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45.17 - Fixed-Price Sponsored Projects


  • Position: Office of Sponsored Programs Director
  • Email:

Last updated: February 13, 2024

A. Purpose. This document states University policy on, and provides associated procedures for, the actions to be taken upon the completion of externally funded fixed-price sponsored projects, especially when such sponsored projects are concluded with a residual cash balance.

B. Scope. This policy applies to all fixed-price sponsored projects.

C. Definitions

C-1. Fixed-Price Sponsored Projects. A fixed-price sponsored project (also known as a firm-fixed-price, firm-price, or fixed-price contract/grant) requires a recipient to perform the work necessary to produce deliverables (i.e., services or property) as specified in the agreement for an established dollar amount and, usually, within a defined time frame. Under such an agreement, the funding is not subject to adjustment on the basis of the recipient’s actual expenditures in performing the sponsored project. Payment for performance of the sponsored project remains constant despite the actual costs associated with the work required to fulfill the terms of the agreement, including any overages or underages.

C-2. Residual funds. Residual funds are the monies remaining at the completion of a fixed-price sponsored project, after all costs incurred in performing the work and fulfilling the deliverables in the agreement have been paid and all payments have been received. .

C-3. Significant residual fund balance (or significant balance). A significant residual fund balance is defined by the University as residual funds equal to or greater than 10% of the total sponsored project price.

D. Policy

D-1. When to use a fixed-price agreement. A fixed-price agreement mechanism offers benefits to both project sponsors and Principal Investigators (PIs). Because the final cost of a product or service provided under a fixed-price sponsored project is established and accepted prior to the performance of the sponsored project, a project sponsor is relieved of the risk that its cost for the deliverable(s) identified in the agreement may exceed its expectations and budget. PIs, as recipients of a fixed-price sponsored project, perform under a minimal administrative burden, which is delimited primarily by the periodic reporting on progress toward any defined benchmarks. In most circumstances if the costs incurred to complete the project are less than the price paid by the sponsor for the performance of the agreement, the recipient institution retains the difference. In cases where a sponsor imposes a restriction on residual funds, the University will be obligated to comply with the terms and conditions in the fixed-price agreement.

D-2. Considerations for all fixed-price sponsored projects

a. Compensation. The University must ensure that it is properly compensated for all allowable direct and indirect costs incurred under a fixed-price agreement, but due to the University’s status as a non-profit entity it should also avoid generating a residual balance. Entering into a fixed-price agreement for deliverables intended for the direct benefit or use of the sponsor may also make the University appear to have an unfair competitive advantage over for-profit businesses providing the same or a similar product or service at a higher cost.

b. Unrelated Business Income Tax (UBIT) review. If the University receives funds for work that is regularly undertaken for the benefit of a sponsor and that is not consistent with the research, education, other sponsored activity, instruction, or public service mission of the University as a non-profit institution, the Internal Revenue Service may declare these funds to be unrelated trade or business income and, therefore subject to unrelated business income tax. The Office of Sponsored Programs (OSP) shall consult with Business and Accounting Services regarding any agreement that has UBIT potential.

c. Federal requirements. The University must ensure observance of the terms and conditions of the sponsored projects; consistently apply established cost principles and accounting standards; and fulfill its obligations under federal and state compliance and audit regulations. 2 CFR Part 200 Subpart E – Cost Principles and 2 CFR Part 200 Subpart F – Audit Requirements. Among the laws that inform University contracting policy is the Anti-Kickback Act of 1986. Consistent with this statute, the University prohibits any employee from soliciting, accepting, or attempting to accept a kickback — money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, for the purpose of improperly obtaining or rewarding favorable treatment in relation to a sponsored project involving federal funds. See Anti-Kickback Act of 1986.

Compensation principles established by the federal government require that salary on sponsored programs be expressed in relation to the entirety of an individual’s professional effort. 2 CFR 200.430. The University demonstrates its conformance to these compensation principles, ensuring that compensation for sponsored programs accurately reflects the effort expended, by requiring the periodic verification of effort for all non-temporary help employees with salary directly charged or cost shared to externally funded sponsored programs. See APM 45.09 Effort Reporting. The University, therefore, requires that faculty or staff report effort on a fixed-price sponsored project, when they have salary charged or committed as cost sharing to it. If no salary is charged or cost shared to the fixed-price sponsored project, the effort put toward the performance the sponsored project must be included in the report, as is voluntary uncommitted cost sharing, as part of the total activities in which an employee has engaged in (and is compensated for) as part of their university appointment.

d. Tracking of expenditures. The University must document project expenditures under a fixed-price sponsored project in order to show that sponsor funds have been used as specified by the agreement and that costs are fully and properly expensed. If unable to adequately demonstrate during the course of an audit that sponsor funds were used in the manner allowed by the agreement and applicable policies and regulations, project costs may be disallowed and the University required to return them to the sponsor. Repeated audit findings related to fixed-price sponsored projects may compromise the ability of the University to enter into these agreements with state and federal agencies.

E. Procedure

E-1. Pre-award review and approval. All sponsored project proposals, including proposals for fixed-price sponsored projects, must be presented by the Principal Investigator to the Office of Sponsored Programs for review of the proposal materials, terms and conditions, and assessment of the proposed project budget and scope of work prior to submission to the sponsor. The project budget should take into account all direct and indirect costs associated with the performance of the project and should include sufficient detail to make accurate accounting practicable. The agreement must be approved and signed by the individual with signature authority for such documents.

E-2. Closeout of fixed-price agreements. Upon completion of the work to be performed under a fixed-price contract/grant, the PI must provide the following information to the Office of Sponsored Programs:

  • Substantiation that all work required under the contract/grant has been completed
  • Confirmation that no outstanding expense items remain open or in question with the sponsor and that all allocable and allowable costs have been charged to the project funding
  • Certification that all required deliverables and reports have been provided to and accepted by the sponsor

The final account balance will be determined only after the final payment from the sponsor has been received, all salaries and outstanding invoices have been paid, and all F&A costs have been recovered by the University.

E-3. Contract/grant closeout with residual funds. In the event that the PI completes the required work for less than the agreement price, the PI may request that the project account be closed and the residual funds be distributed to the college or non-academic unit in which the PI is a member. These residual funds are considered deferred revenue of the University, and F&A costs and unrelated business income tax (if applicable) will be assessed against them prior to their distribution. The sponsored project account will be closed only after the transfer of the residual funds. A unit receiving such funds may use them for any permissible use in support of the research, education, or public service missions of the University.

If there is significant residual fund balance at the completion of work for the sponsored project (i.e., an amount greater than or equal to 10% of the sponsored project price), the PI must provide a written explanation for the substantial discrepancy between the expenses needed to perform the sponsored project and the costing that led to the sponsored project price. This explanation should be supplied by the PI to the Office of Sponsored Programs, which will use it along with the information that the PI is required to provide upon closeout of the agreement (section E-2) as the basis for an audit of the project. Residual funds will be distributed to the college or non-academic unit of the PI upon the satisfactory conclusion of the audit and per the distribution allocation as approved of the Vice President for Research, or their designee.

Version History

Updated Feb. 13, 2024

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