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Proposal Development and Submission

Subcontracts for Budget Preparation

A subcontract may be required if part of the research effort under a grant or contract is to be performed by an outside organization or institution. If the subcontract is part of a proposal to a federal sponsor or from federal funds, the principal investigator should work with the sponsored program officer to develop a scope of work and determine whether the potential subcontractor should be treated as a subrecipient or as a vendor. The principal investigator will assist the sponsored program officer in preparation of requests for proposals. This must be accomplished during proposal development in order to determine allowability, costs, facilities and administrative (F&A) costs, contractual requirements, and justification for subcontractor selection.

Once this is accomplished and the subcontract is included in the award budget, the subcontract can generally be established quickly after the award is received.

Subrecipient and Vendor Distinction

Subrecipients may have some or all of the following characteristics: Vendors have the following characteristics:
  • their performance is measured against meeting the objectives of the program
  • they have authority for administrative and programmatic decisions
  • they provide on-going service for the life of the program
  • they carry out a program of the subrecipient as compared to providing services for a program of the prime recipient
  • they are responsible for applicable program compliance requirements

Subrecipients should be budgeted as a subcontract in the sponsor proposal. This is then recognized as a budgeted item and approved by the sponsor in the terms and conditions of the subsequent award.

On a federally funded sponsored project, subrecipient funds are passed through from the recipient by a subcontract agreement. This agreement will flow down the various federal regulatory and compliance requirements. Standard subrecipient subcontract terms and conditions which incorporate the regulatory and compliance requirements of OMB Circular A-110 are then used to prepare a subrecipient subcontract.

  • they provide the service as part of their normal business operations
  • they provide a similar service to many different purchasers
  • they operate in a competitive environment (compete with others who can provide a similar service)
  • their program compliance requirements do not pertain to the service provided

A vendor is responsible for providing ancillary services in support of the award for the recipient or subrecipient’s use. If the service to be provided can be described and billed according to established rates on a requisition for purchased services, then a subcontract is not necessary. However, if the service is complex, requiring a scope of work and budget, deliverables schedule, or billing requirements, a subcontract should be used.

A vendor is only required to meet the terms of the procurement contract (such as the Office of Sponsored Program’s commercial purchase order terms) and the OMB Circular A-110 requirements specified in the vendor subcontract. Compliance requirements should not pass through to vendors. On the other hand, a subrecipient isrequired to meet various federal regulatory and compliance regulations in accordance with OMB Circular A-133. The recipient is required to monitor compliance.

In summary:

subrecipient serves as a co-investigator, is responsible for the end results of the research effort equally with the principal investigator where federal funds are being passed through to another entity. By definition, a subrecipient relationship can only be established where federal funds are involved.

In summary:

vendor provides ancillary goods or services that the principal investigator needs to conduct the research effort. A vendor is not responsible for the research results.

Importance of the Distinction

It is important to be aware that it is the nature of the relationship that determines whether or not an entity is a subrecipient or a vendor. The dollar amount of the purchase order or subcontract is not a determining factor. A careful review of the nature of services to be provided and an appropriate determination as part of the proposal budget review process will eliminate such post-award problems as:

  • obtaining sponsor prior approval for unbudgeted subcontracts;
  • delays in processing requisitions for purchased services budgeted as subcontracts;
  • meeting audit and compliance requirements with for-profit organizations where a vendor relationship should exist.

By making a proper determination in the proposal stage, the appropriate relationship can be established from the start. This is especially true for an unbudgeted subcontract. If the unbudgeted subcontract is of a subrecipient nature, sponsor approval is required prior to entering into a subcontract. If it is a vendor relationship, no sponsor approval is required unless specified in the award terms and conditions.

Making the determination is also important to the vendor or subrecipient. Additional auditing requirements and other compliance regulations apply if the subcontractor is a subrecipient. It is best to make the determination at the proposal stage so if a subrecipient relationship exists, that relationship is recognized by the awarding agency and approved in advance. It is unlikely that an unplanned subrecipient relationship would arise in the course of a sponsored research effort. If this occurs, sponsor approval is required.

Subrecipients under Federal Contracts

In order to establish a subrecipient relationship under federal contracts (not grants), the Federal Acquisition Regulation (FAR 35.009) states that “it is important that the contractor not subcontract technical or scientific work without the contracting officer’s advance knowledge.” The FAR goes on to state that “during the negotiation of a cost-reimbursement R&D contract, the contracting officer shall obtain complete information concerning the contractor’s plans for subcontracting any portion of the experimental, research, or development effort.” Thus, if a subrecipient relationship is not approved as part of a proposal submitted to the agency, written sponsor approval would be required before any unbudgeted subrecipient subcontract could be established.

Subcontracts in Proposal Budgets

In the proposal budget the total cost of the subcontract, including fringe benefits and F&A costs, is shown as a single line item. This total becomes part of the project’s direct costs. A description of what is included in the subcontract total, at the same level of detail as the proposal budget, should be provided.

Typically, the budget breakdown submitted by a potential subcontractor is signed by an official of the subcontracting institution to indicate that all institutional requirements have been satisfied. Some agencies also require a letter of collaboration from the subcontractor organization.

If funds for work at Ohio State are being included in another organization’s funding proposal (i.e., the Office of Sponsored Programs would be the subcontractor), the budget, work plan, and the Authorization to Seek Off Campus Funds (ePA-005) must be approved as usual by the chair and college, then processed through the Office of Sponsored Programs like any other proposal. Sponsored program officers will provide an official letter of collaboration and obtain required signatures.

Application of Facilities and Administrative Costs

For subrecipients, if the project is recovering the full negotiated Facilities and Administrative (F&A) rate, that rate is applied to the first $25,000 of the total subaward amount. No F&A costs are charged on the remaining balance of the subaward. If the project will recover less than the full F&A rate, F&A costs are applied to the entire subaward amount.

Costs for vendors and service providers should be included as an Other cost in the Other Direct Costs section of the sponsor budget form, and F&A is assessed on the full cost of the service. These may appear under the ‘Purchased Services’ or ‘Other Direct Cost’ budget category in PI Portal and Workday reports.

Personal Liability of Principal Investigators

Principal investigators are not authorized to obligate the Office of Sponsored Programs or the university contractually and should not sign any contracts or agreements. Contracts and award documents are in the name of the Office of Sponsored Programs and must be signed by an authorized Office of Sponsored Programs signatory.

This restriction also applies to subcontracts to other institutions. Principal investigators risk incurring personal liability if they authorize a subcontractor to begin work and guarantee payment in the absence of an executed subcontract and purchase order. Additionally, the subcontractor is not authorized to perform any work prior to the issuance of a valid purchase order by the Office of Sponsored Programs.