Research Administration Office

University of California

Memo Operating Requirement

No. 82-26

June 24, 1982

Subject: Use of Interagency Agreements with the State of California

The University's Office of General Counsel has approved the use of Interagency Agreements, State of California Standard Form 13 (STD 13) between the University and State agencies provided the following provision is added to the Agreements:

"For the purposes of this Agreement with the University of California, the direct costs, and indirect costs as a percent of direct costs, al1owable for payment shall be as identified in the Agreement and are not subject to retroactive disallowance pursuant to Government Code Section 11256. The University grants the State, upon reasonable prior notice and identification of materials to be examined, permission to examine University records pertinent to direct costs payable under this Agreement solely for the purpose of determining that the direct costs are consistent with those identified in this Agreement."

This language should be added immediately after the parenthetical pre-printed language at the top of STD 13 or footnoted by use of an asterisk after the parenthetical language (see ENCLOSURE 1 ).

However, the underlined phrase in the above provision (referencing Government Code Section 11256) was objected to by the State Department of General Services (DGS). Because of this objection, the Office of the Vice President--Financial and Business Management has authorized omission of the underlined disputed phrase (see ENCLOSURES 2 & 3) on an interim basis only with the understanding that the issue would be resolved in the near future. Therefore, until further notice, Interagency Agreements may be accepted without the inclusion of the underlined phrase referencing Government Code Section 11256.

Because of DGS' objection to including the Government Code reference, it was deeemed to be in the best interest of the University to permit deletion of the disputed language as a temporary measure while we continue discussions with General Counsel and DGS to reach a solution to this problem.

In the past, the use of Interagency Agreements between the University and State agencies has not been a routine practice. However, due to Governor Brown' s Executive Order B97-82 of March 11, 1982 which placed a freeze on State agencies entering into consultant or personal services contracts until July 1, 1982, many State agencies have requested that the University accept Interagency Agreements in lieu of Standard Form 2 (STD 2) contracts.

General Counsel does not object to the use of Interagency Agreements with the State of California. However, Counsel does have specific objections to the applicability of California Government Code Section 11256 to the University (this applicability is found under SAM Section 8760, referenced in the parenthetical language at the top of STD 13). Counsel's specific concerns and reasons for requiring the foregoing provision are as follows:

(1) Counsel makes the legal objection that since the University was created by the State Constitution (as were the Executive, Legislative, and Judicial branches), the University cannot legally be subject to State Government Code Section 11256 which provides for the approval of direct and indirect costs by the Department of Finance, an executive agency which is subordinate to the University's Constitutional status. The recommended language above resolves this legal problem.

(2) The second concern is that the University not enter into agreements which do not specify in advance the basis for approving and allotting costs. This is of particular importance because the State has no applicable cost process. The recommended language above specifies that costs shall be "al1owable for payment as identified in the Agreement." This has the effect of defining costs and reaching agreement in advance as to their allowability. The "approved budget" then serves the function of "cost principles" for each Agreement, thus resolving the second issue.

(3) The third concern expressed by Counsel is that there is no assurance DGS will have approved, prior to the performance start date, the direct and indirect costs which Interagency Agreements authorize the University to incur. Counsel states that in most instances it can be assumed DGS will not have approved the Agreement before the University begins performance, and therefore the statement that the Government Code does not apply to the University eliminates the University's risk of incurring costs which will not be compensable if DGS does not ultimately approve them.

For background opinions by the Office of General Counsel, see ENCLOSURES 3 & 4.

Recommendations and Advisements

(1) Allowability of Costs.

a. State Administrative Manual

The State Administrative Manual (SAM) Section 8760 discusses costing of work in terms of direct and indirect costs. Although the SAM does not provide a statement of State-wide cost principles or specify a procedure for computing indirect costs, the principles of pricing in the SAM are based on the policy of total cost recovery. Since the University's indirect costs and rates are computed in accordance with OMB Circular A-21 which is essentially an established cost recovery system, the procedure of specifying direct costs in the Interagency Agreement and applying the University' s indirect cost rates computed in accordance with A-21 meets the principles and policy intent of SAM Section 8760.

