Fixed Price Contracts, Including Clinical Trials

POLICY STATEMENT

The University enters into agreements to conduct fixed price projects, including clinical trials. Principal investigators will make reasonable efforts to price these projects appropriately. Their pricing must insure that all University costs are covered unless special permission is obtained, and the University may accept higher rates offered by the sponsor. Departments are responsible for any over expenditures resulting from inaccurately-costed projects. After verification that all costs were accurately charged to the fixed price contract and all deliverables were accepted by the sponsor, residual balances are retained by the department.

The principal investigator 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 principal investigator cannot begin any research until these approvals are obtained, and, for clinical trials, patients cannot be enrolled until the contract is signed.

Principal investigators are responsible for reviewing the project accounts on a monthly basis to ensure that expenses are being charged correctly and the project is progressing at an expected pace.

REASON FOR POLICY

"Performance-based" fixed price sponsored projects such as clinical trials are often financed differently from other types of research agreements. The level of funding the sponsor provides for the work depends on industry norms rather than 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. If the principal investigator underestimates the cost of the project, the department must pay to complete the work. If payments from the sponsor exceed actual costs, residual funds will remain after the project is completed. As a result, the University handles them differently to meet the unique financial needs of these types of projects.

Fixed price agreements pose others risks to the University. The terms of fixed price agreements typically require the University to satisfactorily perform (as judged by the sponsor) all or a designated part of the research before payment. Unless care is taken, the contract may equate "satisfactory" with "positive outcome," a situation that conflicts with the University's policies on academic freedom. Since the University is typically paid only after it performs part or all of the work, the University is typically always in a negative cash flow situation. Disputes about performance can result in the University not being paid. Great care must be taken in budgeting, contracting, and assessing institutional risk before this type of project is undertaken.

PROCEDURES

FORMS/INSTRUCTIONS

APPENDICES

FREQUENTLY ASKED QUESTIONS

CONTACTS

DEFINITIONS

Fixed Fee Award

In a "fixed fee" award, the PI agrees to accomplish project objectives within a specific timeframe for a set dollar amount per patient, per hour, or other unit. These projects are often clinical trials or surveys. The total award amount is based on an estimated number of units and is subject to downward adjustment based on the actual number of units completed. Sponsor approval is required to exceed the estimated number of units. The fee per unit remains constant, even if the actual cost per unit is above or below that amount. Any over expenditures are the responsibility of the department, and earned unspent revenue does not revert to the sponsor. If the deliverables are not completed within the period of performance, the contract must be extended. Residual balances are retained by the department.

Fixed Price Award

In a "fixed price" award, the principal investigator agrees to accomplish project objectives within a specific timeframe for a set dollar amount. If the deliverables are not completed within the award period, the contract must be extended. The award amount also remains constant, even if actual costs for the project are above or below it. Any over expenditures are the responsibility of the department. Residual balances are retained by the department.

Residual Balance

Funds that remain in the project account after deliverables have been completed and accepted by the sponsor, after all costs needed to fulfill the requirements of the award have been charged to the project account, after any final adjustments to recoup under recovered indirect costs have been made, and after all payments from the sponsor have been received.

Sponsored Project

An externally funded activity that is governed by specific terms and conditions. Sponsored projects must be separately budgeted and accounted for subject to terms of the sponsoring organization. Sponsored projects may include grants, contracts (including fixed price agreements), and cooperative agreements for research, training, and other public service activities.

RESPONSIBILITIES

Principal Investigator

Prepare proposal budget worksheets. Complete the Proposal Routing Form (PRF) and other compliance forms. Obtain preliminary or draft contracts from potential sponsor. Request preaward account. Charge costs appropriately. Monitor project balance and expenditures. Complete and submit deliverables. Request SPA to obtain extensions when needed. Work with department to complete Form UM 1767 (at departmental discretion.)

Unit Administrator

Assist the principal investigator with preparing and routing budget documents, the PRF, compliance forms and draft contracts. Monitor start of activity on the project account. Assist with requesting preaward account. Charge costs appropriately. Send invoice information to Sponsored Financial Reporting. Work with PI to complete Form 1767 (at departmental discretion.)

Department Head

Review and approve PRF and preaward account requests. In the event residual balances exist, determine their disposition. Provide problem resolution.

Dean

Provide general oversight and problem resolution.

Sponsored Projects Administration (SPA)

Negotiate final contract and any extensions. Set up project accounts in the financial system. Monitor start of activity on the project account. Send 60-day notices to PIs and units before expiration.

Sponsored Financial Reporting (SFR)

Send invoices to sponsor. Monitor invoice activity and send notices to PI/department if project has had no activity. Collect receivables and apply payments. Monitor project end date. Transfer any residual balances and close project account.

Research Compliance Office (RCO)

Periodically review PIs and departments to verify appropriate pricing and management of fixed price projects. Create corrective action plans if needed.

RELATED INFORMATION

• Managing Sponsored Projects at the University of Minnesota

HISTORY

Amended:

December 2016 - Comprehensive Review, Minor Revision. Minor grammatical changes and updated references to links and current systems. Also, change to SFR closeout procedure to reflect actual process (see Fixed Price and Fixed Fee Contract – Closeouts procedure).

Amended:

March 2012 - Comprehensive review completed. Incorporates a planned 60-day notification from SPA to faculty and departments who have fixed price contracts with significant balances that are nearing the end date. The department will oversee the closeout of the awards and determine the disposition.

Amended:

June 2008 - Policy completely revised to address the Enterprise Financial System rollout.

Amended:

April 2008 - Changed title of policy and procedures. Changed significant balance threshold to $6250 and 25% or more of payments received.

July 2005 - Revised procedure on handling industry-sponsored clinical trial research agreements to focus on handling those proposals and payments. Added new procedure on handling fixed price and fixed fee contract payments. Definitions updated.

Effective:

July 2004