Contracts represent one of the instruments that universities and sponsors use to legally commit to obligations that have been agreed to under a sponsored agreement. The UK Model Contract Agreement should be used in all opening discussions of administrative issues associated with a prospective project. Grants and Cooperative Agreements are also used to support research and sponsored projects. The differences are:
CONTRACTS are an agreement for research work to be performed by an organization for the awarding agency. Contracts are generally specific about the objectives, direction, specifications, costs, or methods of research. A contract frequently requires substantial involvement between the awarding agency and recipient during performance of the research.
GRANTS are an award of funds by a sponsor to be used for research and the nature of the relationship between the sponsor and the awardee has not been explicitly defined by law. A federal grant usually allows more discretion in the execution of the research, and is less specific in the nature of the research results than a federal contract. However, grants from industrial sponsors usually do not have this much flexibility.
COOPERATIVE AGREEMENTS provide for a mutual undertaking by the awarding agency and other parties to perform research. Both parties actually take part in the project and are mutually interested in the aims and benefits, even though there may be a difference in the scope of that interest.
SUBCONTRACTS represent a contract between a party to an original contract and a third party, especially one to provide all or a specified part of the work or materials required in the original contract. In most cases, subcontracts must be approved by the sponsoring agency. Subcontractors should be identified in the research proposal, including the subcontractors budget, indirect rates, scope of work, and approval from their administration.
The UK Model Contract Agreement can be used to expedite your contracting efforts. The model contract should be used for all initial administrative discussions associated with a project. If the agreement is used without modification the contract will receive expedited review. Your Research Administrator is the only person who can negotiate changes to the agreement. If a sponsor requests that changes be made to the agreement your Research Administrator is responsible negotiating those changes.
When a contract takes the form of a Fixed Price Agreement, funds are being provided to carryout the project, but the sponsor does not dictate how those funds should be the PI needs to complete the Fixed Price Agreement Budget Form and attach the form to the UK Internal Approval Form for review and signature.
When Negotiating agreements, it is important to negotiate payment terms which allow the University to have positive cash flow. Although negotiations are always influenced by the circumstances of the particular situation, these are the basic negotiation positions:
- If funds are to be held back pending receipt of a final report, the amount may be no more than 10% of the total.
- If the agreement is fixed-price and is NOT being paid on a per patient basis, an initial payment should be issued upon signing the agreement. The payment should be 30% - 33% of the total or, in the case of multi-year projects 30% - 33% of the first year funding.
- If the sponsor is a non-U.S. company, the initial payment should be 1/3 – ½ of the total. Terms should allow the remainder to be received by about mid-way through the project. Again, a 10% hold back for the final report is acceptable.
These provisions will normally apply to fixed-price agreements with industry. When negotiating a cost reimbursement agreement with industry, provide for monthly invoicing to minimize the negative cash flow.