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Subcontracting Procedures

INTRODUCTION SUBCONTRACT RELATIONSHIP SUBCONTRACTING PROCEDURES Subcontractor Selection Sponsor or Peer Reviewed Non-Sponsor or Non-Peer Reviewed Subcontract Proposal Incorporating Subcontractor's Proposal into Cornell's Proposal Preparing the Subcontract Submit request through Sponsored Portal Special Consideration for Small Businesses Advance Payments to Subcontractors POST-AWARD MANAGEMENT Establishing an Account Technical Monitoring Fiscal Monitoring Amendment to Subcontracts CLOSE-OUT REQUIREMENTS INTRODUCTION The purpose of this document is to assist University faculty and staff in the preparation and administration of subcontracts issued under sponsored programs. Sponsored programs funded by agreements made to Cornell are usually conducted within the physical boundaries of the University. On occasion, a portion of the required effort may be provided by one or more other institutions or companies (third parties) who are made responsible for a discrete part of the project. When the portion of effort being performed by a third party constitutes a substantive component of the sponsored program, the third party is required to provide the resources and personnel necessary to conduct that portion of the work as an independent contractor. Costs normally associated with third party effort could include any or all of the following: labor, employee benefits, materials and supplies, travel, equipment, subcontracts, consultants, other direct costs, and facilities and administrative costs (indirect costs). In the profit sector, it is common to include costs such as labor overhead, material overhead, general and administrative expense, and a profit or fee. These procedures address policies involved in subcontracting non-construction activities. Should a program involve physical construction of facilities or renovation of existing facilities, the Office of Facilities and Campus Services Administration, Contracts Management Department (255-3982) must be contacted prior to submission of the proposal to ensure compliance with the Board of Trustees and University administrative procedures and to ensure that necessary approvals are obtained. The Office of Sponsored Programs (OSP) is available to assist departments in these procedures and would be involved in assisting Facilities and Campus Services Administration in the preparation of any subcontract. SUBCONTRACT RELATIONSHIP The term Prime Sponsor or Sponsor refers to the organization that makes an award directly to Cornell. The award document is the agreement processed by the Sponsor and accepted by Cornell specifying the terms under which the program will be conducted. The document that OSP generates to formalize a third party relationship with another organization to perform substantive work based upon an award made to Cornell is a Subcontract. The third party performing the effort under a subcontract is the Subcontractor. Activities performed by an individual under a sponsored agreement are normally administered through a Consulting Agreement issued by OSP. A purchase order must be used when purchased services may involve an organizational entity, but does not involve a substantive portion of the work effort of the project. For example, a purchase order would be appropriate for the performance of repetitive tests or activities requiring little or no discretionary judgment on the part of the provider. In these instances, a Consulting Agreement or a Purchase Order may be issued through the normal Cornell Procurement process. SUBCONTRACTING PROCEDURES Subcontractor Selection Sponsor or Peer Reviewed If the subcontractor is specified in the proposal and the collaboration is funded, it is not necessary to comply with the procurement requirements for competitive bidding or sole source justification since the sponsor or peer review process already approved the selection. If this is not the case, you must comply with the following procedures for selection. Non-Sponsor or Non-Peer Reviewed It is the responsibility of the Cornell Principal Investigator (PI), along with OSP, to comply with procurement requirements of the sponsor in selecting a subcontractor. There are two methods of selecting a subcontractor: competitive bidding or sole source procurement. Competitive bidding is used as the normal method of subcontractor selection. This method requires OSP, in conjunction with the PI, to solicit proposals from a number of sources and make a final selection of a subcontractor from those responding based on technical merit and cost objectives, normally the lowest price from a technically qualified respondent. When the procurement requires performance from a sole entity because services or expertise are not available from other sources, the PI is required to provide sole source justification, identifying the need for the services and why the selected subcontractor is the only source available for the needed services. Sole source selection is not justified simply by the fact that there has been