The entire basis for the determination of allowability of direct costs is the budget or other format used to identify the costs in the Agreement. Therefore, budget revisions should either be provided for in advance, i.e., language in the Agreement which provides for a certain percent of flexibility, or revisions should not be made at all without written approval from the State Agency.

c. Indirect Costs

The State Administrative Manual Sections 8760 and 8760.1 allow for reimbursement of indirect costs. The University indirect cost rates which apply to contracts apply equally to Interagency Agreements.

( 2 ) Provisions of Interagency Agreements

From the State perspective, contracts and Interagency Agreements are not the same. Contracts are used with organizations external to the State. contracts reflect an arms-length relationship and include provisions designed to "protect the State' s interest." Interagency Agreements are used with "in house" State agencies--not with external organizations. They are viewed administratively as fiscal transfer vehicles between State agencies. Interagency Agreement provisions are less formal and defensive than contract provisions. Although contracts and Interagency Agreements have different provisions, they are similar in that the work must be clearly defined and an appropriate cost established.

There are no standard provisions for Interagency Agreements as there are for Standard Form 2 (STD 2) contracts. Only the Standard Form 13 (STD 13) face page is standard for Interagency Agreements. This means that each agency is likely to have its own individual provisions. Be alert to the inappropriate application of STD 2 and additional agency contract provisions in Interagency Agreements. For example, the seven provisions on the reverse side of STD 2 for contracts should not be included in Interagency Agreements. Contract provisions such as Liquidated Damages are

(3) Beginning Performance of Interagency Agreements

In accordance with General Counsel's concern that direct and indirect costs might not be recoverable if they are not finally approved by DGS, be cautious about beginning performance of Interagency Agreements until fully executed Agreements have been received, or a firm commitment has been made. General Counsel advises that Interagency Agreements are not considered to be fully executed until they have been signed by both the Department of Finance and the Department of General Services as well as by the State agency committing the funds. Counsel also advises that a firm commitment means that there has been some indication that the Agreement has been approved by the Department of Finance and the Department of General Services in addition to the State agency' s approval; that in many instances a firm commitment cannot arise even if the State agency has signed the contract, absent an indication of approval from the Departments of Finance and General Services. Counsel has set forth this guidance in ENCLOSURE 5.

The risk of incurring costs which may not be reimbursed, by beginning performance before an Agreement has been fully executed or a firm commitment made, should be avoided. Any losses that do occur are subject to Section 28-5 of the Contract and Grant Manual entitled Loss of Funds Expended or Committed in Advance of Executed Contract or Written Notice of Grant Award which states that "Inasmuch as the Standing Orders of the Regents require that a firm commitment be in existence before funds are expended on any proposed contract or grant project, there must be no losses; no provision exists to cover such losses."

(4) Advance Payments

One of the most appealing aspects of using Interagency Agreements is that they may provide for advance payments. State Administrative Manual Section 1204 in part states the "Interagency Agreements may provide for advancing of funds."

It is University policy to secure advance payments whenever feasible; therefore, attempt to obtain advance funding from the State under Interagency Agreements.

ENCLOSURE 6 is a sample advance payment provision. It is recommended that such a provision be included in any Interagency Agreements entered into with State agencies.

References in the enclosures have been to the acceptance of Interagency Agreements with the Air Resources Board; however, the guidance in this memo is generally applicable to acceptance of Interagency Agreements from all State agencies, and is specifically applicable where the issue of Government Code Section 11256 is unresolved.

Additional guidance will be provided when further developments materialize.

Mona Litrownik

(415) 642-1654

ATSS (8) 582-1654

Index:

California, State of

Cost Allowability

Interagency Agreements

David F. Mears

University Contracts and Grants Coordinator

Enclosures


Enclosure 1

INTERAGENCY AGREEMENT

THIS AGREEMENT is entered into this by and between the undersigned State Agencies:

(Set forth services, materials, or equipment to be furnished, or work to be performed, and by whom, time for performance including the terms, date of commencement and date of completion, and provision for payment per 1212.1-1212.2 and 8760-8760.2 SAM.)

