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Overview

The procedures in this manual are for establishing subcontracts for research, training, service, and other activities to be undertaken under a sponsored project agreement. Responsibilities at various stages of the process are shared by the Principal Investigator, the Office of Research Administration and Advancement (ORAA), the Office of the Comptroller, and the Purchasing Department. All subcontracting activity will be conducted in accordance with the provisions of FAR 3.502-2. Any suspected violations thereof will be reported to the Director of ORAA.

Subcontract Proposal

The subcontractor's Work Statement and Budget are generally sent to the UM Principal Investigator by the proposed subcontractor. These are incorporated into the UM proposal which is then forwarded for campus review through the appropriate Chair and College Dean, then to ORAA (and the Associate Provost for Research). The entire proposal is then sent to the sponsor.

Subcontract

Upon acceptance by ORAA of an award from the sponsor, the Office of Contract and Grant Accounting (OCGA) is notified by ORAA electronically (via RAA). OCGA assigns an account number to the project and notifies both ORAA and the PI. Upon receiving the PI/Department's request to issue a subcontract via the Subaward Request Form (Appendix A ), ORAA will prepare the subcontract and submit it to the PI/Department for approval, using the Memorandum to the Department (Appendix G ). Upon receiving PI/departmental approval, ORAA will negotiate and issue the subcontract. After the subcontract has been signed by both the University and the subcontractor, the subcontract amount is encumbered in the project FRS account.

Subcontract Administration

All non-financial subcontract documentation and correspondence is maintained by ORAA. Financial documentation is maintained by the Office of the Comptroller. Invoices from the subcontractor must first be reviewed and approved by the PI/Department and forwarded to the Accounts Payable Office for vendor payment.

Closeout of a Subcontract

The PI will verify that the subcontractor has completed all work in accordance with the requirements of the subcontract, review the final invoice for accuracy, and approve (or not) the final payment. ORAA will ensure that closeout documents are obtained.

Applicability

This manual is applicable to subcontracts and other subagreements. It does not govern subawards issued under financial assistance grants, as they are not subject to the procurement standards specified in Sections 40-48 of OMB A-110. However, this manual is to be used as guidance for the processing of subawards^* under financial assistance agreements (Appendix C).

^*A subaward is defined as follows under OMB A-110: "Subaward means an award of financial assistance in the form of money, or property in lieu of money, made under an award by a recipient to an eligible subrecipient or by a subrecipient to a lower tier subrecipient. The term includes financial assistance when provided by any legal agreement, even if the agreement is called a contract, but does not include procurement of goods and services nor does it include any form of assistance which is excluded from the definition of "award" in paragraph (e)."

Introduction

The purpose of this document is to detail the procedures to be followed by ORAA in the preparation and administration of University-issued sponsored project subcontracts. These subcontracts are issued by ORAA when a contract from a prime sponsor incorporates work to be performed by a subcontractor. Therefore, the issuing of these subcontracts is outside the University's procurement process. The applicable prime contract terms must be "flowed down" to the first tier subcontractor and there must be provision for additional flow down to second tier subcontractors. Under Federal contracts and other agreements the flow down requirements are mandatory. (See Appendix E for examples.) The procedures cited here however, apply to all subcontracts issued irrespective of the type of prime sponsor

Contract Types

Any one of many contract types may be used to establish a subcontract. However, under a Federal prime agreement a COST-PLUS-PERCENTAGE-OF-COST TYPE AGREEMENT MAY NOT BE USED. A few of the various contract types that are likely to be encountered are offered below as a guide; an actual contract may differ from any one of these or combine elements of several. Most subagreements issued by UM will be cost-reimbursement agreements.

Firm Fixed-Price Contract
This type of agreement provides for a price that is not subject to any changes, therefore, cost or price analysis prior to issuance is necessary. It places a maximum risk on the subcontractor accepting this type of agreement since the sub assumes all responsibility for full completion of the agreed work without recourse to an adjustment in price. The contractor must accept the single fixed price whether or not actual costs are over or under that price. This agreement places minimum administrative burden on both parties.