an ongoing collaboration between the scientists. It must be further justified with reasons for the unavailability of the services or expertise from other sources. Subcontract Proposal Regardless of the method used in selecting a subcontractor, there must be adequate time provided between the receipt of a subcontractor's proposal and the Sponsor's proposal due date, to allow Cornell's PI sufficient time to discuss and negotiate the statement of work. If the proposed subcontract involves human subjects or animal experimentation, appropriate subcontractor compliance to their policies must be included with the proposal. A budget, itemized by major budget category, such as salaries and wages, employee benefits, supplies, equipment, travel, consultants, subcontractors and other direct costs, is submitted by the subcontractor as part of its proposal. Greater itemization of categories may be needed if required by the prime agreement. Facilities and administrative costs (indirect costs) should be included and should be calculated using the subcontractor's current rate(s). A copy of the subcontractor's negotiated rate agreement is needed to verify the costs requested and to support those costs in case of an audit. If the subcontractor uses a rate for employee benefits, a copy of that rate agreement will also be needed. The subcontractor's proposal must be signed by a designated official who is authorized to commit the subcontractor's resources to the completion of the project. Incorporating Subcontractor's Proposal into Cornell's Proposal The subcontractor's costs are included in Cornell's budget as a direct cost. When calculating Cornell's facilities and administrative costs (indirect costs), the amount which exceeds $25,000 of each subcontract should be excluded from the calculation in accordance with the Office of Management and Budget (OMB) Circular A-21. Facilities and administrative cost on the first $25,000 is calculated using the on-campus rate applicable to the award. During the processing of a proposal by OSP, the subcontract portion is reviewed to ensure all items required have been incorporated. Preparing the Subcontract When OSP receives a fully executed award from the prime sponsor, a subcontract with the proposed organization is prepared. OSP must receive approval from the PI to release the subcontract. This is submitted through the subrecipient tab in the "Sponsored Projects Portal". This information is necessary for OSP to ensure that the proper steps and determinations have been made prior to issuance of the subcontract. The request form will only be required when the subcontractor was not specified in the proposal and resulting award. Since the proposal either went through sponsor or the peer review process and the proposed collaboration was funded, the sponsor has approved the sole source selection and the costs are determined reasonable to perform the statement of work. In all other cases OSP will not issue the subcontract without a completed request form. If the subcontractor was not proposed in Cornell's original proposal, sponsor approval may be necessary prior to issuance of the subcontract. Prior approval may also be necessary even if the subcontractor was proposed in the original proposal. In some very rare instances, it may be necessary for the sponsor to review and approve the proposed subcontract agreement prior to Cornell's release to the subcontractor. In preparing the subcontract, it is important to adhere to the prime agreement terms and conditions and to flow down the appropriate clauses. Sample terms and conditions for various sponsors are maintained in the OSP Library Annex, and have been modified to provide for correct relationships. The Grant and Contract Officer (GCO) is responsible for making other modifications to the standard subcontract shell as necessary. Once the subcontract is prepared, it is normally sent unsigned to the subcontractor for review. The subcontractor may want to negotiate changes or request clarification of the terms and conditions. OSP negotiates and coordinates those requested changes with department personnel and the PI, where appropriate. Once negotiations are complete and the signed subcontract is received, OSP executes it on behalf of Cornell, returns the fully executed document to the subcontractor, and makes the proper internal distributions. Special Consideration for Small Businesses The following applies when subcontracting with a small business (under 50 employees): A small business does not need to obtain an audited facilities and administrative costs rate from the government until it has reached $10,000,000 in government sales. A small business must submit its facilities and administrative costs rate with its cost proposal. If the small business does not know how to estimate a rate they should be referred to Section H of OMB Circular A-21, entitled "Simplified Method for Small Institutions". It is Cornell's responsibility to make the determination that the proposed rate is fair and reasonable. The file must be documented to show that