Fixed-Price Agreements Policy

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Policy Code: 
4155
Approval Authority: 
Vice Chancellor
Policy Type: 
Divisional Policy
Policy Owner: 
Administration and Finance
Responsible Office: 
Administration and Finance - 828.251.6742

I. Purpose

To outline the administrative requirements for formulating, monitoring, and closing-out fixed price agreements.

II. Scope

This policy applies to residual funds associated with sponsored program fixed price agreements. 

III. Policy

The University will accept fixed price awards and will encourage negotiation that will ensure costs incurred will not exceed the agreed upon amount. Departments receiving these awards are responsible for charging all appropriate expenses to the award account.                                                  

IV. Definitions                                                            

Fixed Price Agreement – A sponsored agreement or contract whereby the sponsor agrees to pay an upfront, agreed upon price, for an agreed upon product or deliverable.

V. Procedure                                                             

A. Formulating the Fixed-Price Agreement

The Principal Investigator/Project Director (PI/PD) should work through the Office of Sponsored Scholarship and Programs during contract development and negotiation to ensure the accuracy of the contract terms and conditions.

The following items are important and should be considered when preparing a fixed-price agreement.

1. The cost structure and payment schedule provides for:

a. Sufficient funding for the project;

b. Careful planning and timing of receipt of funds;

c. Use of simple and clear wording in compensation clause; and

d. Sufficient cash flow to keep the project on track.

2. The scope of work and schedule of deliverables/outcomes should:

a. Not make promises the PI/PD are unable to deliver and use language such as “best efforts” to describe the planned research;

b. Be specific about the project’s anticipated outcomes but avoid guaranteeing results;

c. Not agree to deadlines that the PI/PD or the University Business offices cannot live up to; and

d. Avoid agreeing to the submission of financial report.

3.  The fixed price agreement:

a. Does not typically require a submission of an itemized budget to the sponsor, however for internal monitoring an itemized budget is required; and

b. Does not typically carry Finance and Administrative (F&A) cost consistent with University rate policy on F&A costs.

B. Approval of the Fixed-Price Agreement

It is the responsibility of the PI/PD to ensure that the agreement is submitted to the Office of Sponsored Scholarship and Programs for review, approval and execution in accordance with University policy.

C.Monitoring the Fixed-Price Agreement

It is the responsibility of the PI/PD to properly monitor the timing of tasks, deliverables, and final reports. Most fixed-price agreements include a clause or special terms section regarding the submission and/or acceptance of a final report or product. These reporting requirements are usually tied to a final payment. If the agreement terms are not met, the institution may have violated the agreement and total cost reimbursement may not be forth coming.  Therefore, it is important that all parties comply with the conditions set-forth in the fixed-price agreement.

D. Closing Out the Fixed-Price Agreement

To close out a fixed-price agreement, all project activity must be completed. This includes:

  • The completion of all deliverables required under the fixed-price agreement;
  • All costs in fulfilling the requirements of the award have been charged to the account;
  • The receipt of full payment from the sponsor; and
  • The F&A costs, if allowed under the original agreement, have been recovered.

IV. Residual Balances

Once the work on a fixed price agreement is complete, no new obligations or expenditures will be incurred against the account after its end date.

If the total actual costs are less than the amount received, the remaining funds will first be used to recover the following, in the order listed below:

  • Waived F&A costs in accordance with the terms of the waiver;
  • Overdrafts on other sponsored accounts of the PI or the department;
  • Audit disallowance on the PI’s sponsored account except for those disallowances resulting from a system deficiency; and
  • Uncollectable receivables of the PI or the department.

The Special Funds Accountant will review all financial records for the agreement to confirm payment in full, full direct costs recovery, transfers to cover overdrafts, and audit disallowances as indicated in Section II.

Any residual funds will be transferred to the PI/department’s unrestricted budget. Only the direct cost portion will be transferred. The Special Funds Accountant is responsible for the necessary accounting entries to distribute the remaining funds in accordance with this policy.