Selling Goods and Services to External Customers

Units may engage in direct sales of goods and services (external sales) to individuals, groups or external entities when the production of those goods or services is consistent with the normal activities of the unit and substantially supports the teaching, research or outreach mission of the University. External  sales of goods and services is an exchange of tangible or intangible property or services by the University with external customers for monetary consideration.

The University must be mindful of the potential for competition with the private sector.

Types of External Sales Activities

The range of external sales activities is broad and certain types of external sales activities require approval prior to engaging in the activity. Specific types of external sales activities  are governed by other administrative policies or guidelines (see list below). Additional covered external sales transactions are provided in the definitions section.

• Use, sale or transfer of University real property (Administrative Policy: Use and Lease of Real Estate)
• License for rights under a University patent or trademark (Administrative Policy: Reporting Inventions or Software Arising from Research)
• License for rights under a University copyright (Administrative Policy: Copyright Ownership)
• Sales of University equipment, fixtures, or supplies (Administrative Policy: Managing University Capital Equipment)
• Sponsorships packages offered as a part of a planned event or activity (Administrative Policy: Classifying and Recording Sponsorships for University-Hosted Events/Activities)
• Non-degree credential guidelines

Assessing the Risk Profile of Sales Transactions

Units must use the online risk assessment survey to determine whether a sales transaction is classified as low or managed risk. These classifications define the accountability and operating procedures that must be followed by units that sell to external customers, as well as the oversight and monitoring.

Units who are unsure if the activity is low or managed risk or have any questions about the activity should contact Internal/External Sales.

Unit and Institutional Approval to Conduct External Sales

Any unit desiring to conduct low or managed risk external sales activity must obtain an initial college-level approval from their respective campus, college, or vice presidential unit for the general sales activity prior to starting the activity.

Low risk external sales activity: Units must receive college level approval from the respective campus, college, or vice presidential unit. Campuses, colleges or vice presidential units may delegate the approval to the department level. Low risk external sales activity does not require institutional approval. Units may choose to seek institutional approval if desired and should contact Internal/External Sales if they are unsure if the activity is low or managed risk or have any questions about the activity.

Low Risk Activities include:

• Activity for goods or services provided that do not require unique terms, conditions or obligations. For example, services that are repetitive, have predictable outcomes, have an established standard process/procedure, or the same process is performed multiple times. Examples include (this is not an exhaustive list);
  • University or Departmental Consulting - consulting activity that is university or departmental based. This is not the same as individual outside consulting. That activity is governed under Administrative Policy: Outside Consulting and Other Commitments
  • Design - plan or specification for the implementation of an activity or process.
  • Data Collection - process of collecting, measuring and analyzing data for research using standard techniques.
  • Laboratory Services - University faculty and staff testing of samples based on a defined protocol. The samples are provided by an external entity for testing.
  • Editing - peer review of external entity content (papers, designs, protocols, etc.) and provide feedback.
  • Surveys - creation, facilitation and/or analysis of surveys or survey results.
  • Workshops - standard or designed specifically for the external entity based on specific requirements.

Additionally:

• Units conducting low risk activity must consult the Tax Management Office regarding unrelated business income tax and sales tax implications.
• Units must self-monitor and provide local oversight regarding pricing decisions and financial implications. Units must follow all the external sales procedures and should follow the Procedure: Establishing External Sales Rates and evaluate the financial activity to ensure the activity will provide as much economic benefit to the University of Minnesota as possible.
• Units have the discretion as to the method used to communicate the terms and conditions of the activity. For any dollar amount, units must choose to either use a University-approved standard short form contract to convey the terms and conditions of the agreement or rely on the standard terms and conditions on the EFS invoice. Any modifications to the standard University-approved short form contract must be in compliance with Administrative Policy: Entering Into Contracts and be reviewed by External Sales.
• Units are responsible for management of compliance activities (for example, ensuring sales and use tax requirements are accurately met.)
• Units are responsible for keeping a repository of all signed external sales short form contracts. The signed short form contract must be attached to the EFS invoice.

Managed risk external sales activity requires both college level approval and institutional approval.

Managed risk activities includes:

• Activity for the services provided that have unique contractual language requirements that is included in a standard External Sales (non short form) contract.
  • Laboratory Use Agreements
  • Memberships
  • Product Sales
  • Biological Material
  • Software as a Service
  • Low and managed external sales transactions where the entity is based outside the United States. Depending on the country and the type of external sales, there are additional regulatory, import/export, tax and financial considerations that must be considered.
  • Intellectual property rights for unit or customer
  • Confidentiality
  • Liability limits
  • Warranty language requirements
  • Long-term agreement with annual price adjustments

Additionally:

• Units must work with Internal/External Sales to provide an Internal/External Sales Approval (Form 1608) for sales activity and a formal rate development
• Units must self-monitor and provide local oversight regarding pricing decisions and financial implications.
• Units are responsible for management of compliance activities (for example; ensuring sales and use tax requirements are accurately met)
• Units may contact Internal/External Sales for pricing assistance, if needed
• The unit and Internal/External Sales are responsible for monitoring and providing oversight after receiving institutional or unit approval for the general sales activity.