we have (or have not) found this to be a reasonable rate. Advance Payments to Subcontractors Advance payments are generally not allowed since: Sponsor guidelines normally state that subcontractors are reimbursed for expenses incurred for performing the work. Cornell does not usually receive advance funding from its sponsors, therefore, it is poor fiscal management to advance funds to a subcontractor. Requests for advance payments for subcontractors will be considered only in very unusual circumstances and on a case by case basis. All advance payments, if approved by OSP will be issued by Sponsored Funds Accounting (SFA) and only after a fully executed subcontract is in place. POST-AWARD MANAGEMENT Establishing an Account A separate account is established once a fully executed subcontract is received. The appropriate allocation is then transferred from the prime agreement account to the subcontract account by SFA. Technical Monitoring Cornell is responsible to see that the subcontractor's work is conducted and completed in a timely manner. Progress reports must be reviewed by the Cornell PI and discussed with the subcontractor as needed. These reports are usually incorporated in the overall reports submitted to the sponsor by the Cornell PI. OSP is responsible for obtaining the other reports required by the subcontract terms and conditions. For example, invention, fiscal, property and audit reports may be required. Fiscal Monitoring The Cornell PI should approve all subcontractor invoices and submit them to SFA for payment. SFA should verify that the proper facilities and administrative costs (indirect costs) and employee benefit rates have been applied and direct costs were expended in accordance with the approved budget. The invoice should be checked to determine that the invoice number is correct, costs are properly allocated and the amount invoiced is within the estimated cost of the subcontract. SFA then approves the invoice and forwards to the Accounts Payable section for payment. No invoice will be approved for payment that exceeds the estimated cost of the subcontract, even if approved by the PI. OSP should be advised of the discrepancy and the invoice returned to the department with an explanation. OSP will then contact the subcontractor regarding the discrepancy. Subcontracting Sample Invoice The subcontactor shall submit invoices for payment as outlined in the terms and conditions of their agreement. All subcontractors shall certify on each invoice that the costs are the actual costs as recorded in the subcontractor's records and as expended for the actual work performed per the agreement. All invoices must be approved by a Cornell Authorized Representative. In order to be eligible for reimbursement invoices shall be for allowable, approved costs incurred in accordance with the terms of the agreement and shall display expenses for reimbursement by budget category, identifying the total project costs, the reimbursable costs and the subcontractor's share pursuant to submitted budget. An authorized representative of the subcontractor shall certify on each invoice that the costs, including those requested for reimbursement and those shown as the subcontractor share, are the actual costs as recorded in subcontractor's records and as expended for the work actually performed in accordance with the terms of this Agreement. The attached invoice may be utilized when submitting invoices for approval. Amendment to Subcontracts During the term of a subcontract, it may be necessary to change or modify one or more of the terms and conditions of the subcontract. Some changes, such as scope of work or PI, may require sponsor approval before an amendment can be issued. Requests for changes should be submitted by the subcontractor's authorized official and have the approval of the Cornell PI prior to OSP requesting sponsor approval. In most cases, the terms and conditions of a subcontract will remain unchanged for the duration of the subcontract. Amendments to the subcontract, such as time extensions, rebudgeting or fund changes are accomplished by an amendment to the subcontract. When these amendments are done, both the old and new text should be referenced. It also should be noted in any amendment that "all other terms and conditions of the original subcontract remain unchanged." If there is a change in the total estimated cost, a revised budget must be incorporated with the amendment. The amendment is the vehicle that clearly states the changes and provides for the signature approvals of both parties. CLOSE-OUT REQUIREMENTS In accordance with the terms of the agreement, the subcontractor may be required to submit one or more of the following documents upon completion. Final Fiscal Report Final Technical Report Final Inventory of Property Final Statement of Inventions Small and Small Disadvantaged Business Report Final Audit Notification if subcontractor is subject to A133

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Last modified: 01/17/2008
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