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Fixed Price Contracts Report Barbara Gray 29 Oct 1996 09:29 EST

Several weeks ago, I asked some questions about fixed price contracts.  The
first was aimed at schools with short-form negotiated IDC rates (salary only
or salary plus fringe base).  I asked how IDC is recovered by the school
when the PI rebudgets dollars out of salary and fringe after the award is
made.  Of the five institutions that responded to this question via RESADM,
three take the indirect costs off the top.  One makes the PI return any
share of his IDC and then the Dean's share (he gets to tell the Dean why) to
make up the IDC "deficit" for the institution.  One long-form school
responded that it has internally approved a 25% TDC rate for all fixed price
contracts.  (Their normal rate is 45% MTDC, but they justify the 25% TDC
rate by the reduced administrative work for Finance and Accounting in
managing a fixed price contract as opposed to a cost reimbursement grant.)
Another larger institution reported that a 20% TDC rate on fixed price
contracts seemed to the the "usual."

My second question was about funds remaining after all the deliverables have
been met.  I wanted to know if there was a threshold amount at which we
should be concerned.  Few responses addressed this specific question.  One
response indicated that, as long as we have good back-up for how we arrived
at the price quote and the sponsor accepted, then a "remainder" is not a
problem.  Another respondent indicated, however, the we should watch for any
individuals who have a pattern of over-pricing (consistently more than
10-12% of funds remaining) to build up a "slush" fund.  Finally, a third
respondent cautioned about governmental fair pricing standards.  That
particular school will allow the PI to keep a maximum of 10% of the total
award as a remainder and then returns the rest of the residual to the sponsor.

Regarding how to manage these residual funds, the concensus is to, after a
period of time when the institution is sure the sponsor is satisfied and all
financial transactions are completed, move residual funds to an unrestricted
account(s).  Some institutions keep all the funds in one account and use
these to cover future overruns on other projects.  Other institutions set up
individual residual accounts for PIs as an incentive to be efficient.  Still
others set up Department Chairs' residual accounts, primarily, it seems, to
avoid the problem of managing many small individual PI accounts.  One
institution reported that it takes any "due but unpaid" indirect cost from
the residual first before moving any funds to the unrestricted PI account.
The same kinds of considerations seem to apply to residual funds as to the
issue of sharing indirect cost returns with investigators.  Within
reasonable limits, residual funds can be an incentive to bringing in
sponsored projects and can help the PI who doesn't get all the support
he/she needs for everyday expenses from the institution.

Thanks to everyone who responded.  This information will help me present
some good alternatives to our Business Affairs people so that we can come up
with our own policy and procedures.

Barbara H. Gray                           Telephone:  803-953-5673
Director of Sponsored Programs            FAX:        803-953-6577
University of Charleston, SC              e-mail:
Charleston, South Carolina  29424