specific goods or services for its own use in operating the Part C program. The provider must meet the terms of the agreement, but the provider is not directly responsible for complying with IDEA requirements; the state retains that responsibility.
In a subrecipient relationship, the state provides Part C funds through a subgrant to another entity to carry out part of the Part C program. In this case, the subrecipient is directly responsible for complying with applicable IDEA and federal program requirements (2 CFR §200.331(a)), and the state must monitor the subrecipient’s compliance (2 CFR §200.332(e)).
Is a state required to subgrant Part C funds?
No, subgranting is optional and at the state’s discretion. Flexibility to subgrant Part C funds was first authorized in the Consolidated Appropriations Act of 2021 and later codified in the Education Department General Administrative Regulations (EDGAR) at 34 CFR §76.50(b) in 2024. Prior to the 2021 appropriations act, states were not permitted to subgrant Part C funds.
“Unless prohibited by applicable statutes or regulations or by the terms and conditions of the grant award, a State may use State-administered formula grant funds—
- (1) Directly;
- (2) To make subgrants to eligible applicants, as determined by applicable statutes or regulations, or if applicable statutes and regulations do not address eligible subgrantees, as determined by the State; or
- (3) To authorize a subgrantee to make subgrants.”
34 CFR §76.50(b)
The flexibility provided in EDGAR does not require a state to subgrant. Depending on state laws and regulations, a state may engage an entity solely as a contractor to procure goods or services or as a subrecipient to carry out part of the federally funded program.
Under 2 CFR §200.1, a subgrant may be made through any type of legal agreement. As a result, a state may use a contract as the legal mechanism to convey the responsibilities of a Part C subgrant. However, such an agreement reflects a subrecipient relationship, not a contractor relationship to procure goods and services.
When would a state choose to subgrant?
A contractor relationship is generally useful when the state LA needs a specific set of goods or services to carry out its own work. A subrecipient relationship, by contrast, may be preferred when the state LA wants another entity to carry out part of the Part C program and assume responsibility for program decisions. Subgranting can be advantageous when the state wants the subrecipient to independently implement federal program requirements and manage required program activities (e.g., child find). In these cases, the state monitors compliance and ensures program goals are met while giving subrecipients the authority and accountability needed to implement the program effectively.
A state LA may choose to subgrant when it seeks to strengthen shared responsibility, local ownership, and accountability within its IDEA Part C system. Subgrants recognize local entities as partners responsible for fiscal and programmatic requirements and give them the flexibility to manage the program in ways that reflect their community’s needs. In some states, the existing administrative infrastructure may also make subgranting more practical than contracting, such as when the Part C program is housed within the state educational agency.
What are the state’s obligations if subgranting Part C funds?
Subgranting comes with additional responsibilities for the state LA. When the state subgrants Part C funds, it must monitor and maintain internal controls to ensure that a subrecipient uses IDEA Part C funds properly, consistent with 34 CFR §303.120(a) and 2 CFR §§200.303, 200.329(a), and 200.332(e).
Because all applicable regulations and requirements are passed down to subrecipients, the state acts as a “pass-through entity” for the funds (2 CFR §200.1). As the pass-through entity, the state is responsible for making sure its Part C subrecipients comply with IDEA, the Office of Management and Budget Uniform Guidance, and EDGAR requirements.
What are some initial actions to take before deciding to subgrant?
If a state LA is considering using subgrants—either as the only funding approach or alongside other options—there are several initial actions to take before changing how funds are distributed. The state LA should:
- Contact its state lead at the Office of Special Education Programs (OSEP) to review what infrastructure elements need to be in place.
- Coordinate with its legal and fiscal offices to review policies and procedures for legal and programmatic considerations, including any state law requirements, and determine whether new or revised policies are needed.
- Engage with key groups, such as the State Interagency Coordinating Council, to assess whether subgrants are appropriate for service delivery.
- Develop any necessary policies, procedures, and funding mechanisms and ensure that IDEA and state public participation requirements are met for any newly developed policies and procedures.
How is subgranting reported to the U.S. Department of Education?
Under 34 CFR §303.121, state LAs must have policies that describe the state’s mechanisms for “contracting or otherwise arranging for services.” This is reported in Section II.B. of the IDEA Part C Grant Application. States must also indicate in Section III.F. whether or not they will subgrant Part C funds. Reporting this information ensures that OSEP is aware of the state’s funding approach and that subgranting practices are documented in the state’s policies and procedures.
Questions for states to consider
What state laws or regulations affect who can receive a Part C subgrant?
States may have laws, regulations, or other rules that limit which entities are eligible to receive Part C subgrants. In developing or reviewing these requirements, states may find it helpful to consider prior federal approaches, such as the Consolidated Appropriations Act of 2021, which limited eligible subrecipients to local governmental or other public entities and excluded private individuals and for-profit organizations.
How will the state LA’s fiscal accountability and monitoring systems need to change?
Shifting from contractor relationships to subrecipient relationships can change responsibilities for local early intervention providers and the way the state allocates Part C funds. States should update processes as needed, such as the process for awarding funds to subrecipients, risk assessments, and monitoring. Implementing a subgranting process may require significant planning, lead time, and technical assistance.
How will the state LA communicate the benefits and challenges of subgranting to stakeholders?
Subgranting may require changes to policies and procedures for procurement, monitoring, billing, and accountability. State LAs should provide enough time to allow key groups, including the Interagency Coordinating Council, to contribute meaningful input on subgranting decisions.
This resource was initially published in 2026, under a grant from the U.S. Department of Education, #H373F200001. This page was last updated May 2026.
Suggested Citation: Center for IDEA Fiscal Reporting. (n.d.). Quick reference guide on subgranting IDEA Part C funds. WestEd. Retrieved [date], from
https://cifr.wested.org/guide/quick-reference-guide-on-subgranting-idea-part-c-funds
