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45.17 - Fixed-Price Contracts/Grants


  • Position: Office of Sponsored Programs Director
  • Name: Sarah Martonick
  • Email:

Last updated: April 11, 2008

A. Purpose. This document states University policy on, and provides associated procedures for, the actions to be taken upon the completion of externally funded fixed-price contracts/grants, especially when such contracts/grants are concluded with a residual cash balance.

B. Definitions.

B-1. Fixed-Price Contract/Grant. A fixed-price contract/grant (also known as a firm-fixed-price, firm-price, or fee-for-service contract/grant) requires a recipient to perform work necessary to produce deliverables (i.e., services or property) specified in the contract/grant for an established dollar amount and, usually, by a defined time. Under such a contract/grant, price is not subject to adjustment on the basis of the recipient’s cost experience in performing the contract/grant, and payment for performance of the contract/grant remains constant despite the actual costs associated with work that might be required to fulfill the terms of the contract/grant.

B-2. Residual Funds. Residual funds are the monies remaining at the completion of a project contract/grant, after all costs incurred in performing the contract/grant have been paid and all external funding has been received.

B-3. Significant Residual Fund Balance (or Significant Balance). A significant residual fund balance is defined by the University as residual funds equal to or greater than ten (10) percent of the total contract/grant price.

C. Requirements of Fixed Price Contracts/Grants.

C-1. When to use a Fixed-Price Contract/Grant. The fixed-price contract/grant offers benefits to both project sponsors and Principal Investigators. Because the final cost of a product or service provided under a fixed-price contract/grant is established and accepted prior to the performance of the contract/grant, a project sponsor is relieved of the risk that its cost for the deliverable(s) identified in the contract/grant may exceed its expectations and budget. Principal Investigators, as recipients of a fixed-price contract/grant, perform under a minimal administrative burden, which is delimited primarily by the periodic reporting on progress toward defined benchmarks. In most circumstances, if the costs incurred to complete the project are less than the price paid by the sponsor for the performance of the contract/grant, the recipient institution retains the difference.

C-2. Considerations for All Fixed-Price Contracts/Grants.

a. Compensation. The University must ensure that it is properly compensated for direct and indirect costs incurred under a fixed-price contract/grant but must also avoid generating a residual balance. Entering into a fixed-price contract/grant for deliverables intended for the direct benefit or use of the sponsor may also make the University appear to have an unfair competitive advantage over for-profit businesses providing the same or a similar product or service at a higher cost.

b. Unrelated Business Income Tax (UBIT) Review. If the University receives funds for work that is regularly undertaken for the benefit of a sponsor and that is not consistent with the research, education, or public service missions of the University as a non-profit institution, the Internal Revenue Service may declare these funds to be unrelated trade or business income and, therefore, subject to unrelated business income tax. OSP shall consult with Business and Accounting Services regarding any agreement that has UBIT potential.

c. Federal Requirements. The University must ensure observance of the terms and conditions of the contracts/grants, must adhere to and consistently apply established cost principles and accounting standards, and must fulfill its obligations under federal and state compliance and audit regulations. (See OMB Circular A-21). Among the laws that inform University contracting policy is the Anti-Kickback Act of 1986. Consistent with this statute, the University prohibits any employee from soliciting, accepting, or attempting to accept a kickback – money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, for the purpose of improperly obtaining or rewarding favorable treatment in relation to a contract/grant involving federal funds. (See Anti-Kickback Act of 1986).

Compensation principles established by the federal government require that salary on sponsored programs be expressed in relation to the entirety of an individual’s professional effort. (See OMB Circular A-21). The University demonstrates its conformance to these compensation principles, ensuring that compensation for sponsored programs accurately reflects effort expended, by requiring the periodic verification of effort for anyone with salary directly charged or cost shared to externally funded sponsored programs. (See APM 45.09, Effort Commitment and Reporting). The University, therefore, requires that faculty or staff report effort on a fixed-price contract/grant, if they have salary charged or committed as cost sharing to it. If no salary is charged or cost shared to the fixed-price contract/grant, effort put toward the performance the grant/contract must be included, as voluntary uncommitted cost sharing, in the calculation of the total activities in which an employee has engaged as part of his or her University appointment.

d. Tracking of Expenditures. The University must document project expenditures under a fixed-price contract/grant in order to show that sponsor funds have been used as specified by the contract/grant and that costs are fully and properly expensed. If unable to adequately demonstrate during the course of an audit that sponsor funds were used in the manner allowed by the contract/grant and applicable regulations, project costs may be disallowed and the University required to return them to the sponsor. Repeated audit findings related to fixed-price contracts/grants may compromise the ability of the University to enter into these agreements with state and federal agencies.

D. Review and Approval of Fixed-Price Contracts/grants. All contract/grant proposals, including proposals for fixed-price contracts/grants, must be presented by the Principal Investigator to the Office of Sponsored Programs for review of terms and conditions and assessment of the proposed project budget. The project budget should take into account direct and indirect costs associated with the performance of the project and should include sufficient detail to make accurate accounting practicable. The contract/grant must be approved and signed by the individual with signature authority for such documents under APM Section 60.20.

E. Closeout of Fixed-Price Agreements. Upon completion of the work to be performed under a fixed-price contract/grant, the Principal Investigator must provide the following information to the Office of Sponsored Programs:

  • Substantiation that all work required under the contract/grant has been completed
  • Confirmation that no outstanding expense items remain open or in question with the sponsor
  • Certification that all required deliverables and reports have been provided to and accepted by the sponsor

The final account balance will be determined only after the final payment from the sponsor has been received, all salaries and outstanding invoices have been paid, and all F&A costs have been recovered by the University.

F. Contract/grant Closeout with Residual Funds: In the event that the Principal Investigator completes the required work for less than the contract/grant price, the Principal Investigator may request that the project account be closed and that the residual funds be distributed to the College in which she or he is a faculty member. The residual funds are considered deferred revenue of the University, and F&A costs and unrelated business income tax (if applicable) will be assessed against them prior to their distribution. The remaining funds will then be disbursed in accordance with the University procedure for the distribution of earned F&A. The project account will be closed only after transfer of the residual funds. A College receiving such funds may use them for any permissible use in support of the research, education, or public service missions of the University.

If there is significant residual fund balance, i.e., an amount greater than or equal to ten (10) percent of the contract/grant price, at the completion of work for the contract/grant, the Principal Investigator must provide a written explanation for the substantial discrepancy between the cost to perform the contract/grant and the contract/grant price. This explanation should be supplied by the Principal Investigator to the Office of Sponsored Programs, which will use it along with the information that the Principal Investigator is required to provide upon closeout of the agreement (under E. Closeout of Fixed-Price Agreements) as the basis for an audit of the project. Residual funds will be distributed to the College of the Principal Investigator upon the satisfactory conclusion of the audit and by approval of the Vice President for Research, or the Vice President for Research’s designee.

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