Office of Research & Creative Scholarship

Policy on Surplus Revenue on Fixed Price and Similar Agreements


Purpose

To establish policy and procedures that will ensure the timely closure of completed, fixed price contracts for research and research-related services and the disposition of any unexpended balances that result in surplus revenue. This policy is predicated on the principle that Emerson shall continue to undertake provision of fixed price contract services, at the highest levels of excellence, consistent with Emerson College’s research and education missions. Responsibility for oversight of the administrative requirements is shared between the Principal Investigator (PI) and the Office of Research and Creative Scholarship (ORCS).


Definition

Fixed price agreements are contracts that are negotiated with scheduled fixed payments based on fixed milestones or deliverables or services. The payments are not reimbursement for actual project costs, but are a predetermined lump-sum payment(s) based on pre-negotiated, fixed unit prices for specific services or a percentage of project completion. "Performance-based" fixed price sponsored agreements are often financed differently from other types of research agreements. In this case, the level of funding the sponsor provides for the work depends on industry norms rather than the actual costs of doing the research. In addition, in a fixed price contract, the principal investigator agrees to perform the work regardless of the actual cost of conducting the project. As a result, the College handles these agreements differently to meet the unique financial components of this type of project.


Characteristics

Fixed price agreements will typically have the following characteristics:

  • Are similar to purchase orders where a work product is delivered
  • Have a well define statement of work and a timeline of deliverables
  • Are used when the outcome is relatively certain
  • Have limited costs (usually zero) to the College
  • Are short-term in nature
  • Price per deliverable is fixed and agreed upon before the project begins

Formulating the Fixed Price Agreement

Cost proposals for fixed price contracts should be estimated on a cost basis consistent with the College’s cost accounting policies. A detailed budget should be prepared for review and approval in anticipation of a successful contract application (bid), even if not required by or submitted to the sponsor. Expenses should be budgeted based on anticipated reasonable costs.

The Principal investigator (PI) must obtain the appropriate departmental, collegiate, and administrative reviews and approvals for conducting the project, regardless of any tentative understanding between the principal investigator and the sponsor. The PI must work with ORCS during the planning stages of the contract development and negotiation to ensure the accuracy of the contract price and terms and conditions. 

Great care must be taken in budgeting, contracting, and assessing institutional risk before this type of project is undertaken. The terms of fixed price agreements typically require the College to perform satisfactorily---as judged by the sponsor---all or a designated part of the research before payment. Since the College is typically paid only after it performs part or all of the work, the College is typically always in a negative cash flow situation and disputes about performance can result in the College’s not being paid. The following are vitally important in the formulation of the fixed price agreement and should be considered when preparing the proposal for a fixed price agreement:

  • The price structure and payment schedule provides for sufficient funding of the project, and a timeline is defined that specifies the receipt of funding which is sufficient for cash flow to keep the project on track;
  • The scope of the work and schedule of deliverables are well defined, clear, and leave no room for interpretation;
  • Avoid deadlines that the PI cannot meet and remove any references regarding financial reports (as they are inappropriate in a fixed price agreement).

Budgets

Fixed price agreements do not typically require the submission of an itemized budget; however for internal monitoring, an itemized budget is required and will include overhead costs consistent with the College’s rate policy on F&A cost (overhead).A detailed budget should be prepared for review and approval in anticipation of a successful contract application (bid), even if not required by or submitted to the sponsor. If the sponsor requests a budget, the PI should contact ORCS before responding.

To ensure a realistic budget, ORCS requires that an external preapproval and internal budget for the proposal be submitted during the internal clearance that itemizes the cost breakdown for the entire agreement.  Cost proposals for fixed price contracts should be estimated on a cost basis consistent with the College’s cost accounting policies. The internal budget must accurately reflect the expected resources needed to achieve the specified deliverables and be equal to the total contract value.


