December 16, 1985
Subject: Subagreements for Research, Training, and Public Service Under Extramural Prime Awards and University Program Awards
This Memo provides operational guidance for those University personnel who execute subagreements: to implement a portion of the scope of work; perform scholarly or professional instruction; or perform public service programs relating to research or to scholarly or professional instruction which are issued by the University under an extramural prime award. Subagreements are made to entities external to The Regents of the University of California. The guidance in this Memo also applies to State funded programs which require the University to make program awards to other educational and non-profit institutions.
Execution of subagreements and program awards is by definition a purchasing function which requires a formal delegation of authority pursuant to President Gardner's August 8, 1985 delegation of purchasing authority to Chancellors (Enclosure 1).
ISSUANCE IN ACCORDANCE WITH UNIVERSITY POLICY
The basic policies governing the issuance of such subagreements are contained in Business and Finance Bulletin BUS-43, Contract and Grant Manual, Chapter 16, "Purchasing", and in the conditions of the delegation letter itself.
It is the responsibility of all University personnel holding such authority to be knowledgeable of relevant University policies and their operational implementation. This Memo is intended only to highlight and provide guidance on certain policies of particular concern to subagreements within the scope of this Memo. It does not substitute for a thorough understanding of and professional competence in University purchasing and contract and grant administration policies by those authorized to exercise such authority.
BUS-43 defines "Subagreement" as:
A purchase contract to: implement a portion of the scope of work; perform scholarly or professional instruction; or perform public service programs relating to research or to scholarly or professional instruction which is issued by the University under an extramural prime award.
Though such a subagreement could be issued using a University Purchase Order with standard terms and conditions as are included in BUS-43, Appendices A through F, these standard terms and conditions are not tailored to meet the needs of subagreements within the scope of this Memo, particularly those with other educational institutions or non-profit organizations. In most cases, it will be necessary to develop subagreements containing flow-down provisions as required by the extramural prime award under which the subagreement is written, and terms and conditions which are unique and appropriate to the individual project (Reference: Contract and Grant Manual 16-321 and BUS-43, Part 1, Section I).
REVIEW BY GENERAL COUNSEL
Bylaw 21.2 of The Regents requires in part that,
The General Counsel shall prepare or approve all deeds, contracts, agreements, mortgages, deeds of trust, releases, reconveyances, and other legal documents relating to the business of the Corporation...
The standard University purchase order with its prescribed terms and conditions as set forth in BUS-43, Appendices A through F, has been pre-approved by General Counsel. However, because these pre-approved terms and conditions are not tailored for subagreements within the scope of this Memo with other educational institutions or non-profit organizations, such subagreements will need to be specially developed and reviewed and approved by General Counsel on a case-by-case basis before execution on behalf of The Regents (Reference: Contract and Grant Manual Section 16-322 and BUS-43, Part 2, Section II.C.3 and D.). However, it is understood that some campuses have made informal arrangements with the Office of General Counsel to alleviate the operational burdens of such case-by-case approvals.
A. Subagreements Under Extramural Prime Awards
University policy requires competition in the placement of its purchases. A purchase may be placed without competition if the purchase is for a unique item or unique service (see "Definition" section of BUS-43, Part 1) or is available from only one source. If a purchase is made without competition, the noncompetitive action must be justified. The justification must be in writing and made before the purchase is placed. The purchasing agent for a transaction is responsible for preparing or obtaining the justification for noncompetitive procurement. The foregoing applies to subagreements placed by the University under extramural prime awards.
Subagreements under extramural prime awards within the scope of this Memo are likely to be requested to be placed without competition. Therefore, when a proposal to a sponsor includes a proposed sole source subagreement, the Principal Investigator must provide the facts which justify a noncompetitive subaward to the Contracts and Grants Officer prior to submission of the proposal. Such a justification may be on the basis that the subject/scientific/technical expertise is available only from the designated sole source. When the subagreement is placed, the justification for noncompetitive procurement must be contained in the subagreement purchasing file. Subagreements are to be issued in accordance with the policies in BUS-43, Part 3, Section IV. Where subagreements can be competitively placed, at least three sources should be solicited.
B. University Issued Program Awards Under State Funded Programs
The State of California sometimes asks the University to implement programs which involve funding projects at institutions external to the University. U.C. then solicits proposals from both its own campuses and from external sources such as the California State University System and other universities. Proposals are evaluated. U.C. selects those proposals to be funded and issues the program awards..
