SUBCONTRACTS DEMYSTIFIED A Guide to the Subcontracting Process Revised 11/11/15

The Subcontract and Consortium Agreement Process: Michael Kostyshak Assistant Director, Pre-Award Services Brown University Pre- Award Services Office of Sponsored Projects

Topics of Discussion Subcontracting vs. Procurement Preparing a Proposal that Includes a Subcontract Award Stage Subcontracting Process Subrecipient Monitoring Subcontract Closeout Process

Procurement Defined Procurement: The acquisition of goods and services such as supplies, materials, equipment, consulting or general support services. Vendor: Supplies goods or standard services to many customers within its normal business operations, ancillary to the scope of work. Purchase Order Consultant: A consultant is an individual or firm that serves as an expert on a project at the direction of the Brown Principal Investigator. Professional Services Agreement – “Work for Hire” generally not subject to monitoring or reporting requirements of the prime award

Subcontract Defined Subcontract: An agreement to provide programmatic support under an award made originally to Brown. Subcontractor or “Subrecipient”: Is an organization responsible for managing the technical and administrative aspects of its scope of work Contributes substantively to the conduct of the project Uses its own resources and facilities Carries out the work independently Makes progress reports to the Brown P.I. Must comply with Federal regulations (IRB, IACUC, FCOI) Owns the product of its work Brown receives a license to use the Subrecipient’s work to fulfill the Prime award Should we say “funding” instead of “acquisition”

PSA vs. Subaward Subaward PSA NO YES NO YES YES NO YES NO Will they contribute substantively to the scientific conduct of the project and be responsible for programmatic decision making? Subaward NO YES NO Will they have responsibility for adherence to applicable Federal program compliance? YES YES Do they provide the same goods and services to others within normal business operations? NO Do they operate in a competitive environment for the provisioning of the goods or services to be procured? YES NO

Example Professor Smith will be submitting a research proposal to the Office of Naval Research and would like a company, Smart Robots, Inc., to build a robot from his specifications. Result: Professional Services Agreement or simple Purchase Order replacing

Example Professor Smith will be submitting a research proposal to the Office of Naval Research and would like a company, Smart Robots, Inc., to build a robot from his specifications. Smart Robots, Corp. will be testing and gathering data, performing new calibrations, contributing to journal articles, and reporting new findings to the Brown PI. Result: Subcontract Should we say “funding” instead of “acquisition”

The Contract – Subcontract Relationship Prime Sponsor: Legal entity that provides funding for the project with specific terms and conditions (grant, cooperative agreement or contract). Prime Recipient, “Pass Through Entity” PTE: Legal entity that receives a “Prime Award” from the sponsor to fund an approved S.O.W. (scope of work) i.e. “Sponsored Project” Subrecipient: Legal entity receiving a subaward from the PTE for the use of the Prime Sponsor’s funds to carry out a substantive portion of the approved S.O.W. under the sponsored project. The Subrecipient is accountable to the Prime Recipient; there is no “Privity of Contract” between the Subrecipient and the Prime Sponsor! MK: note- explain that subawardee has no direct relationship to the prime sponsor.

Subawards at the Proposal Stage Required Documentation Official Letter of Intent/Commitment Detailed Scope of Work Detailed Budget (with justification) Bio-sketch(s) of Key Personnel* Current/Pending Support of Key Personnel* Representations and Certifications* *depending on sponsor requirements

Building the Budget Personnel Including Fringe - With approved rates Equipment Subrecipient may have a lower threshold than Brown Travel Participant Support Other Direct Costs Indirect Costs Use the Prime Sponsor’s rate/policy Must use Subcontractor’s Federal F&A for Federal awards UG 200.414 de minimus rate of 10% NIH limits Foreign de minimus rate to 8%

Building the Budget Understanding Subawards and Indirect Cost Subrecipient Total Cost is a Direct Cost to Brown Brown charges IC on the first $25,000 of Subaward Total Cost for the life of the subaward This may include sub’s indirect cost

IC calculation in Brown’s Budget: Building the Budget IC calculation in Brown’s Budget: Year 1 Year 2 Brown TDC: 100,000 100,000 Includes Sub Total Cost: 15,000 15,000 Brown MTDC 100,000 95,000 Brown Indirect (62.5%) 62,500 59,375 Brown Total Cost: $162,500 $159,375

Evaluating the Subcontract Proposal Do the Title and Period of Perf. Match the prime proposal? Is the LOI signed by the Authorized Official? Is the SOW of sufficient detail to measure the sub performance? Tasks, Milestones, Deliverables Are the proposed costs allowable, allocable, & reasonable? Has any cost-sharing responsibility been passed down? Are other Sponsor required documents included?