For the purposes of this Agreement with the University of California, the direct-costs, and indirect costs as a percent of direct costs, allowable for payment shall be as identified in this Agreement and are not subject to retroactive disallowance pursuant to Government Code 11256. The University grants the State, upon reasonable prior notice and identification of materials to be examined, permission to examine University records pertinent to direct costs payable under this Agreement solely for the purpose of determining that the direct costs are consistent with those identified in this Agreement.

AUTHORIZED SIGNATURE

TITLE

AMOUNT ENCUMBERED: $

UNENCUMBERED BALANCE: $


Enclosure 2

Office of the Assistant Vice President--Business Management

BERKELEY, CALIFORNIA

June 2, 1982

The purpose of this memo is to address the issue of the risks in accepting interagency agreements that is discussed in General Counsel Reidhaar's memo to you dated May 28, 1982.

Discussion

For the reasons stated in General Counsel Reidhaar's and Assistant Counsel Jan Behrsin's memos, the University requested that the following language be included in the interagency agreements:

For the purposes of this Agreement with the University of California, the direct, and indirect costs as a percent of direct costs, allowable for payment shall be as identified in this Agreement and are not subject to retroactive disallowance pursuant to Government Code Section 11256.

The underlined phrase is the subject of disagreement between the University and the Air Resources Board (ARB), State of California. General Counsel believes that the phrase is necessary to protect the University from certain risks in accepting interagency agreements, while counsel for the State Department of General Services (DGS) advised ARB to delete the phrase from the agreements.

The following is a short discussion of General Counsel Reidhaar's concerns regarding the risks involved in accepting interagency agreements without the reference to the inapplicability of the -Government Code, and our response to those concerns.

On page 2 of General Counsel Reidhaar's memo, it is stated that there is no assurance that DGS will have approved the direct and indirect costs which an interagency agreement authorizes the University to incur in providing the contracted services to a state agency before the University begins performance. It goes on to state that in most instances it can be assumed that DGS will not have approved the contract before the University begins performance. By following established policy, this does not really pose a problem to campuses because interagency agreements are not fully executed, nor would a firm commitment by the State exist, until these agreements have been approved by DGS. Under applicable Standing Orders of The Regents and by Contract and Grant Manual policy, the University. is not authorized to begin performance under any award agreement, absent a written notice of the award or a firm commitment: Pursuant to Section 100.4 (m) of the Standing Orders of The Regents, the President has delegated the authority to Chancellors to permit expenditures against contracts and grants or against firm commitments thereon, provided that the contracts and grants have been solicited or negotiated in accordance with established Regental policy, and provided further that a written notice of the award has been received, or in absence of such documentation that Chancellors have satisfied themselves that a firm commitment exists to reimburse the University for the amount of its own funds advanced. (See Attachment 1) This policy guidance is restated in Section 28-4 of the Contract and Grant Manual (See Attachment 2). Therefore, the risk described by General Counsel Reidhaar would occur only through improper implementation of already established University policy as mentioned above o

General Counsel Reidhaar further states on page 2 of his memo that if the University agrees to accept interagency agreements without the modification stating that the University is not subject to Government Code 11256, the University would be accepting a risk that direct and indirect costs contractually declared to be compensable might not be recoverable if not finally approved by DGS. However, as mentioned above, the University has no authority to begin performance until a notice of award (e.g., a fully executed copy) has been received. As previously stated, the only instance in which there would be a problem with recovery of costs is if the University, through violation of its established policy, advance-funded a project before an agreement was fully executed and approved by DGS.

It should be stressed at this point that the risks counsel discusses are risks that occur under regular State Standard Form 2 contracts, as well as with some Federal and private agreements. These risks are not unique to interagency agreements but are simply part of the normal problems involved in the contracting process with the State and some Federal and private sponsors which have lengthy award approval and execution cycles.

