Office of Sponsored Programs
The Ohio State University

Subcontracting

Pre-Award

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.

Vendor/Subrecipient Distinction

Subrecipients may have some or all of 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.

Vendors have the following characteristics:

  • 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.

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 Making the Proper Determination
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 (Not Grants)
In order to establish a subrecipient relationship under federal contracts, 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, must be included as a single line item. This total becomes part of the direct costs. A description of what is included in the total, at the same level of detail as the budget, should be provided, as few sponsors or auditors will accept a simple quote without supporting information on how the figure was derived.

Typically, the budget breakdown submitted by a potential subcontractor should be signed by an official of the subcontracting institution to indicate that all institutional requirements have been satisfied. If funds for an Ohio State investigator are included in another organization’s funding proposal (the Office of Sponsored Programs would be the subcontractor), the Ohio State investigator’s budget, work plan, and “Authorization to Seek Off Campus Funding” form must be approved as usual by the appropriate Ohio State department and college, then processed through the Office of Sponsored Programs. A Office of Sponsored Programs sponsored program officer can provide an official letter of collaboration and obtain required signatures.

Application of Facilities & Administrative (F&A) Costs
If the subcontractor is a vendor and the project is recovering the full negotiated F&A rate, that rate is applied to the first $25,000 of the total subcontract amount. No F&A costs are charged on the remaining amount.

If the project will recover less than the full F&A rate, F&A costs are applied to the entire subcontract amount.

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.

Post-award

When it is determined that an outside organization or institution is requested to perform part of the research effort under a grant or contract, the principal investigator must prepare a Statement of Work and attach it to a Request for Subcontract form (PR-033) and send it to his or her assigned sponsored program officer. The sponsored program officer will assist in preparation of any requests for proposals and prepare the subcontract in accordance with the Office of Sponsored Program’s subcontracting policies and procedures. Subcontracts are always awarded to an organization or institution, not to an individual. If a portion of the work is being done by an individual not affiliated with another organization and is not an Ohio State employee, that individual must be paid as a consultant.

Principal investigators are not authorized to obligate the Office of Sponsored Programs or the university contractually and should not sign any contracts or agreements. All 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. 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 and subcontract by the Office of Sponsored Programs.

Subcontracting falls under general contract law and requires that both parties mutually agree to the terms and conditions of a contract before performance begins. Therefore, it is necessary to obtain the subcontractor’s written offer or bid with terms and conditions acceptable to the Office of Sponsored Programs before a purchase order is issued. The signed offer or bid, the purchase order, and subcontract agreement become the necessary contractual agreements for purchase of a subcontractor’s services.

Internal schedules for the establishment of a subcontract should include sufficient lead time for the procurement process, including preparation of the bid solicitation and sufficient time for response, bid evaluation, negotiations, final award, and performance of the subcontracted effort.

Principal Investigator Responsibilities in the Subcontracting Process

The principal investigator is responsible for preparing and sending the Request for Subcontract form (PR-033) to Procurement along with the documents requested on the form.

To request a change in a subcontract, principal investigators must submit a new Request for Subcontract form to their sponsored program officer requesting an amendment to the subcontract. The sponsored program officer will prepare the amendment and obtain all necessary approvals and authorized signatures of both parties to the subcontract. The sponsored program officer will then forward the Request for Subcontract and the amendment to Procurement. Competitive bidding requirements based on the aggregate total of the subcontract, if applicable, must also be met. Purchasing will then issue a change order in accordance with the approved amendment.

Additional Information Relating to Subcontracts

Amendments or Modifications to Subcontracts
To request a change in a subcontract, the principal investigator must submit a new Request for Subcontract form (PR-033) to the sponsored program officer asking for an amendment to the subcontract. The sponsored program officer will prepare the amendment and obtain all necessary approvals and signatures. The sponsored program officer will then forward the “Request for Subcontract” and the amendment to Procurement. Competitive bidding requirements based on the aggregate total of the subcontract, if applicable, must also be met. Procurement will then issue a change order in accordance with the approved amendment.

Documentation of Price Competition and Sole Source Justification
In a vendor relationship, if the proposed subcontractor is providing services where the total amount of the subcontract exceeds $25,000, the principal investigator is responsible for obtaining evidence of price competition through a request for quotation (RFQ) or a sole source justification. The investigator should contact Procurement for assistance with obtaining proof of price competition or completing the sole source justification form. If competitive bidding is required, the principal investigator should allow three to four weeks for completion of this process.

Monitoring and Follow-up by Principal Investigator
The principal investigator is responsible for closely monitoring the work of the subcontract to be certain that it is being performed in accordance with the subcontract’s requirements. These requirements include but are not limited to the time period of performance, method of delivery or performance, quality assurance standards, property, and property reporting requirements.

The principal investigator is also responsible for making certain that the work is completed within the period specified in the contract and for authorizing payment of the subcontractor’s invoices based on satisfactory performance of the effort. The principal investigator should not authorize payment if the work is not satisfactory.

The investigator should notify the sponsored program officer if there is any potential delay or breach in the terms and conditions of the subcontract.