The following applies only to programs implemented externally in whole or part. Although this program implementation activity is not a typical "purchase of goods or services" where the University is the end user, it nevertheless is an activity which is subject to the essential principles of BUS-43. These principles include providing the opportunity to more than one source to participate, determining that the dollar amount of an award is reasonable and including appropriate terms and conditions in the program awards.
The requirement for competition can be met by sending solicitations to more than one external source. For the California State University, each campus is a separate source. Evaluation .of proposals by a peer review process, meets the competition requirement of BUS-43. (Reference: Contracts and Grants Manual 16-430 and BUS-43, Part 3, Section III and Part 4, Section II).
Subagreements shall be entered into only after it has been determined that prices to be paid are reasonable considering all of the circumstances pertaining to the particular purchase under consideration. Prices generally are considered reasonable when it has been determined that the competition secured has resulted in a reasonable market test or when prices are set by applicable law or regulation. Generally where the Federal government has accepted salary, benefit, and indirect cost rates of educational or non-profit institutions, such rates will be considered reasonable by the University for competitive and noncompetitive awards. Full cost or price analysis should be done for subagreements with for-profit entities in accordance with BUS-43, Part 3, Section V.
For University issued program awards which implement State funded programs, the requirement to make awards at reasonable prices may be met by recording the rationale for the award amount in the file. This usually includes judgments as to the quantity of resources needed to perform a project and verification that the rates for salaries, indirect cost, fringe benefits and travel are in accordance with established institutional policies.
Ownership and access rights to intellectual property are typically critical issues in the development of subagreements within the scope of this Memo. Such issues must be clearly addressed in such subagreements with input from the Principal Investigator for the prime award and from University copyright and patent personnel, as appropriate.
Some extramural prime awards to the University require prior written approval before a subagreement under that prime is entered into by the University. It is the responsibility of the person possessing authority to execute such a subagreement to ascertain that any such required prior approvals have been obtained (Reference: Contract and Grant Manual 16-311 and BUS-43, Part 2, Section II.C.2).
Most extramural prime awards require that the University "flow-down" certain terms and conditions to subcontractors or subrecipients through the terms of the subagreement. It is the responsibility of the person possessing authority to execute such a subagreement to ascertain that any such flow-down provisions are included in the terms of the subagreement (Reference: Contract and Grant Manual 16-312 and BUS-43, Part 3, Section VI.A.3). To a lesser extent, State funded programs may require certain State prescribed clauses to be included in University issued program awards under such State funded programs.
President Gardner's August 8, 1985 delegation letter requires that a semi-annual report of purchases in excess of $500,000 be provided to the Senior Vice President--Administration on January 20 and July 20 of each year. A December 12, 1978 letter to Chancellors and Laboratory Directors from then Associate Vice President Jenkins (Enclosure 2) establishes guidelines for the reporting requirement.
In addition, for subagreements to for-profit entities, quarterly reports of dollars committed and awards made to small, small disadvantaged, and women-owned business concerns are required to be submitted to the Office of Business Affirmative Action, Office of the President with a copy to the University Materiel Coordinator, Office of the President, by the 20th of the month following the quarter. (Note: Reports of no awards to such for-profit business concerns must also be submitted.) The requirement for such reports for subagreements to non-profit organizations is under review.
ADMINISTRATIVE BURDEN OF MAJOR SUBAGREEMENTS
On occasion, a subagreement will be so large or so complex that special purchasing staff arrangements are essential in order to properly administer the subagreement. In such cases, staffing costs, directly, associated with the administration of the subagreement can and should be included in the direct costs of the prime proposal and award. Particular care must be taken however to assure that A-21 Cost Principles are met. That is, there must be a "consistent" approach as to when subagreement administration staffing costs are direct charged and when they are treated as indirect costs. Generally, when the subagreement administration staffing needs of a project are so great as to require the assignment of personnel directly to that project and where the time allocation of such personnel are directly and clearly associated with and benefiting that project, it is appropriate, and prudent to treat such staffing costs as direct costs.