Background Information

The following are the pending interagency agreements referred to in General Counsel Reidhaar's memo. They are between the University and the State Air Resources Board and are listed by campus, number of agreements, and funding amount:

CAMPUS........AGREEMENTS......AMOUNT

Los Angeles............1.....................$ 389,341

San Francisco.........2.........................298,492

Davis......................6.........................293,410

Santa Barbara.........1.........................286,597

Riverside................2.........................246,585

Berkeley.................1..........................26,900

TOTAL........................................$1,541,325

These agreements involve 1981-82 funds and must be fully executed by the University and the State before June 30, 1982 or the funding would be sent back to the State's General Fund.

Normally, it would take 6 weeks for ARB to process the agreements through their State channels, but they would attempt to expedite the agreements once they receive them from the campuses in order to meet the June 30 deadline. Therefore, it is imperative that a timely decision be made as to whether the University should accept these interagency agreements, given the concerns expressed by General Counsel Reidhaar.

Recommendation

It is our recommendation that the Air Resources Board interagency agreements be approved for signature by the campuses, notwithstanding the deletion of the Government Code reference.

Along with the notification that they may accept the ARB agreements, we would, in accordance with General Counsel Reidhaar's advice, also caution the campuses to be sure that they do not begin performance until they receive fully executed copies of the agreements or have firm commitments from the State in accordance with applicable University policy.

If granted, we would consider your approval as an interim solution while we continue to pursue our discussions with General Counsel Reidhaar's office and DGS in seeking final resolution of identified concerns.

Willie C. Archie

Contracts and Grants Officer

Enclosures

cc:

General Counsel Reidhaar

Senior Associate Counsel Marchand

Assistant Counsel Behrsin


ATTACHMENT 1

Office of the President

August 26, 1980

CHANCELLORS

VICE PRESIDENT--AGRICULTURE AND UNIVERSITY SERVICES

Dear Colleagues:

Re: Amendment to April 14, 1980 Delegation of Authority--Expenditures Against Firm Commitments Under Contracts and Grants

Following consideration and review of campus comments and procedures in connection with the above delegation, it appears that the current restriction on redelegation of your authority to permit expenditures against firm commitments under contracts and grants creates unnecessary administrative difficulty. However, because the substance of the April 14, 1980 delegation remains the same, instead of reissuing the delegation I ask that the last sentence, which restricts redelegation, be deleted and the following inserted:

"Redelegation of this authority, shall be in writing with copies provided to the Vice President--Financial and Business Management, the Assistant President--Coordination and Review, and the Secretary of The Regents."

Sincerely,

David S. Saxon

President

Members, President's Administrative Council

Assistant Vice President Levin

Coordinator Mears

Principal Officers of The Regents


Attachment to 8/26/80 letter from Saxon

Office of the President

April 14, 1980

CHANCELLORS

VICE PRESIDENT--AGRICULTURE AND UNIVERSITY SERVICES

Re: Delegation of Authority--Expenditures Against Firm Commitments Under Contracts and Grants

Section 100.4(m) of the Standing Orders of The Regents delegates to the President the authority to permit expenditures against contracts and grants or against firm commitments thereon, provided that the contracts and grants have been solicited or negotiated in accordance with established Regental policy.

I am hereby delegating to you the authority to permit expenditures or commitments of funds against any approved research, training, or development .contract or grant when a fully executed contract is in hand or a written notice of grant award has been received or, in the absence of such documentation, when (a) the contract or grant is within the solicitation authority previously delegated to you and you have satisfied yourself that a firm commitment exists to reimburse the University for the amount of its own funds advanced, and (b) there is an essential need to advance or commit funds (which normally means to pay salaries or meet other expenses of a continuing project).

For guidance in interpreting what constitutes a "firm commitment," General Counsel has provided the following:

"While firm commitment has no legal definition, it is obviously something less than a contract. The phrase is applicable to situations where University personnel are advised by representatives of Government agencies that a contract or grant will be forthcoming, and the only delay is a ministerial one of document processing. An agency representative making such a representation must be one who can be relied on for such representation."