Delegation of Authority

Only individuals with the delegated authority documented in the Delegation of Authority system may enter into an external sales agreement (see Delegation of Authority FN02 External Sales of Goods and Services and AD16 Confidentiality for Nonresearch). Individuals with this level of authority who wish to enter into external sales activities must consider and weigh all the following in determining whether a direct sale of goods or services should be authorized.

• The goods or services represent the transfer of knowledge or expertise (not intellectual property) from the University to the public.
• The goods or services support and extend the University’s teaching, research or outreach mission.
• The prices charged for the goods or services take into account all direct and indirect costs of providing the goods or services as well as additional revenue based on the competitive price of such items in the public market.
• The goods or services are not commonly available or otherwise easily accessible in the public market.

Separating Internal and External Sales Activities

Units must ensure revenue and costs of external sales activities are separated from internal sales activity and any other activity when establishing sales activity operating chartfield strings in the Enterprise Financial System. When generating any sales of goods or services from a sponsored project, units should also refer to Administrative Policy: Managing Program Income Earned on Sponsored Projects. When planning or approving business activities, units must ensure that these activities are consistent with this policy and Board of Regents Policy: Direct Sales of Goods and Services.

Use of Contracts

For external sales transactions classified as  managed risk, units must offer the preferred University agreement (contract) that has been approved by the University for external sales transactions. This agreement, or contract, can be either a standard agreement found in the University contracts  library or a non-standard unique agreement provided by the customer and reviewed and approved by the Office of the General Counsel. Units that engage in external sales activities that require a contract as a mechanism to agree to the terms and conditions must also comply with the Administrative Policy: Entering Into Contracts.

Pricing of External Sales

Units should take into account all direct and indirect costs when determining the price charged for goods and service to external customers.  This includes such things as the cost of providing the goods and services as well as additional revenue that is the competitive pricing of such items in the public market. A best practice for pricing should always at minimum recover direct costs, and whenever possible recover overhead and additional revenue to the extent the market allows.

• Units selling to both external customers and federal grants cannot unfairly charge federal grants.
• Units must not provide unfair pricing advantage to a specific external entity.
• Where the individuals involved in the external sale activity may have an individual conflict of interest, the individuals must comply with the Administrative Policy:  Individual Conflicts of Interest and Standards Governing Relationships with Business Entities.

External sales activities generally should be self-sustaining. However, in situations where University facilities would otherwise sit idle, incremental revenue may be desirable even if allowable indirect expenses or additional revenue are not fully recovered. Many University facilities carry fixed overhead costs that are incurred regardless of how a facility might be used with an external customer base. In these situations, units are allowed to conduct external sales to help partially cover indirect costs that would otherwise be paid by the University.

Billing the External Customer

Units are responsible for accurate, timely billings to customers for external sales activities (also called non-sponsored receivables). Units must record these billings in the University’s Enterprise Financial System (EFS) or a financial system approved by the Controller or designee and in compliance with Administrative Policy: Managing Billings to and Receivables from External Customers.

Units are required to use University standard processes and technology when selling goods and services to external customers. The standard processes and technology include but are not limited to: billing, and accepting payment cards.

Units are not required to enter a bill in EFS for University-Developed Software Technology and Services if using the click through University Standard Contract  - End User License with payment received via credit card at the same time.  Acceptance of credit card payments must follow Administrative Policy: Accepting Revenue via Payment Cards.

For managed risk activities, units should use the EFS Contracts Process (DOCX).

Tax Requirements

Units conducting external sales have a legal obligation to comply with Minnesota sales tax laws. In addition, units have an obligation to comply with sales tax laws in other states where sales tax filing requirements have been met and the University is filing sales tax returns. Units are permitted to engage in activities that generate unrelated business income and are responsible for complying with the related tax procedures. (See Administrative Procedure: Tax Considerations Pertaining to External Sales Transactions.) Units are responsible for any taxes, interest or penalties resulting from noncompliance with this policy.

Exceptions

The Associate Vice President for Finance & Operations (AVPFN) may grant exceptions to the policy based on written justification. Exception requests must have support of the respective chancellor, dean or vice president and be sent to the policy owner. The policy owner facilitates discussion with the AVPFN and provides written responses to the requesting unit.