Fixed-Price Contracts

Many faculty are asked to perform services outside the University such as offering training, conducting workshops, making evaluations, and so on. They may wish remuneration to come through the institution in order for the department or program to benefit from the funds, and these services are often arranged under a Fixed-Price Contract. However, the University is subject to myriad laws, rules and regulations in managing its funds, including extramural funds received from outside sponsors, which must be adhered to under contractual agreements, including Fixed-Price Contracts. They include:

 State Laws and Regulations:

• Oregon Revised Statutes and Oregon Administrative Rules. As a public, non-profit institution and State of Oregon agency, the UO cannot use State instructional funds for other purposes.
• The State Board of Higher Education Policies and Administrative Rules. Policy 6.100 requires that institutions seek reimbursement for all direct and full facilities and administrative or F&A costs (formerly called indirect costs) associated with every grant and contract and that budgets include all recoverable direct costs and F&A costs at the full rate allowed.

Back to top

---

Federal Laws and Regulations:

• OMB Circulars A-21, A-110 and A-133. The UO is subject to the cost principles and methods under A-21, which requires that costs must be allocable to a sponsored agreement. A cost is allocable to a particular sponsored project if the goods or services involved are chargeable or assignable to the project in accordance with the relative benefits received. As a recipient of federal funds, the UO must follow policies and regulations that govern compensation for employees, including additional compensation for outside consulting.
• Cost Accounting Standards. The UO is subject to CAS, which emphasize the importance of consistent application of cost accounting principles. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs. Where the University treats a particular type of cost as a direct cost on sponsored agreements, all costs incurred for the same purpose in like circumstances must be treated as direct costs for all activities of the institution.
• Audits. Auditors closely examine transfers between accounts, of both salary and non-salary costs, especially transfers involving budgets in a deficit condition or those having unexpended funds at the expiration date. Under A-21, allocable costs cannot be transferred to another sponsored project to avoid restrictions imposed by law or by terms of the sponsored agreement. If such conditions exist, it is particularly essential to provide convincing evidence that the transfer is not for reasons of budgetary convenience.
• Activity Reporting. Under A-21, institutions receiving federal support must maintain supporting documentation of salaries and wages charged, directly or indirectly, to federally-sponsored agreements. The activity reporting system is used to meet this purpose, as well as to serve as documentation of cost sharing effort on grants and contracts. Certified by the department head on a regular basis, a report must reflect that the salaries and wages charged to activities supported by federal funds are reasonably consistent with actual effort in those activities. The report applies to all professional (academic ranks including graduate research assistant), classified and student employees whose salary or wage is charged directly, in part or in whole, to federal grants and contracts, or is charged to state-fund accounts or non-federal grants and claimed by the University as cost sharing.

Any activities performed as part of an employee's contract that relate to general, departmental or sponsored projects administration must be identified, assigned a percentage of effort, and reported on. Therefore, it is very important that employees first determine if time is available to be committed to a project as cost-shared effort. No individual can work more than 100% effort for ALL institutional activities. As grants begin and end, an individual must be able to certify that their total effort for all activities--instruction, research, public services, academic advising, and institutional committees--does not exceed 100%.

Back to top

---

Potential Risks Under Fixed-Price Contracts:

To comply with these numerous, and sometimes conflicting or cross-purpose, rules and regulations, the University must be very cautious before entering into Fixed-Price Contracts for services that do not clearly and foremost directly benefit the University or its constituency. Fixed-Price Contracts for specified deliverables, based on a pre-determined rate or price, may appear to benefit the sponsor more than the UO. They may define the project as a "work for hire" and show the UO as an unfair competitor to for-profit businesses who provide the same type of service at a higher cost. On the other hand, they may be a means for UO faculty and students to get real-world experience, develop on-going relationships with outside entities, or support special programs or areas of expertise such as training seminars and workshops.

