International Subawards Alternatives to Cost Reimbursable Subrecipient Agreements Presentation for the Federal Demonstration Partnership International Subawards Subcommittee 11 January 2008 David Brady, Director Office of Export and Secure Research Compliance
Alternatives to Cost Reimbursable International Subrecipient Agreements Financial assistance or procurement? Procurement alternatives Choosing a procurement instrument Payment structure issues Audit issues Other risk containment issues Pros and cons by contract type
Financial Assistance or Procurement? Is my international subrecipient eligible for financial assistance? Key questions International subrecipients authorized/eligible for financial assistance? For profit or not for profit? Subrecipient materially participating in research/activity or providing goods and services?
Financial Assistance or Procurement? Is my international subrecipient eligible for financial assistance? Check your sponsoring agency s s guidelines first
Financial Assistance or Procurement? Is my international subrecipient eligible for financial assistance? The term [Recipient] may include commercial organizations, foreign or international organizations (such as agencies of the United Nations) which are recipients, subrecipients, or contractors or subcontractors of recipients or subrecipients at the discretion of the Federal awarding agency [emphasis added] (OMB Circular A-110 A SUBPART A.2.cc Definitions)
Financial Assistance or Procurement? For profit or not for profit? Relevant Cost Principles Colleges and Universities OMB Circular A-21, A Cost Principles for Educational Institutions (48 CFR 31.4) Non-Profit Organizations OMB Circular A-122, A Cost Principles for Non-Profit Organizations (48 CFR 31.7) Hospitals DHHS Regulation 45 CFR 74, App E For Profit Organizations 48 CFR 31 (FAR Subpart 31.102, 203, 204ff)
Financial Assistance or Procurement? Subrecipient materially participating in the research/activity? A A grant or cooperative agreement shall be used only when the principal purpose of a transaction is to accomplish a public purpose of support or stimulation authorized by Federal statute... Contracts shall be used when the principal purpose is acquisition of property or services for the direct benefit or use of the Federal Government. (OMB Circular A-110 A SUBPART B.11.c Pre-award Policies)
Financial Assistance or Procurement? Subrecipient materially participating in the research/activity? Is subrecipient participation success evaluated by the success of the overall project? Is subrecipient providing goods and services? Services are not defined in OMB Circulars, FAR definitions of Advisory and assistance services is useful, includes studies, analyses and evaluations in support of R&D (2 CFR 2.101)
Procurement Alternatives (OMB OMB Circular A-110 A SUBPART C.44.c Procurement Standards and 48 CFR 16.2) Fixed price costs and rates are not negotiated, only total price Fixed price with economic adjustment* Adjustments based on established prices Adjustments based on actual costs of labor or materials Adjustments based on cost indexes of labor or material * Not explicitly enumerated in OMB Circular A-110A
Procurement Alternatives (OMB Circular A-110 A SUBPART C.44.c Procurement Standards and 48CFR 16.4) Fixed price incentive* required supplies or services can be acquired at lower costs and, in certain instances, with improved delivery or technical performance, by relating the amount of profit or fee payable under the contract to the contractor s s performance. Incentive contracts are designed to obtain specific acquisition objectives by (1) Establishing reasonable and attainable targets that are clearly communicated to the contractor; and (2) Including appropriate incentive arrangements designed to (i) motivate contractor efforts that might not otherwise be emphasized; and (ii) discourage contractor inefficiency and waste. * Not enumerated in OMB Circular A-110A
Procurement Alternatives (OMB Circular A-110 A SUBPART C.44.c Procurement Standards and 48 CFR 16.4) Fixed price incentive* Incentive Types Cost incentive- profit or fee adjustment-n/a for not for profits Performance incentive Delivery incentive Multiple incentives Target types Specifies target cost, price ceiling and profit adjustment formula Firm target Successive targets * Not enumerated in OMB Circular A-110A