Award stage Subcontracting Process Key Steps in Subcontract Preparation: Secure sponsor approval, if needed Confirm dollars/dates/IRB-IACUC; PI & Dept. Risk Assessment: “Subrecipient Monitoring” Issue / Negotiate subcontract

Step 1 – Secure sponsor prior approval When is sponsor approval needed: Subcontract was not included in the approved budget With NIH Grants, prior approval only required for a substantial and a change in the S.O.W. Subcontract is funded under a federal prime contract or a subcontract, at whatever tier OSP reviews, approves and submits the request to sponsor LOI, SOW, Budget and Justification for adding the sub

Step 2 – Confirm Dollars and Dates Primary responsibility of the PI and Department: The PI knows the relationship of the sub to the project The budget may have to be revised The period of performance may be revised IRB and IACUC approvals as necessary Notify OSP and provide documentation SUBAWARD ORDER FORM MK: simplify or put on 2 slides

Step 3 – Risk Assessment a.k.a. “Subrecipient Monitoring” OSP monitors the Subrecipient “entity” in order to assess the level of risk exposure to Brown. Risk level may determine additional terms and conditions to include in the agreement. A-133 or Financial report is for the most recent fiscal year.

Step 4 – Issue / Negotiate Subcontract Flow down terms and conditions of the prime Include different or additional terms based on Risk Assessment Include the S.O.W. & budget and Prime award OSP may send an unsigned for timing of: FFATA reporting FCOI compliance Human/Animal subject protocol compliance Export Controls

Step 4 (con’t) – Negotiation of Terms and Conditions Typical negotiation points are: Indemnification Intellectual Property Indirect Cost Extension of final invoice due date

Coeus/Awards/Subcontracts Tab

Subcontract Status New In Process Indicates that OSP is processing a New subcontract Modification In Process Indicates that OSP is processing a modification to the subcontract Pending Signatures Indicates the subcontract or modification has been sent to the subcontractor for signature Pending PO Indicates the subcontract is complete and OSP is generating the purchase order. Active Indicates that the subcontract is active.

Subcontract Status In Negotiation Indicates OSP has issued the subcontract but the subcontractor has requested changes to the terms Closed Indicates that the Subcontract has been performed, the final invoice has been paid, and the subcontract is closed Inactive Subcontract is not active due to various reasons Void Indicates a subcontract that was created but never processed fully due to some change of events Terminated Indicates early termination of the Subcontract

Amending an Existing Subcontract Trigger: modification of the prime award, or changed circumstances PI/Dept. must notify OSP of what changes are needed, SUBAWARD ORDER FORM How is carry forward managed? Can this increment of funding be co-mingled with previously awarded funds? If yes, use an amendment to modify an existing subcontract If no, a new subcontract should be prepared

Subcontract Closeout Process Typical Closeout Requirements call for the following final documents: Final invoice – marked “FINAL” Final equipment report Final invention report Final technical/progress report Subaward Close-out Certification form send to Post-Award

Subrecipient Monitoring Uniform Guidance 200.330-332 Guidelines and procedures to ensure that subrecipients conduct their research in compliance with all governing regulations and requirements of the Sponsor and Brown University This is a shared responsibility OSP monitors the subcontractor organization PI & Dept. monitor the subcontractor performance

Subrecipient Monitoring UG 200.331(d) Monitoring of the Subrecipient must include: Review Financial and Programmatic reports (PI & Dept.) Ensure Appropriate Action is taken if there are deficiencies (OSP) Issue Management Decisions when Sub has audit findings (OSP)