Firm Fixed-Price Level of Effort Term Contract
This agreement describes the work in broad terms, and is usually applied to R&D where the results achieved cannot be clearly predicted. This agreement requires the Contractor to devote a specific level of Effort over a period of time for a fixed dollar amount. It normally requires the Contractor to submit reports on results obtained plus level of effort required. Payment is contingent on effort expended, not on results achieved. This type of agreement is especially useful in research work when the actual work cannot be clearly defined but a level of effort can be agreed upon.

Cost Reimbursement Contract
This provides for payment of allowable costs incurred in doing the work, and as conditioned by the terms of the contract. The contract sets a total cost, or ceiling, which the contractor cannot exceed without prior approval and agreement modification.

Cost-Sharing
This is a Cost Reimbursement type contract usually for R&D work. The contractor is actually paid for an agreed portion of total allowable costs up to some maximum reimbursable amount. The contractor agrees to absorb some of the performance costs in the expectation of having compensating benefits.

Cost-Plus-Fixed-Fee Contract
This is a cost-reimbursement type contract providing for payment of a fixed fee to the contractor. The fixed fee does not vary with actual cost, but can be adjusted if the work to be performed is modified. The fixed fee does not vary with the contractor's costs; it therefore provides little incentive for the contractor to control costs.

Time and Materials Contract
This agreement provides for obtaining supplies or services based on:
   » direct labor hours at specified rates and
   » materials costs and materials handling costs.

This type of contract should not be used for R&D projects.

Definition of Terms

The term Sponsor refers to the organization that makes an award to UM.

The award document defines the terms agreed upon between the sponsor and UM for the conduct of the program. The award document is the prime award, or prime contract, or prime grant.

The document which formalizes a third party relationship with another organization to perform substantive work based upon an award made to UMCP is the subcontract. The third party performing work under a subcontract is called the Subcontractor.

Activities performed by a private individual who is not an employee of UM are normally administered through a Consulting Agreement. In the case when purchased services may involve an organizational entity, but does not involve substantive research, a Purchase Order must be used instead of a subcontract. For example, a Purchase Order, issued by UM, is appropriate for the performance of repetitive tests or activities requiring little or no discretionary judgment on the part of the provider. In situations such as described in this paragraph, a Consultant Agreement or a Purchase Order may be handled through the normal UM procurement procedures and should be referred to the campus office of Procurement and Supply.

The campus official authorized to execute these subagreements on behalf of UM, is the Director, Office of Research Administration and Advancement or their designee. The campus authorizing official for consultant contracts and purchase orders is the Director, Procurement and Supply.

Subcontratcing Procedures

Subcontractor Selection
It is the responsibility of the UM Project Director to comply with federal procurement requirements in selecting a subcontractor. There are two primary methods of selecting a subcontractor; competitive bidding or sole source procurement.

1. Competitive bidding is to be used as the normal method of subcontractor selection. This method requires the Principal Investigator to solicit proposals from a number of sources and make a final selection of a subcontractor from those responding based on technical merit and cost objectives -- normally the lowest bid from a technically qualified respondent. A formal solicitation for the competitive bidding process must be coordinated through the UM Office of Procurement and Supply.
2. Sole source selection may take place in two ways. The first occurs when the original UM proposal is a joint cooperative effort and incorporates an authorized work statement and budget of one or more sub-recipients. The second scenario for sole source selection occurs when a project requires performance from a subcontractor where the requisite services or expertise are not available from other sources, and the subcontractor is not part of the contract to the University. The Project Director is required to provide a sole source justification identifying the need for the particular services and why the selected subcontractor is the only source available for the needed services. (NOTE: Sole source selection in the second case is not justified simply by the fact that there has been continuing collaboration between scientists. A sole source justification in these situations must be further justified with respect to the unavailability of the services or expertise from other sources.)
3. The viability of the subcontractor must be considered by ORAA, including factors such as financial position and management capability. Factors entering into this decision include: type of organization; past performance (with other Federal contracts or with the University); required facilities; cost controls; personnel practices; and procedures for monitoring their subcontractors, if appropriate.
   