Procurement Alternatives (OMB Circular A-110 A SUBPART C.44.c Procurement Standards and 48 CFR 16.4) Fixed price with award fees when Gov t wants to motivate contractor and other incentives cannot be used because contractor performance cannot be measured objectively * Not enumerated in OMB Circular A-110A
Procurement Alternatives (OMB Circular A-110 A SUBPART C.44.c Procurement Standards and 48 CFR 16.5 ) Purchase Orders Not a contract type, generally fixed price procurement instrument for purchase of well cost defined goods and services Indefinite Delivery Contracts* A master agreement laying out most terms and conditions, but the actual procurement instrument requires task orders or suborders * Not enumerated in OMB Circular A-110A
Procurement Alternatives (OMB Circular A-110 A SUBPART C.44.c Procurement Standards) Time and Materials, Labor Hour, and Letter Contracts* T&M and Labor hour negotiated cost based contracts Letter contract last resort only * Not enumerated in OMB Circular A-110A
Procurement Alternatives (OMB Circular A-110 A SUBPART C.44.c Procurement Standards) Cost Reimbursable alternatives Cost plus a percentage of cost* Cost plus incentive** Cost plus award fee** Cost plus fixed fee** * Expressly prohibited for educational institutions by OMB Circular A - 110 ** Implicitly prohibited for educational institutions by OMB Circular A - 110
Choosing a Procuring Instrument Which procurement instrument an appropriate contract mechanism for my subrecipient? The type of procuring instruments used (e.g., fixed price contracts, cost reimbursable contracts, purchase orders, and incentive contracts) shall be determined by the recipient but shall be appropriate for the particular procurement and for promoting the best interest of the program or project involved. The "cost- plus-a-percentage percentage-of-cost" or "percentage of construction cost" methods of contracting shall not be used. [emphasis added] (A-110 SUBPART C.44.c Procurement procedures) 110 SUBPART C.44.c Procurement procedures)
Choosing a Procuring Instrument Is my international recipient subject to OMB Circular A-21? A Federal agencies may apply the provisions of this Circular to commercial organizations, foreign governments, organizations under the jurisdiction of foreign governments, and international organizations. (A-110 SUBPART 3 Policy)
Choosing a Procurement Instrument (2 CFR 220.20) Fixed Price Agreements OMB Circular A-21. A 3. Applicability a. All Federal agencies that sponsor research and development, training, and other work at educational institutions shall apply the provisions of this Circular in determining the costs incurred for such work. The principles shall also be used as a guide in the pricing of fixed price or lump sum agreements. [emphasis added] These principles do not apply to: c. Other awards under which the institution is not required to account to the Federal Government for actual costs incurred.
Choosing a Procurement Instrument (2 CFR 220.20 & 48 CFR 16.104.h) Incentive Agreements A-21.1. Cost Principles for Educational Institutions Provision for profit or other increment above costs is outside of the scope of this Circular. Limits cost based incentive procurement instruments (fee), but not price based incentive procurement instruments (profit)
Fixed Price Payment Structure Suggestions Limited or no prepayment Payment tied to deliverables Scheduled progress payments Repayment of residuals More flexible payment terms with long term subrecipients In fixed price subrecipient agreements, possession is 9/10ths of the law
Other risk containment issues Currency fluctuation issues Termination issues (residuals) Buy America Act Program income
A-133 Audit Issues Fixed price agreements generally are not subject to allowable costs determination (A-133 annual audit), but are subject to sponsor review of Pre-award documents (proposals, budgets) for determination of fair and reasonable pricing. (see 48 CFR 15.4 Contract Pricing) Pricing analysis documentation must be retained for inspection
A-133 Audit Issues (48 CFR 31.102) Application of cost principles to fixed price contracts and subcontracts & mods is required whenever: Determination or negotiation of costs is required; or price revisions are made to fixed price-incentive incentive contracts Notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered.
