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Procedure for Establishment and Administration of Fixed Price Agreements

This procedure outlines the administrative requirements for formulating, monitoring, and closing-out fixed-price sponsored agreements. These procedures apply to all proposals submitted on or after February 1, 2014 and all existing fixed price award accounts with end dates of July 1, 2017 or later. Distribution of residuals in fixed price accounts that commenced prior to February 1, 2014, but ended on or before June 30, 2017, will be addressed on a case-by-case basis to ensure that previous commitments to sponsors and Principal Investigators (PIs) are honored.

Definition
Use
Budgeting
Cost Allocations
Process

Distribution of Residual Funds

Definition
In a fixed price agreement the contractor pays a firm price for the agreed-upon work, regardless of the actual costs incurred to conduct the work. Fixed price agreements can be risky to the University (i.e. PI, Department, College, and University) and thus require close monitoring by the PI because: 

  1. If the project is underestimated, the University must identify funds to pay to complete the project.
  2. If the project is overestimated, there will be residual funds for which proper accounting must be made.
  3. Budget preparation requires accurate costing so that there is neither a deficit nor a substantial excess of funds upon project completion. If a project is appropriately budgeted and expended, the unexpended balance should not normally exceed 10%.

Use
Fixed price agreements (grant, contract, cooperative agreement) are appropriate when they meet the following criteria:

  1. Legal contract is executed by both parties
  2. Payment is tied to specific milestones or deliverables that are clearly described in a statement of work
  3. Work will  be completed within a stated time frame and at  stated fixed price
  4. Budget is estimated prior to award and adhered to for the duration of the project with no required incremental funding (unless there is a negotiated change to the statement of work) unspent funds are retained by the University
  5. Agreement does not include detailed expenditure reporting requirements

Budgeting
Proposals for fixed-price sponsored projects:

  1. Must be processed using established University procedures for sponsored projects regardless of any tentative understanding between the PI and the sponsor.
  2. Require an itemized budget, whether required by the Sponsor or not, with costs estimated in a manner consistent with University cost accounting policies. The budget:
    1. Should not anticipate or plan for revenue in excess of anticipated budgeted costs.
    2. Should not include revenue to recover previously incurred expenses – whether related or not to the project.
    3. Should include appropriate F&A rates consistent with University policies

Cost Allocations

  1. Must not be incurred prior to full execution of the agreement, unless authorized by the award
  2. Must be directly related to the purpose and performance of the contract
  3. At project completion account balance:
    1. May approximate zero if costs were accurately estimated or
    2. May have a modest residual if there were unexpected but realized efficiencies.

Process

  1. Upon receipt of the proposal or award, the Office of Sponsored Programs (OSP) will review the proposal, budget, scope of work, and ensure the appropriate risk analysis is completed.
  2. It is the responsibility of the PI to monitor the completion of deliverables, report on the results, and provide timely notification to the appropriate personnel in the Department, OSP and SFS in the event the University (i.e. PI, Department, College, and University) is unable to meet its obligations under the agreement.
  3. Upon project completion, the PI will notify their unit business officer that all deliverables have been accepted by Sponsor and the project is complete. 
  4. IF THERE ARE COST OVERRUNS:
    1. PI will work with the business officer and SFS to document the overrun and agree on process to cover the shortfall. As with all shortfalls on sponsored projects, funds will normally be utilized in the following order:  PI discretionary funds, Department funds, College fund
  5. IF THERE ARE RESIDUAL FUNDS:
    1. Business officer will notify SFS on behalf of the PI, requesting allocation of the funds in accordance with the following principles:
    2. If the project has received a reduction or waiver from the published F&A rate, SFS will charge the full F&A costs to the project before any final balance is determined.
  6. After a final balance is determined, and all sponsor payments from the sponsor have been received, distribution will be as follows:

Distribution

Residual*

Allocation (after recovery of F&A reduction)

Amount remaining less than or equal to 10% of total funding

  • Entire amount transferred to PI discretionary account.

Amount remaining greater than 10% but not more than 30% of total funding

  • 33% of balance remaining to PI discretionary account
  • 67% of balance remaining to Department

Amount remaining greater than 30% of total funding

  • Requires SFS review
  • PI must submit written explanation of the reason for the high residual. The justification will be part of financial documentation subject to audit
  • 10% of balance remaining to PI discretionary account
  • 20% to Department
  • Remainder to the College/School

* In all cases, 100% of the residual balance will be returned to PI when it is equal to or less than $2,500, regardless of percentage of total funding.

Example:
$100,000 award, full F&A (note: full F&A rate will be charged before distribution)

Amount Remaining

PI

Department

College

$8,000

$8,000

 

 

$17,000

$12,333

$4,667

 

$40,000

$17,666

$15,334

$7,000

$100,000 award, reduced F&A of $10,000, restored F&A allocated to College

Amount Remaining

PI

Department

College

$8,000

$0

 

$8,000

$17,000

$7,000

 

$10,000

$40,000

$16,666

$13,334

$10,000

$15,000 award, full F&A (note: full F&A rate will be charged before distribution)

Amount Remaining

PI

Department

College

$1,500

$1,500

 

 

$2,500

$2,500

 

 

$5,000

$2,550

$2,100

$350

$7,500

$2,800

$2,600

$2,100

NOTES:

  1. All work and the related expenditures on a fixed price project must occur before the end date of the award. 
  2. No-cost extensions are appropriate if necessary to meet deliverables or to complete the scope of work.  They are not appropriate if the extension is requested solely for the purpose of spending the remaining funds.
  3. Excessive residual funding may be the result of projects costs not being appropriately charged or projected costs not being appropriately estimated. These instances may be subject to audit by SFS.
  4. In the event of a disallowance of project costs following transfer of residual funds, all distributions will be reversed. The residual amounts will be adjusted for the disallowance and will be re-distributed according to the procedure above.