   A subcontract should be let only to organizations, not to individuals. However, some decisions will be made on a case-by-case basis. A large number of UM's subcontracts will be with universities, research institutes of known reputation, and for-profit corporations of known capabilities. Questions may sometimes arise as to a potential subcontractor's ability to properly perform the work or to provide adequate financial management. Some factors that might suggest care in selection are: poor financial stability; serious deficiencies in program or business management; or history of unsatisfactory performance. It is important to remember that UM is ultimately responsible for subcontractor performance. A "List of Parties Excluded from Federal Procurement and Nonprocurement Programs" can be found at www.ARNET.gov/epls/

Subcontract Proposal

1. When the work to be done by a subcontractor is to be incorporated into a single UM proposal, there must be adequate time between the receipt of the subcontractor's proposal and the Sponsor's proposal due date to allow UM's Principal Investigator time to discuss and negotiate the scope of work to be performed by the subcontractor. If the subcontract involves human subjects, animal experimentation, the use of DNA, or biological or environmental hazards, certification of subcontractor adherence to subcontractor's policies on these matters must also be included in the proposal. Those policies must be consistent with Federal requirements.
2. The subcontractor will submit to UM a Statement of Work and budget, which should include an itemization of budget categories, including appropriate salaries, wages, fringe benefits, materials, supplies, equipment, travel, and other direct costs necessary to accomplish the research that the subcontractor is to perform. A copy of the subcontractor's negotiated indirect cost rate agreement should be submitted to UM as part of the subcontractor's proposal. If the subcontractor declines to furnish its negotiated indirect cost rate agreement, UM will attempt to obtain a verification of the subcontractor's rates, or an assist audit from the subcontractor's cognizant audit agency.
3. The subcontractor's proposal must be signed by an official of the subcontractor who is authorized to legally obligate the subcontractor to a contractual commitment.

Incorporation of the Subcontractor's Proposal into the UM Proposal

1. Subcontract costs are included in the UM budget as a single direct cost. When calculating UM indirect costs, exclude that portion of each subcontract contained in the proposal which exceeds $25,000 as required by the Office of Management and Budget (OMB) Circular A-21. (NOTE: UM calculates indirect cost only on the first $25,000 of each separate subcontract issued under any single sponsored prime award regardless of the number of budget periods involved during performance.)
2. During proposal processing by ORAA, the Subcontract portion of the UM proposal is reviewed to ensure that items discussed in this Section III, Parts A and B above, have been incorporated. It may be necessary to clarify costs or other items with the UM Project Director and/or the subcontractor's business official.

The Subcontract

1. Some form of Price or Cost Analysis must be performed in connection with every procurement action. FAR 15.404-3 (b) states that the prime contractor or subcontractor shall (1) Conduct appropriate cost or price analyses to establish the reasonableness of proposed subcontract prices; and (2) Include the results of these analyses in the price proposal.
   
   Price Analysis is a means of determining if the asking price for a service or product is fair, without resorting to an examination of the sub's cost and profit calculations. It is basically a comparison of the price with known indicators of reasonableness. FAR 15.404-1 (b) states that price analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit, and lists some examples:
   

   »	Comparison of proposed prices received in response to the solicitation,
   »	Comparison of previously proposed prices and previous Government and commercial contract prices with current proposed prices for the same or similar items, if both the validity of the comparison and the reasonableness of the previous price(s) can be established,
   »	Use of parametric estimating methods/application of rough yardsticks (such as dollars per pound or per horsepower, or other units) to highlight significant inconsistencies that warrant additional pricing inquiry,
   »	Comparison with competitive published price lists, published market prices of commodities, similar indexes, and discount or rebate agreements,
   »	Comparison of proposed prices with independent Government cost estimates,
   »	Comparison of proposed prices with prices obtained through market research for the same or similar items,
   »	Analysis of pricing information provided by the offeror.

   
   Cost Analysis is an element-by-element review of the estimated cost of contract performance. FAR 15.404-1 (c) (1) states that cost analysis is the review and evaluation of the separate cost elements and profit in an offeror's or contractor's proposal (including cost or pricing data or information other than cost or pricing data), and the application of judgment to determine how well the proposed costs represent what the cost of the contract should be, assuming reasonable economy and efficiency. Examples listed are (i)verification of cost or pricing data and evaluation of cost elements, including:

   »	The necessity for, and reasonableness of, proposed costs, including allowances for contingencies;
   »	Projection of the offeror's cost trends, on the basis of current and historical cost or pricing data;
   »	Reasonableness of estimates generated by appropriately calibrated and validated parametric models or cost-estimating relationships; and
   »	The application of audited or negotiated indirect cost rates, labor rates, and cost of money or other factors.