This delegation is effective immediately and supersedes the September 6, 1966 delegation on the same subject and President Hitch's related letter of December 3, 1969. This authority may not be redelegated.

David S. Saxon

President

cc: Members, President's Administrative Council


ATTACHMENT 2

AUTHORITY TO EXPEND OR COMMIT FUNDS. The President is authorized, under Section 1.(k)(1), Appendix B to the Standing Orders of The Regents, to permit expenditures against contracts, grants-in-aid, or gifts, or against firm commitments thereon, provided the contracts, grants-in-aid and gifts have been solicited or negotiated in accordance with established Regental policy.

28-4 DELEGATION OF PRESIDENTIAL EXPENDITURE AUTHORITY.

The President has delegated to Chancellors, Vice Presidents and Universitywide Deans authority to permit expenditures or commitments of funds against any approved research, training or development contract or grant when a fully executed contract is in hand or a written notice of grant award has been received or, in the absence of such a contract, when:

1. The contract or grant is within the solicitation authority delegated to the Chancellor, Vice President, or Universitywide Dean as defined in Section 18 of this Manual, and he has satisfied himself that a firm commitment exists to reimburse the University for the amount of its own funds advanced, and,

2. There is an essential need to advance or commit funds, which normally means to pay salaries or meet other expenses of a continuing project.

For projects which are beyond the solicitation authority of Chancellors, Vice Presidents, and University Deans, the President has delegated to the Vice President-Business and Finance the authority to determine whether or not a firm commitment exists and to permit expenditure or commitment of funds pending receipt of executed contracts or grant awards.

Redelegation of the above authorities is not permitted.

28-5 LOSS OF FUNDS EXPENDED OR COMMITTED IN ADVANCE OF AN EXECUTED CONTRACT OR WRITTEN NOTICE OF GRANT AWARD. Inasmuch as the Standing Orders of The Regents require-that a firm commitment be in existence before funds are expended on any proposed contract or grant project, there must be no losses; no provision exists to cover such losses.


Enclosure 3

ACTING VICE PRESIDENT EARL F. CHEIT

Dear Bud:

Re: University Use of State of California Standard Form 13 ("Inter-Agency Agreement")

As you know, the University frequently contracts to provide services. to agencies of the State of California, and in some instances contracts to purchase State services. Typically, the state agency proposes that the agreement be formalized on State of California Standard Form 13. This form is generally accepted, but at least since 1957, we have asked that one of the standard terms be modified to eliminate the possibility that the California Department of General Services could later either disallow or disapprove costs agreed to by the contracting parties. The rationale. for such a-modification is most recently stated in the November 1981 memorandum from Assistant Counsel Jan Behrsin to Coordinator David F. Mears (copy attached).

In the past, various state agencies have accepted our modification, although as would be expected in dealings between bureaucracies, the processing of modified forms "takes longer." We have now been told that millions of dollars in state research funds may be lost to the University unless the processing time for the Inter-Agency Agreements can be expedited by the elimination of the University's modification. The purpose of this memo is to address the "trade off" which that proposal involves.

The Department of General Services does not see the signed contract until after it has been executed by the state agency directly involved in the contract and approved by the Department of Finance.

The University modification in issue states that the University is not subject to Government Code, section 11256 which authorizes the Department of General Services to approve the "direct and indirect costs to the state in furnishing or performing . . ." the work which is the subject of the contract.

There are three reasons for our objection to section 11256. First, if the University is providing services to a state agency as distinguished from purchasing such services from a state agency, the determination of direct and indirect costing is a University prerogative (under Article IX, section 9) rather than a matter controlled by the statutory authority of the Director of General Services.

Second, there is no assurance that the Department of General Services will have approved-the direct and indirect costs which an Inter-Agency Agreement authorizes the University to incur in providing the contracted services to a state agency before the University begins performance. In most instances it can be assumed that General Services will not have approved the contract before the University begins performance. Until the Department of General Services has approved a contract executed by another state agency that agreement is not enforceable (Gov. Code, Sec. 14780; Ireland v. Riley (1935) 11 Cal. App. 2d 70). The University's modification,. expressly stating that Government Code section 11256 does not apply, eliminates the University's risk of incurring costs which will not be compensable if the Department of General Services does not ultimately approve them.