Subrecipient Monitoring – PI & Department Review of Invoices Ensure costs are consistent with the agreed budget allowable allocable, and reasonable Is the cost sharing clearly reflected on the invoice? Are they spending cost-sharing dollars concurrently with the award dollars? Unallowable costs should be deducted/off-set Invoices should not be approved for payment until all issues or concerns have been resolved

Subrecipient Monitoring – PI & Department Do not accept the Final Invoice unless: The PI is satisfied with the Sub’s performance The Subrecipient has submitted all required interim/final financial, technical deliverables and closeout documents The expenses and required cost-sharing are in accordance with the subaward and prime award terms and conditions All the terms and conditions have been adhered to Keep detailed records of communications regarding unsatisfactory performance – Notify OSP, ASAP

Subrecipient Monitoring – PI & Department Review of Deliverables Ensure the scope of work is being performed per the agreement UG 200.210 The Federal awarding agency must include in the Federal award an indication of the timing and scope of expected performance… [this] may include specific performance goals, indicators, milestones, or expected outcomes… UG 200.301 The Federal Agency must require recipients to relate financial data to performance accomplishments…

Subrecipient Monitoring - OSP Standard Information: DUNS Number SAM registration and Excluded Parties List Subrecipient Profile Questionnaire F&A Rate Agreement including any corrective actions Single Audit (UG) / Financial Report FCOI certifications (PHS only) “Visual Compliance” screening Issue Management Decisions, take actions as needed FDP Expanded Clearing house Pilot Provides this information for 137 participating organizations OSP must be advised of any deficiencies in technical performance reports

Subrecipient Monitoring – OSP Risk Assessment Program Complexity Amount of Award Percentage Passed Through and Percentage of Sub’s business Prior Experience with Subrecipient Subrecipient location Degree of external oversight by auditors or other sponsors For-Profit status

Subrecipient Monitoring - Factors Determining Frequency and Intensity of Monitoring Program Complexity: More complexity means higher risk of non-compliance Amount of Award: More funding means more risk ($500K/Year = more oversight) Percentage Passed Through and Percentage of Sub’s business: The larger the percentage of the subaward compared to the prime The scale of the award in terms of the subcontractor’s overall business Prior Experience with Subrecipient: New, inexperienced, history of non-compliance, audit findings, sophistication of systems and administrative operations Subrecipient location: Increases risk due to lack of oversight by Brown and different laws and accounting procedures is some foreign countries Degree of external oversight by auditors or sponsors: Are the sub’s accounting practices reliable? For-Profit status: Increases risk due to possible conflict of interest

Subrecipient Monitoring - OSP Fixed Price vs. Cost Reimbursement UG 200.332 Fixed Price sub limited to $150,000 and requires prior approval from the Federal Agency Include special terms as necessary based on risk Provide additional backup for invoices OSP Review Subrecipient Invoices Conduct on-site visits and/or maintain regular contact with Subrecipient, as necessary Perform audits, as necessary OSP must be advised of any deficiencies in technical performance reports

High Risk Subrecipient Foreign entity For-profit commercial entity Prior audit findings or deficient financial statements No prior history of sponsored research

Subrecipient Monitoring – Final Considerations FFATA Reporting as of October 1, 2010 Provides public access to information on all organizations receiving Federal funds  Reporting on executive compensation and first-tier subawards has been implemented with the development of the Federal Subaward Reporting System (FSRS) www.USASpending.gov A publically available website with searchable information on each Federal grant and contract over $25,000

Subrecipient Monitoring – Final Considerations Financial Conflict of Interest – DHHS only DHHS FCOI Policy: “Investigators” must disclose Significant Financial Interest (SFI) Annually, with each proposal, and within 60 days of a change The organization (whose policy is being used) determines if there is a FCOI – not the individual Investigators must take an approved FCOI training class every 4 years MK: ARRA reference may not be relevant any longer

Subrecipient Monitoring – Final Considerations Financial Conflict of Interest – DHHS only Subrecipient MUST either: Have a FCOI policy that complies with DHHS requirements, or Follow Brown’s FCOI Policy Entities listed on the FDP Clearinghouse have a compliant policy Brown is responsible for reporting Subrecipient FCOI to DHHS MK: ARRA reference may not be relevant any longer

Questions