David Mayo, Director of the Office of Sponsored Research at the California Institute of Technology, partnered with NCURA to present on how to manage grant subcontractors. When selecting grant subcontractors and defining the conditions of a partnership, it is important to consider both compliance standards and the most appropriate method of payment. Federal government funding agencies in particular require unique and robust qualifications for each. This blog explores the considerations a prime institution should take into account when selecting and reimbursing a subcontractor.
Selecting Grant Subcontractors
Before a subcontractor partnership can be established the federal government requires prime institutions to assess whether the potential organization poses any risks. For instance, federal funding agencies usually view for profit organizations as higher risk as they are motivated by revenue incentives. To better streamline the risk evaluation the prime institution can utilize a grant management software system that compiles records, projects costs, and organizes ongoing communication. When actually conducting the evaluation, potential grant subcontractors can be categorized into two main groups: those who have worked directly with the federal government and those who have not.
Organizations that have worked with the federal government often include other university offices and nonprofits. Since these groups have collaborated with the federal government they have undergone audits for compliance and proper fund management. As such, prime institutions can access and review the previous audits to ensure there are no concerns for entering into a subcontracting partnership.
However, organizations that have not previously worked with a federal funding agency require a more thorough investigation. Since they have not worked with the federal government before it is less likely the organization will already be adhering to compliance standards. This is often the case for new companies, small businesses, and foreign institutions. It is important to note that even if a foreign group is following their own nation’s standards it does not automatically mean they are compliant with the US.
Understanding a potential subcontractor’s history and its implications allows for more robust risk evaluations. Once the prime institution has selected their grant subcontractors and ensured there is a minimal level of associated risk, those involved can explore payment options.
Standard Cost Reimbursement
Most prime institutions work under a standard cost reimbursement plan. As the name suggests, the organization is reimbursed by the funding agency after costs have been accrued. However, just because it is more commonly used for the primes does not mean it is the most appropriate method for grant subcontractors. Federal funding agencies view standard cost reimbursement as a higher risk option for most subcontractors as it compensates purchases but not the actual work performed. Not only do funding agencies worry that there will not be a strong enough incentive to produce deliverables, but they recognize that if a group has not worked with the federal government before it is more likely their costs and purchases may not follow compliance standards.
While grant subcontractors that have undergone previous federal audits may be able to handle a standard cost reimbursement plan, it is suggested that prime institutions also consider alternative payment options.
Fixed Cost Payment
One such alternative is the fixed cost payment plan. In this instance, reimbursement is based on the actual work performed and deliverables submitted. The rates and schedule are agreed upon initially, and the subcontractor may receive a section of funds up front to help cover hiring and equipment charges. If the group was using a standard cost plan this would not be possible- the subcontractor would have to be able to put forth the funds first, and be reimbursed later. Another benefit, fixed cost payment eliminates the worries that a subcontracting group’s purchases are not in compliance. This plan is more common than most institutions realize. The majority of government funded projects operate with fixed cost payment. University research groups are the main exception.
Whether a prime institution utilizes standard cost or fixed cost reimbursement it is important to invest in the proper software solution to better manage grant subcontractors. To learn what tools are most appropriate for your institution contact IT Works today.