Third, we interpret Government Code section 11256 as being broad enough to authorize an after-the-fact disallowance of costs by the Director of General Services. We have been informed that General Services does not interpret the statute to confer the power to disallow items of cost specified in Inter-Agency Agreements, except where it cannot be verified that the cost was actually incurred. Notwithstanding this assurance we believe that the wording of the statute is broad enough to permit such disallowance.-

If the University agrees to accept Standard Form 13 without a modification, it will be accepting a risk that direct and indirect costs contractually declared to be compensable might not be recoverable if not finally approved by the Department of General Services. In reconsidering this matter in light of the advice that millions of dollars of potential research funds may lapse unless the University agrees to waive its objection, my conclusion is that the problem is a management rather than a legal issue once the potential risks have been identified. Accordingly, we will not insist that the modification be made as a condition of approving the legal form of the Inter-Agency Agreement. If the University is to accept this risk, it would seem prudent to .make some provision to fund or otherwise limit the potential exposure to loss should University costs not be approved by the Department of General Services. Presumably such a contingency fund would be developed by taking into account such factors as the total number of Inter-Agency Agreements and the direct and indirect costs involved in their performance. Another alternative would be to insist that no University performance proceed until General Services had approved the contract.

Sincerely,

Donald L. Reidhaar

General Counsel

cc:

M. Litrownik

D. F. Mears

D. S. Saxon


Enclosure 4

November 3, 1981

COORDINATOR DAVID F. MEARS

Re: University Use of State of California Standard Form 13 ("Inter-Agency Agreement" )

Your office recently requested advice regarding the propriety of the University entering into agreements with the State on the State's "Inter-Agency Agreement" (Standard Form 13). I met with Assistant Manager Robert C. Edwards yesterday to discuss this matter. Based upon my review, I informed Mr. Edwards that while the General Counsel's Office does not have a per se objection to the use of Standard Form 13, these agreements are only acceptable when modified. The modification with which we are most concerned is one which makes clear that the University is not subject to the jurisdiction of the State Department of Finance, which jurisdiction is implied in the Standard Form 13 reference to sections of the State Administrative Manual (SAM). For your reference, we have enclosed previous correspondence on this matter.

You will note from the attachments that Standard Form 13 provides that the provisions of the Inter-Agency Agreement are subject to certain sections of the SAM. Among the sections referred to, are sections 8760 through 8760.2. Section 8760 of the SAM provides that section 11256 of the Government Code is applicable to the agreement. That section of the Government Code provides, in pertinent part, that State agencies furnishing inter-agency services shall charge for such direct and indirect costs as may be approved by the Director of General Services, and the Director of General Services shall compute these charges in a manner approved by the Director of Finance. At least since 1957, the General Counsel's Office has taken the position that Government Code section 11256, conferring on the Department of Finance the authority to approve direct and indirect costs as they may be stated in inter-agency agreements, is inapplicable to The Regents. On March 25, 1977, then Associate Counsel Reidhaar wrote to then Vice President John A. Perkins regarding the basis for this Office's general objection to the use of Standard Form 13 in the case of research agreements pursuant to which the University performs services for the State. General Counsel Reidhaar then opined that

"[t]he reason the Inter-Agency Agreement form has been objected for research agreements is that when the form is used direct and indirect costs provided for in the contract are subject to 'approval' by the Department of Finance pursuant to Government Code section 11256..."

"The Regents is not a State agency which is subject to Department of Finance review and adjustment of direct and indirect costs agreed to in its contract with other entities including State agencies. In the past we have either disapproved or suggested the revision of Standard Form 13 to make it clear that the computation of direct and indirect costs for work, services and materials or equipment to be provided by the University to a State agency would be as stipulated in our contract with the State agency and would not be subject to retroactive adjustment pursuant to the authority granted by Government Code section 11256 which is...inapplicable to The Regents. The State agencies over which the Department of Finance has oversight responsibility with respect to contract cost provisions are those agencies of the executive branch which are created by statute."