CONTRACTS AND GRANTS/MATERIEL MANAGEMENT COORDINATION
Regardless of where the formal authority to execute such subagreements lies, it is important that such subagreements be developed in close cooperation between the campus Contracts and Grants and Materiel Management Offices. Contracts and Grants Offices possess expertise in flow-down requirements of the extramural program awards as well as in terms and conditions appropriate to subagreements within the scope of this Memo. Materiel Management Offices possess expertise in purchasing policy and procedures as set forth by the University and the State. The expertise of both offices is necessary to the development of a quality subagreement.
A CONTRIBUTED PAPER ON RESEARCH SUBCONTRACTING
Enclosure 3 is a contributed paper entitled, "Research Subcontracting: Taking the Worry Out of Being Close," presented at NCURA's 27th Annual Meeting by Dr. Stephen Erickson, Senior Assistant Director, Office for Sponsored Research, Harvard University. The paper is an informative discussion of many of the same subcontracting issues presented in this Memo, including flow down provisions, competition, and subcontract administration. While we do not necessarily endorse all statements or examples presented in Dr. Erickson's paper, we include it here for your consideration when drafting, negotiating and administering subagreements.
Refer: Joe Acanfora
Wayne S. Ove
University Materiel Coordinator
Campus Materiel Managers
Campus Purchasing Managers
Subject Index: 16
Organization Index: U-115
David F. Mears
University Contracts and Grants Coordinator
C& G Memo No. 85-31
OFFICE OF THE FRESIDENT
August 8, 1985
Delegation of Authority--Execution of Purchase Contracts, .Subcontracts, and Standard Purchase Orders for Goods and Services to be Supplied to the University
Bylaw 5.1 sets forth the authority of The Regents with respect to the purchase of materials, goods, and services. Standing Order 100.4(dd) specifies the authority of the President of the University in connection with the execution of various contracts and documents.
Subject to Regents' Bylaw 5.1 and Standing Order 100.4(dd), you are delegated authority to execute purchase contracts, subcontracts, and standard purchase orders for goods and services, provided that:
purchase contracts, subcontracts, or standard purchase orders are issued in accordance with University policy, with procedures specified in Business and Finance Bulletin BUS-43, and with the Policy on Affirmative Action in University Business Activities;
2. funds are available;
--if required, approval of the contracting agency is secured;
--products covered by pool purchase orders and commodity agreements under the University's Planned Purchasing Program are purchased from the contract source, unless there are substantial differences in specifications or unusual delivery requirements, or unless requirements governing major DOE Laboratory operations preclude the use of the contract source; exceptions, other than for these circumstances, shall be approved by the Commodity Manager with the concurrence of the University Materiel Coordinator;
--items designated by the Senior Vice President--Administration as sensitive are forwarded to that office for review prior to execution; and prior approval shall be obtained from the Treasurer of The Regents for any acquisition or lease/purchase which contemplates or will result in the issuance of Certificates of Participation, in order to provide funding for the transaction.
A periodic review by your office of high-value purchases shall be a part of this delegation of authority; a semi-annual report of purchases in excess of $500,000 shall be provided to the Senior Vice President--Administration on January 20 and July 20 of each year.
The above authority may be redelegated to the administrative officers responsible for purchase of all goods and services, and books and periodicals. Such officers may further redelegate this authority to the University Librarian for the purchase of books and periodicals and to the Materiel Manager for all other goods
and services. Redelegation of this authority shall be in writing, with copies to the Senior Vice President--Administration, the General Counsel of The Regents, and the Director--Coordination and Review. Any redelegation of these authorities to other than the University Librarian or Materiel Manager shall have the prior approval of the Senior Vice President--Administration.
The Senior Vice President--Administration is responsible for administration of the University Materiel Management program in accordance with University policy and the provisions concerning this subject set forth in the Bylaws and Standing Orders of The Regents.
Approval as to form must be obtained from the General Counsel for any purchase contract other than that made on the standard purchase order form or for any change in the standard terms and conditions. The Senior Vice President--Administration shall approve any change in the content of the standard purchase order form, purchase requisition, and request for quotation.
This delegation supersedes the October 11, 1978 delegation to Chancellors and Laboratory Directors on the same subject and is effective immediately. This delegation is in addition to the Delegation of Authority--Execution of Agreements.
This letter does not cover the University of California
Independent Consultant Agreements; for information on those agreements, please see Business and Finance Bulletin BUS-34.
Members, President's Cabinet
Associate Vice President Pastrone
Principal Officers of The Regents