   
   Documentation of cost or price analysis will be included in the ORAA file.
   
   
2. In order to carry out the requirements of A-110 and FAR 15.504 as previously cited, ORAA has the responsibility of reviewing the subcontractor's proposal and determining the acceptability of proposed costs. This evaluation of acceptable costs may be accomplished in a number of ways but the most common methods used by ORAA are:

   »	If the subcontract value is less than $650,000 and UM has had successful prior experience with the subcontractor, a desk review of proposed cost will be performed. Plainly stated, based on discussions with the UM PI, the nature of work to be performed and discussions with representatives of the subcontractor, a determination is made as to the reasonableness of proposed cost to the proposed effort.
   »	If the subcontract value is $650,000 or more, the subcontractor will be required to provide detailed pricing support data to ORAA for purposes of determining acceptability of costs. Pursuant to FAR 15.403-4, $650,000 is the threshold for obtaining current cost or pricing data.
   »	The subcontractor will also be asked to provide a copy of its most recently approved rate agreement if one has not been provided with the subcontractor's proposal. (Some commercial organizations are unwilling to provide copies of rate agreements to anyone other than governmental agencies. In this case we will request rate verification by DHHS or DCAA via the Contracting Officer.)
   »	For subcontracts awarded under a federal prime agreement, the subcontractor will be required to provide a Certificate of Current Cost and Pricing Data (Appendix I) if the price negotiated between ORAA and the subcontractor is in excess of $650,000, or such other amount as may be determined by Federal regulation.
   »	The Subcontractor may be required to submit an A-133 audit report or audited financial statement.
   »	If the subcontract value is more than $650,000, an assist audit may be requested through the appropriate cognizant federal agency, if the prime sponsor has not already performed an audit of the subcontractor.

Preparing a Subcontract

1. It is ORAA's responsibility to prepare, negotiate, and execute the subcontract with the subcontractor. A model subcontract is provided as Appendix D. The ORAA file must contain the following preliminary information for the ORAA Contract Administrator:

   »	A completed Subaward Request Form (Appendix A).
   »	A detailed budget signed by an authorized agent of the subcontractor.
   »	A Small Business Subcontracting Plan from the subcontractor if the subcontract will be over $500,000, in accordance with FAR 52.219-9.
   »	A Statement of Work.
   »	A memorandum from the department indicating appoval of the subcontract (Appendix G).

2. The documents are reviewed to ensure:

   »	that the proposed Statement of Work relates to the effort identified in UM's prime award;
   »	that the proposed period of performance for subcontract effort falls within the prime award period;
   »	that the proposed subcontract budget corresponds to the budget that was included in ORAA's proposal to the prime sponsor, and has been evaluated and determined to be fair and reasonable;
   »	that a sufficient degree of negotiation was conducted with the subcontractor for a final subcontract price;
   »	that the subcontractor provided any required certifications voluntarily;
   »	whether the subcontract is to be issued to a for-profit or nonprofit organization;
   »	whether terms and conditions in the prime award text are applicable to the subcontractor;
   »	whether any general provisions in the prime agreement are required flowdown clauses or clauses necessary to protect the interests of UM or the prime sponsor;
   »	whether prime sponsor approval of the subcontract is necessary; and
   »	whether advance notification must be provided to the sponsor in accordance with FAR 52.244-2.