For the reasons stated in General Counsel Reidhaar's March 25, 1977, memorandum, our Office's policy has been to require the addition to the Inter-Agency Agreement of a paragraph providing that, as used in these agreements, the term "allowable program costs" is used to mean the salaries, wages and indirect costs identified in the agreement and that these costs are not subject to retroactive disallowance pursuant to Government Code section 11256.

If, after reviewing this memorandum and the several attachments, you have any further questions regarding this matter, please let me know.

A. Jan Behrsin

Assistant Counsel

Attn.

cc:

N.J. Caputo

R. C. Edwards

B. G. Lamson

M. Litrownik


Enclosure 5

June 4, 1982

CONTRACTS AND GRANTS OFFICER WILLIE C. ARCHIE

Re: Inter-Agency Agreements And The "Firm Commitment Execution Authority"

The wording of Contract and Grant Manual section 28.4 may be the source of some misunderstanding on the issue of when University may "safely" proceed to provide services under an Inter-Agency Agreement with a California state agency, an issue discussed in your June 2, 1982, memo to Acting Vice President Cheit.

The sources of possible confusion are (1) the fact that the "other" state agency will have executed the Interagency Agreement authorizing the University to perform contracted services and (2) the definition of the term "firm commitment" in the April 14, 1980, Delegation of Authority memo from President Saxon.

Technically, an Inter-Agency contract is not "fully executed" until it has been signed by the contracting

agency and approved by both the Department of Finance and the Department of General Services. On the other hand some people may read the words "fully executed" as used in section 28-4 of the Contract and Grant Manual to be satisfied when the document has been executed on behalf of the state agency for whom the contracting services are to be provided by the University.

A second potential source of confusion may arise from the definition of the term "firm commitment" as "obviously something less than a contract . . ." or from the "illustration" of the phrase as "applicable to situations where University personnel are advised by representatives of Government agencies that a contract or grant will be forthcoming, and the only delay is a ministerial one of document processing." In the case of a signed Inter-Agency Agreement sent to the University for execution (albeit without Department of Finance or Department of General Services approvals), the missing DOF/DGS approvals could be wrongfully understood to be "ministerial ones" related to "document processing."

My suggestion is that section 28-4 be "expanded" to define the term "fully executed" as requiring both a signature of the other contracting party and the indicia of any related approvals which the other contracting agency must obtain as a condition to obligating funds. We recommend that the specific illustration of a State of California Inter-Agency Agreement form be used as an example. It would be also desirable to point out that in many instances a "firm commitment" cannot arise even if the other contracting party has signed the contract absent an indication of approvals from other agencies which are a prerequisite to the contracting agency's authority to commit funds.

George L. Marchand

Senior Associate Counsel

cc:

E. F. Cheit

A. J. Behrsin


Enclosure 6

UNIVERSITY PROPOSED ADVANCE PAYMENT PROVISIONS

Upon execution of the interagency agreement, the University will submit an advance payment invoice to (State Agency) to advance to the University the estimated reimbursable costs for the first three months of the period of performance of the interagency agreement.

Before the beginning of each quarter thereafter, the University will submit an advance payment invoice to --- (State Agency) to advance the University's estimated reimbursable costs for the ensuing three months.

The advance payment invoice will consist of a breakdown of the estimated costs by major cost categories for the quarter.

Within 60 days of the end of each quarter, the University will submit to (2) cumulatively during the total preceding months.

If the agreement is terminated before the end of the performance period, within 90 days of the termination the University will submit a final fiscal report of expenditures by major cost categories incurred during the agreement period. Otherwise, upon expiration of the agreement, the fourth quarter statement (incorporating the preceding three months and cumulative expenditures) will serve as the final fiscal report of expenditures, due within 90 days of the expiration.