Allowable Costs

Costs allocable to the project should be charged to the account as the project progresses in accordance with standard College cost accounting practices. ORCS will assist you in at the proposal stage to ensure that cost estimates are comparable to budgeting procedures used with other University agreements and will provide a basis for determining the reasonableness of the total price. Cost overruns are the responsibility of the PI and the Department

The Federal Acquisition Regulation (FAR) is the primary regulation for use by Federal agencies in their acquisition of supplies and services with appropriated funds and provides for coordination, simplicity, and uniformity in the Federal acquisition process.  Fixed price agreements are defined at FAR 16.202-2 as “contracts suitable for acquiring commercial items or for acquiring other supplies or services on the basis of reasonably definite functional or detailed specification when the contracting officer can establish fair and reasonable prices at the outset.” Many federally financed fixed price agreements incorporate FAR clauses, which should be thoroughly reviewed by the AVP of ORCS to ensure the College can reasonably comply with them.

Monitoring the Agreement

Actual expenditures should be incurred in a manner consistent with the budget, during the period of performance outlined in the agreement.  The fund expenses will not be restricted by the budget categories unless specified by the sponsor.  It is the responsibility of the PI to monitor the timing of the tasks, deliverables, expenditures and final reporting of the results. ORCS will work with the PI or designee to assist with billing and monitoring of the budget.

If terms (programmatic, financial or other) are not met, then College may be in violation of the agreement and as a consequence, the total cost of the contract may not be forthcoming.  If a liability is incurred for late submission or any violations of the contract terms occur, the responsible department will reimburse the appropriate account for disallowance.  It is vitally important all conditions are set forth in the agreement.


Balances

In some instances, unexpended balances that result in excess revenue may accrue during the course of the contract or at the contract’s conclusion.  This may occur because of efficiencies or economies of scale developed during the conduct of the contract, lower costs of necessary services or supplies, improved managerial performance, or the like. 

If there is an unexpended balance and surplus revenue, ORCS will review the terms and account status with the PI or designee to ensure that deliverables have been met, reports have been submitted, and that all costs incurred as a result of performance of the project have been charged to the appropriate source of funds. Please consult with ORCS to determine, if the unexpended balance may be retained.

Once the final balance is determined, ORCS will first impute the F&A component on the total remaining balance and allocate the appropriate amounts to the respective recipients, per the standing indirect cost distribution agreement.  The remainder of the surplus revenue or the direct cost unexpended balance shall be distributed to the PI and/or department as mutually agreed to at the pre-approval stage.

If there is a deficit balance, the PI and home department are responsible for covering the deficit. In most cases, the overhead return fund should be used to cover the deficit.


Use of Surplus Revenue

Surplus revenue is to be used for a variety of purposes to carry out research and programmatic projects designed to encourage and support sponsored research at Emerson. Examples include seeding new projects, attending conferences, hiring research assistants, and related travel, equipment, supplies, and materials to cover budget overruns or disallowed expenditures on grants or bridge project costs when one grant is ending and the group awaits notification of a pending renewal or new grant.

Where appropriate, PIs are encouraged to discuss with their department chairs how funds to the department and funds to the principal investigator could be pooled to enhance the overall research infrastructure necessary for conducting research or partnering with other organizations to conduct research.

Note that these funds are considered internally designated by the college. Any equipment purchased with these funds becomes the property of Emerson College. Surplus revenue may not be used for faculty salaries, course buyouts, or supplements to faculty salaries.


Procedures

Fixed price contracts have beginning and ending dates, like other sponsored programs. When a fixed price contract terminates and all the terms and conditions of the contract have been satisfied, if the actual project costs (plus any negotiated overhead) are less than the pre-negotiated fixed price agreement, the excess revenue is retained by Emerson.

After all of the requirements for the agreement have been met, the PI should notify ORCS of the project’s completion.  The Principal Investigator must provide ORCS written documentation from the sponsor that all contractual requirements have been satisfactorily met and that all project expenses have been recorded in the account.

Upon expiration of the contract, ORCS will determine that all funds due have been received from the sponsor and determine the final balance/surplus revenue.  ORCS will first impute the F&A component on the total remaining balance and allocate the appropriate amounts to the respective recipients, per the standing indirect cost distribution agreement.  The remainder of the surplus revenue or the direct cost unexpended direct cost balance shall be distributed to the principal investigator and/or department or Academic Affairs, based on the approval of the VPAA. 


Contact

For additional information on for questions about this policy, please contact the Associate Vice President for Research and Creative Scholarship, Elizabeth Demski.