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

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

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

4. 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

5. 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”

6. 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

7. 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

8. 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”

9. 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.

10. 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

11. 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 de minimus rate of 10%
NIH limits Foreign de minimus rate to 8%

12. 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

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

14. 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?

15. 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

16. 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

17. 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

18. 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.

19. 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

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

21. Coeus/Awards/Subcontracts Tab

22. 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.

23. 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

24. 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

25. 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

26. Subrecipient Monitoring
Uniform Guidance
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

27. Subrecipient Monitoring
UG (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)

28. 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

29. 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

30. Subrecipient Monitoring – PI & Department
Review of Deliverables
Ensure the scope of work is being performed per the agreement
UG 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 The Federal Agency must require recipients to relate financial data to performance accomplishments…

31. 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

32. 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

33. 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

34. Subrecipient Monitoring - OSP
Fixed Price vs. Cost Reimbursement
UG 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

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

36. 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)
A publically available website with searchable information on each Federal grant and contract over $25,000

37. 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

38. 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

39. Questions