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PPS 5.13

OFFICIAL
 

Policy and Procedure Statement 5.13 Fixed Price Agreements – Residual Review
Date: 06/01/2015 (23 Paragraphs)
Review Cycle: June 1, E4Y  
Reviewer: Director, Sponsored Programs  


POLICY STATEMENTS

  1. The purpose of this PPS is to establish the policies and procedures under which the Office of Sponsored Programs (OSP) will close out accounts which were established for fixed-price agreements with external funding sources.
  2. From time to time, Texas State University San Marcos (University) may accept fixed price awards for sponsored projects. Once the University agrees to a fixed price award, it must produce the deliverables within the required time frame regardless of the actual cost of doing so. At project completion, the project account may approximate zero if costs were estimated accurately and the project went as planned, or may be positive if unanticipated efficiencies were realized. In the latter case, the question of importance to public and non-profit institutions is “when does the amount of residual funds become a problem?” Depending on the circumstances and the source of funds, an occasional residual in excess of 15% is usually not a cause for great concern. However, repeated instances of excessive residuals, especially in projects overseen by a particular investigator or within a specific department or unit, are problematic. Patterns of excessive residuals indicate that either some project costs are not being appropriately charged to the project accounts (usually meaning that the university is unintentionally subsidizing the work) or projected costs are not being estimated correctly. Inflated prices can lead to charges of violation of cost and pricing regulations if federal funds are involved. Furthermore, excessive residuals may threaten the non-profit status of the institution and/or subject the institution to unrelated business income tax liability. Principal Investigators are expected to estimate costs for fixed price agreements as accurately as possible and to charge all applicable project costs to the project account during the term of the agreement. However, even when projects are appropriately budgeted and managed, residuals funds can sometimes remain after all deliverables have been met and all work has been completed. When such residuals do remain, the institution must determine who will receive those funds and how they will be used. The University’s procedures for the closure of fixed price award accounts and disbursement of any residual funds in these accounts are detailed in this policy.
  3. All costs related to a fixed-price agreement must be charged to the account at the time the cost is incurred; thus residual balances should be relatively small. Excessive balances (> 15% of total direct costs) would indicate that the account should be reviewed carefully, to identify the source of the balance. OSP is responsible for notifying the Associate Vice President for Research (AVPR) of excessive balances in fixed-price agreements. It may also be necessary to notify the Director of Internal Audit of such situations because it could be an indication that the account manager has utilized other university funds to support the project so as to generate a residual balance at the end of the project.
  4. In the event that an account for a fixed-price agreement has a negative balance at the time of close-out, OSP will contact the principal investigator to identify an institutional (non-E&G) account to which the excess cost can be charged.

  5. DEFINITIONS

  6. A fixed price award, usually in the form of a legal contract executed by both parties, is an agreement to deliver a specified product or service at a stated price (Firm Fixed Price) and usually within a certain time frame.. The Fixed Price contract is expected to be based on the best estimate of the funds needed to complete a project. In some cases, a small residual balance (excess of revenue over expense) may remain at the end of the project.
  7. Termination date is the end date of the fixed-price agreement (including any modifications and/or extensions).
  8. Residual balance is that amount of available balance after the service or product has been delivered and all costs have been recorded on the account.
  9. Stated price is determined prior to award acceptance by estimating what is perceived to be the actual cost of producing the product or providing the service.
  10. Excessive balances are those in excess of 15% of the total award amount.

  11. PROCEDURES

  12. OSP has responsibility for closing fixed-price accounts.
  13. All work on a fixed price project must occur before the end date of the award. Likewise, all expenditures applicable to the project must be incurred prior to the end date. It is the University’s policy to reconcile and close all fixed price award accounts as soon as possible
  14. Ninety (90) days before the end of a fixed price award, OSP notifies all PIs of upcoming end dates and provides instructions and other information relevant to reconciliation and closure of the account. Is this current practice?
  15. If a no-cost extension is required to meet deliverables or complete the scope of work, the Principal Investigator must notify OSP in writing at least forty-five (45) days prior to the award end date. OSP will request an extension from the sponsor, who must give written approval in most cases. If the deliverables have been met and the scope of work has been completed, the project end date will not be extended solely for the purpose of spending out remaining funds for not-project related purposes. Special exception may be made in some cases. Such requests shall be in writing and will be reviewed and approved by the Associate Vice President for Research and Federal Relations.
  16. In the final thirty (30) days before the award end date, the Principal Investigator should submit appropriate documents to terminate employment of any individuals paid on the project to become effective at close of business on the award end date.
  17. Within the first thirty (30) days after the award end date, the Principal Investigator should review project expenditures to ensure that all allowable project costs have been charged to the project account. He/she should also review remaining encumbrances and project-related procurement card charges that have not yet been posted to the subject SAP account. Every attempt should be made to resolve incomplete transactions within a ninety (90) day period.
  18. Prior to closing the account, OSP will ensure that the institution’s full share of indirect costs (based on the final approved budget or on actual salary and wage expenditures if those expenditures exceeded the budgeted salary and wage amounts) have been charged to the project. As soon as all transactions are complete and full payment from the sponsor has been received, OSP will close the account. Any transactions that have not been completed at closure will become the responsibility of the Principal Investigator and/or his/her department/college.
  19. All residual disbursements will be made to institutional indirect cost and residual (ICR) accounts. Expenditures of residual funds are subject to the same regulations and policies that apply to expenditure of indirect cost revenue funds (See UPPS 03.04.05, Section 5).
  20. A residual of less than or equal to 15% of the total award will be disbursed by OSP without further review to the Principal Investigator’s ICR account. If the Principal Investigator does not have an ICR account, one will be established for him/her.
  21. If the residual is greater than 15% of the total award, OSP will review the project file before any residual disbursements are made to determine the reason for the residual so that any necessary pre-award pricing procedure changes may be identified. Depending on the circumstances, the OSP may request a meeting with the Principal Investigator and other staff as necessary to review the project to ensure that all expenses have been appropriately charged to the account.
  22. Excessive Balances – Once reviewed and approved, residual balances in excess of 15% will be distributed as per the following rates; 15% to the PI, 40% to the Chair and 45% to the Dean. The total residual balance will be transferred at these rates not just the balance above 15%.
  23. Patterns of excessive residuals will be reviewed by OSP and the AVPR, and as necessary, referred to the appropriate academic officials for investigation, action, and/or exception to the standard disbursement schedule.
  24. Exceptions to the account closure and disbursement procedures may be made on a case-by-case basis when terms and conditions of the award warrant. Requests for exceptions should be in writing and addressed to OSP. All requests will be reviewed and forwarded to the AVPR for action.

  25. CERTIFICATION STATEMENT

  26. This PPS has been approved by the reviewer listed below and represents Texas State’s Division of Academic Affairs policy and procedure from the date of this document until superseded.


Review Cycle ______________________    Review Date: ______________

Reviewer: _________________________    Date:    ____________________

Approved:_________________________    Date:    _____________________

Gene Bourgeois
Provost and Vice President
for Academic Affairs

Texas State University-San Marcos
Provost and Vice President for Academic Affairs
Last Updated: November 18, 2011
Send Comments and questions to: tg12@txstate.edu