3. The Contract Administrator prepares the subcontract based on the model agreement (See Appendix D), in accordance with the requirements of the prime award. Subcontract numbers are assigned by the Contract Administrators, in accordance with established guidelines(See Appendix B).
4. The draft subcontract is sent to the PI/department for review and approval. Any changes that are necessary will be made by the Contract Administrator.
5. When the contract between UM and the sponsor requires prior approval before a subcontract can be let, a copy of the subcontract is sent to the sponsor to obtain the approval.
6. Three copies of the subcontract are sent to the subcontractor for signature with a fourth copy retained in the ORAA pending file. Two original signature copies are to be returned to UM. After signature at ORAA, one fully executed copy is returned to the subcontractor and one is retained in the ORAA file. The Subcontract Cover Letter (see Appendix H ) may be used to request additional materials as required.
7. During the approval or subcontractor acceptance process, changes may need to be negotiated or clarifications provided. ORAA will negotiate all changes to the subcontract in close coordination with, and upon receiving input from, the PI.
8. Upon receipt of a signed document from the subcontractor, and receipt of prime sponsor approval if required, the subcontract is signed by the Director, Office of Research Administration and Advancement or their designee on behalf of the campus.
9. If in connection with the A-133 certification by the subcontractor contained within the subcontract, the subcontractor reports that it has a material finding in its audit report, ORAA will send the information to the Office of the Comptroller for evaluation and follow-up. The Office of the Comptroller will discuss with ORAA and the sponsor the appropriateness of proceeding with the subcontract. The decision whether to continue with the execution of the subcontract by UM will be made on a case-by-case basis. The subcontract may be executed pending the correction of deficiencies; however, the subcontract may be terminated if the subcontractor fails to correct the deficiencies in a manner acceptable to UM.
10. After the subcontract has been executed by UM, ORAA will mail one fully executed original to the subcontractor, and distribute copies internally to the appropriate Department or College business officer. All supporting documentation for the subcontract will be filed in the ORAA file.

Post-award Subcontract Administration

Technical Monitoring

1. As prime award recipient, UM assumes responsibility for the conduct and completion of the project. Subcontractor progress reports should be reviewed thoroughly by UM's Project Director and discussed with the subcontractor as needed. The contractor's progress report will usually be incorporated into the progress report submitted by the UMCP Principal Investigator to the sponsor on behalf of UM. Copies of the subcontractor's transmittal letter sending the progress report to UM's PI should be provided to ORAA (either by the PI or the department administrator).

Financial Monitoring

1. Invoices from the subcontractor are to be sent to Accounts Payable at UM, which will forward the invoice to the PI for review and approval. The invoice may be sent directly to the PI/Department by the subcontractor, if appropriate.
2. The PI will review the invoice to determine that the amount being requested for payment is consistent with the amount of effort performed during the billing period. It is the PI who is responsible for the oversight of the effort performed by the subcontractor. When the PI is satisfied with the invoice, he/she should signify approval, which will constitute approval for UM to pay the invoice. (NOTE: If there are problems with the invoice, such as equipment purchased without approval or more labor charged than UM's PI feels was expended, the invoice SHOULD NOT BE APPROVED. Accounts Payable should be notified and PI should also immediately consult with the ORAA contract administrator).
3. Upon PI/Department's approval, the invoice must be returned to Accounts Payable where the invoice is processed for payment. Accounts Payable monitors each subcontract's payment provisions.

Subcontract Amendments

1. If the PI determines that additional effort is required from the subcontractor during the period of the prime contract, or other changes are needed in subcontract terms, the PI/Department will complete a Subaward Request Form ( Appendix A), and submit it to the ORAA Contract Administrator, who will negotiate the modifications with the subcontractor. PI/Department approval of the modification will be obtained via the Memorandum to the Department ( Appendix G). A model Subcontract Modification Letter is provided at Appendix F.

Closeout Requirements

It is ORAA's responsibility to assure that the subcontractor has submitted the following documents at subcontract completion.

1. Final Technical Report.
2. Final Invoice.
3. Subontractor's Final Inventory of Property Report (Appendix J).
4. Final Report of Inventions and Subcontracts (Appendix K).
5. Subcontractor's Assignment of Refunds, Rebates, Credits, and Other Amounts
   (Appendix L).
6. Subcontractor's Release (Appendix M).

It is ORAA's responsibility to assure that the subcontractor has submitted the following documents at subcontract completion.

1. When the completion date of the subcontract is reached, ORAA will send a close-out letter to the subcontractor requesting the items listed in A. above (ORAA will provide the required forms in this letter.) ORAA will follow up as necessary to ensure that closeout has been completed in accordance with sponsor requirements.

When the final invoice has been received and approved by the PI/Department, a copy must be sent to Accounts Payable as well as ORAA.

1. The PI will be responsible for the same review and approval procedures as required for the routine monthly invoice evaluations mentioned under Section IV, Paragraph B, Subparagraphs 1 through 4.
2. Accounts Payable will review the final invoice to ensure that total cost claimed is within the monetary limitations and time periods specified in the subcontract. Accounts Payable will not issue final payment without approval from the PI/Department.