They can also put the institution at risk. While institutions must fully recover costs in performing services, they cannot generate profit or be in deficit, a risk inherent in Fixed-Price Contracts which pay a flat amount whether costs are covered or not. The UO also must be careful how it handles any residual balance of funds remaining after the project ends, so as not to violate state or federal regulations on non-profit status, or on cost-accounting standards which require allocating costs and showing consistency in budgeting and charging costs. Salaries for staff working on the project but not charged to the account in proportion to the effort expended may not comply with OMB Circular A-21 effort reporting requirements unless the effort is documented elsewhere. And if not charged to the account, it is difficult to track and report on total effort and be in compliance with A-21 compensation principles which do not allow more than 100% effort for all activities performed by an individual. An account that does not show actual expenditures which follow award terms, personnel costs that reflect effort, or an unobligated balance that is transferred out, may not pass an audit examination. The results could be disastrous if costs are disallowed and already-spent funds must be returned to the sponsor, possibly with penalty fees.

Since only a flat rate or total price is given in Fixed-Price Contracts, there is no budget for project costs by cost category. Without an approved budget, the University cannot determine that all costs will be fully recovered, which does not comply with State Board of Higher Education policy. If F&A costs are included in the price, and the residual balance in an account is returned to the project director's department, or the activity is not run under a contract but rather through an income account, the University?s policy on return of ICC funds to a department is potentially circumvented. These funds may include F&A in excess of the normal return to the department; thus, the University's F&A costs are not fully covered.

Back to top

---

Policies and Procedures For Fixed-Price Contracts:

In order to mitigate risks inherent in Fixed-Price Contracts as described above, while still allowing faculty, staff and students to participate in sponsored projects under this type of agreement, the Office of Research Services and Administration has developed the following policies and procedures. PIs and departments are strongly urged to consult with ORSA in developing preliminary budgets and final price quotes for Fixed-Price Contracts to ensure that all expenses will be covered.

These guidelines are part of a pilot program over the next year, at which time ORSA will evaluate the risks and benefits for the University. As for all research contracts, ORSA will sign Fixed-Price Contracts on behalf of the University.

1. Multiple small non-federal Fixed-Price Contracts may be managed under one fund or index number. These assigned fund or index numbers will not be interest-bearing accounts.
2. "Small" Fixed-Price Contracts are limited to $25,000 or less.
3. Each project will be identified within the index with a discrete project number for billing purposes (e.g., Index 443321, project 1, project 2, etc.).
4. There will be separate fund or index numbers set up for all federal Fixed-Price Contracts.
5. Contracts costing more than $25,000 will normally be set up under a separate index.
6. A UO Proposal Clearance Form and detailed budget are required and will be reviewed along with the Fixed-Price Contract by ORSA.
7. For projects where staff effort is not charged against the index for the Fixed-Price Contract, an activity code will be established and entered on the staff member's pay index so that activity reporting can reflect actual effort (if effort is 5% or more).
8. Billings clearly marked with the index number and project number can be done by the department, but payments will come to ORSA.
9. The University will normally require half of the total price be paid to UO upon acceptance/execution of the Contract, and the other half due when the work is completed and has been accepted by the sponsor.
10. Exceptions to the half/half payment plan may be made when tasks or deliverables are clearly defined and scheduled in the Scope of Work and payment is made upon completion of each milestone.
11. The PI has to give ORSA notification of the completion of work and must provide ORSA with a copy of the invoice (if department handles billings) marked FINAL.
12. The F&A costs for the project will be recovered and transferred out of the index by ORSA when a payment is received.
13. Budgets can include a departmental allocation for expenses of up to 10% to recoup costs that cannot be uniquely identified, such as phones or administrative support.
14. Departments must track the number of days staff work on the project to ensure accurate activity reporting on the project's index or on another pay index using an activity code.
15. Remaining balances for each project in the Fixed-Price Contract index may be transferred out to another index for spending by the PI once work is completed and payment in full is received (usually within 6 months of completion of the project). Alternatively, PIs can arrange with ORSA for any residual funds to be left in the original index.

Contact ORSA at ext. 6-5131 or email Research_Services@orsa.uoregon.edu with any questions.

Back to top