Pros and Cons: Fixed Price Pros: Cost and performance risk borne by international subrecipient Better suited to contracts in countries with limited infrastructure/ first time contracts International recipients generally comfortable with fixed price agreements
Pros and Cons: Fixed Price Pros: Administrative burden shifted No F&A, indirect rates justification, cost analysis required Procurement procedure (e.g., bids, sole source justification) required Audit risk reduced Total Price is only negotiated (auditable) value A-21 cost principles is a guide not a requirement Fair and reasonable standard vs. allowable cost
Pros and Cons: Fixed Price Cons: Procurement procedures must be followed Price analysis required Competitive bids required; or Sole source justification
Pros and Cons: Fixed Price with Economic Adjustment Pros: Same as fixed price Contains mechanism to contain currency fluctuation risk Cons: Admin burden Cost analysis required
Pros and Cons: Fixed Price Incentive Pros: Same as Fixed Price Suitable in rare instances in which purchase of foreign technology/ technical services is needed with accelerated performance/delivery schedule Cons: Cost analysis required
Pros and Cons: Purchase Order Pros: Satisfies procurement procedure requirement Cons: Usually not a very flexible instrument Sometimes more rigorous terms than required for circumstances
Pros and Cons: Cost Plus Contracts Pros: Incentives may enhance performance Cons: Not applicable to A-21 A governed educational institutions Admin burden Requires cost analysis Cost plus percentage of cost contracts prohibited
Pros and Cons: Time and Materials, Pros: Labor Hour Contracts Reduced overhead recovery by subrecipient Cons: Substantial Admin burden Requires cost analysis Subrecipient cost accounting system must be able to accommodate time sheet record keeping
Questions? David Brady 540-231 231-38013801 dbrady@vt.edu
Advisory and assistance services (48 CFR 2.101) Advisory and assistance services means those services provided under contract by nongovernmental sources to support or improve: organizational policy development; decision-making; management and administration; program and/or project management and administration; or R&D activities. It can also mean the furnishing ng of professional advice or assistance rendered to improve the effectiveness of Federal management processes or procedures (including those of an engineering and technical nature). In rendering the foregoing services, outputs may take the form of information, advice, opinions, alternatives, analyses, evaluations, recommendations, training and the day-to to-day aid of support personnel needed for the successful performance of ongoing Federal operations. All advisory and assistance services are classified in one of the following definitional subdivisions:
Advisory and assistance services (48 CFR 2.101) (1) Management and professional support services, i.e., contractual services that provide assistance, advice or training for the efficient and effective management and operation of organizations, activities (including management and support services for R&D activities), or systems. These services are normally closely related to the basic responsibilities and mission of the agency originating the requirement for the acquisition of services by contract. Included are efforts that support or contribute to improved organization of program management, logistics management, project monitoring and reporting, data collection, budgeting, accounting, performance auditing, and administrative technical support for conferences and training programs.
Advisory and assistance services (48 CFR 2.101) (2) Studies, analyses and evaluations, i.e., contracted services that provide organized, analytical assessments/evaluations in support of policy development, decision-making, management, or administration. Included are studies in support of R&D activities. Also included are acquisitions of models, methodologies, and related software supporting studies, analyses or evaluations. (3) Engineering and technical services, i.e., contractual services used to support the program office during the acquisition cycle by providing such services as systems engineering and technical direction (see 9.505-1(b)) to ensure the effective operation and maintenance of a weapon system or major system as defined in OMB Circular No. A-109 or to provide direct support of a weapon system that is essential to research, development, production, operation or maintenance of the system.
Fixed-price subcontracts (31 CFR (31 CFR 102, 203, 204ff) The applicable subparts of part 31 shall be used in the pricing of fixed-price contracts, subcontracts, and modifications to contracts and subcontracts whenever (a) cost analysis is performed, or
Fixed-price subcontracts (31 CFR (31 CFR 102, 203, 204ff) (b) a fixed-price contract clause requires the determination or negotiation of costs. However, application of cost principles to fixed-price contracts and subcontracts shall not be construed as a requirement to negotiate agreements on individual elements of cost in arriving at agreement on the total price. The final price accepted by the parties reflects agreement only on the total price. Further, notwithstanding the mandatory use of cost principles, the objective will continue to be to negotiate prices that are fair and reasonable, cost and other factors considered. [emphasis added]