Subcontract or Something Else

This topic comes up frequently with faculty members and principal investigators. 

With endless possibilities regarding specific project needs, it's difficult to capture all the scenarios that come up, but for the sake of trying to carve a path forward, let's jump into something common:

A faculty member is a PI on an existing sponsored research award. They have a need to outsource some portion of the project. But they aren't really sure what that looks like in terms of which type of contract, etc.

So what do you do?

You gather intel. When you start pulling together the details of the needs, something usually emerges that tells you whether or not a subcontract is needed or if you need to head in a different direction, such as with a service contract or purchase order. 

If you find yourself in such a situation, here are some statements/questions to pose to the PI:

1. Describe service or product you need for the project
2. Do you already know who will provide the service or project?
3. If this is for service and not a product, describe the work being outsourced
   • Is this work highly specialized?
   • Will the person/team doing this work determine the direction the work will go in?
     • In other words: Will the service team have an intellectual stake in the outcome?
     • Will the service/work team need a PI on their end calling the shots, setting the goals, etc.?
       If yes, then pursue a subcontract, if no, a business contract may be needed

The Office of Sponsored Projects (OSP) provides guidance for subcontracts, including the following, which says pretty much the same thing as above, just using more... contracty language:

A Subaward is an award issued under a larger sponsored projects award for specific program-related tasks. Issuance of a Subaward under a federal prime award is subject to compliance with federal law. All Subawards are subject to the terms and conditions of the prime award and the normal purchasing requirements of UT.

Subrecipients perform an intellectually significant portion of the Scope of Work under a UT research project. This should not be confused with a procurement contract used to acquire goods or services from a vendor.

In order to properly determine which type of relationship is appropriate review the Subrecipient vs. Contractor Guide or contact your OSP Pre-Award specialist.'

To find your Pre-Award Specialist, head here. 

While it is often clear when a subcontract is needed, here are four examples of why it's important to discuss the concept of what should or should not be a subcontract:

1. A faculty member requested a subcontract be drawn up so that he could conduct some work on a research problem. Upon further inquiry, it turned out there was no primary award. The faculty member assumed it would need to be a subcontract (perhaps to his own university to clarify how he was spending his time) when actually, what he needed was a new research agreement - an unfunded agreement because there was no source of funding to cover the faculty member's time.
   
   He was planning on conducting this research during his academic year (research activity is part of a faculty member's academic year) and he was collaborating with a group of researchers he had worked with before. There was nothing 'sub' about the work, and subcontracts are required to have funding tied to the deliverables of the associated statement of work.
    
2. An Assistant Professor wanted to draw up a subcontract with a non-UT group on her prime award with the National Science Foundation. But the group that was proposed to do the work was expected to provide goods and services without having an intellectual stake in the research -so this was not a subcontract, it was a service request that was processed through the university's Business Contracts Office. Interestingly, the non-UT group recommended that we process the proposed activity as a subcontract in order to conserve funding.
   
   On its face, that sounds like a nice thing to do, however, processing a fee-based service as a subcontract team with an intellectual stake in the outcome of the research was not an ethical request. FYI, the group may not have understood the ramifications of the situation. Check out the Subcontract Pitfall section below to better understand this one.
    
   • Similarly, another Professor wanted to draw up a subcontract with a foreign entity, but it looked like a service agreement. After considerable back and forth, we were able to flesh out enough detail to realize that indeed the foreign entity did have an intellectual stake in the research and we were able to move forward with a subaward.
      
3. A foreign-based university approached a UT faculty member to craft an agreement to do work on a project. The university drew up an agreement that existed on its own with no reference to (what we learned about later) the prime award the foreign-based university had received from a European research council.
   
   The problem with this is that an agreement that is connected with an already-existing other agreement must match all relevant terms and conditions - this is known as a 'flow-down' requirement. This is why it's important to ask the questions and establish the facts of the situation to determine when a subcontract is needed. Upon inquiry, the terms and conditions of the prime award, and a redacted version of that award were included in the subcontract that was drawn up for the UT faculty member. 
    
4. A foreign-based non-profit organization approached us to create a subcontract for a PI at UT to do some portion of work connected to one of their existing awards. After crafting all the documents and fleshing out the details, it suddenly became clear that the non-profit expected us to treat the associated funding as unrestricted gift funds, despite them being tied to a fully fleshed out subcontract.
   
   The non-profit ended up having to scrap the whole subcontract plan and simply gift entirely different funding to UT because the sponsor (who in this case became a donor) had a long, developed relationship with the UT PI and realized it was in their best interests to gift the funds and only request general updates without obligation toward completion of any particular tasks or objectives. 

To truly be savvy on subcontracts vs. other funding mechanisms, it's worth highlighting an important aspect about subcontracts that we all need to be aware of:

Benefits of subcontracts over service contracts and a potential motivation to choose one over the other.

• Names and departments are being left out of this on purpose to protect the guil-- errr the innocent! 
   

If a PI approaches you with a subcontract request, and upon gathering the details it looks more like a service contract, yet the PI is insistent on pursuing a subcontract, let's talk about one reason why that may be:

Many of the sponsored research projects at UT are subject to indirect costs. And often, that indirect cost is assessed at the 2024/2025 standard on-campus research rate of 59%.

• So for every dollar of research funding (that is subject to overhead), the sponsor is paying almost $0.60 on top of that to conduct the research at UT. So $1.00 of research costs $1.60 to actually do. That's all fine and dandy until you realize that $100,000 of research costs almost $160,000 to do. 
   
  • Now before you balk too much at these numbers... consider how big and expensive UT is as an overall structure, infrastructure and system. It don't pay for itself, ya'll!
    
    The overhead is assessed to keep the lights on, the water flowing, the toilets flushing, the labs sufficiently cooled off so that the equipment can keep making shiny lights, etc. <-- it's the stuff that we aren't allowed to bill directly on an itemized basis against sponsored (specific intent) research funding, so we negotiate the overhead stuff into an indirect cost rate. 
     
    • But you can imagine how expensive that would get depending on how big the research award.
      Can you also imagine why someone might want to avoid such costs that could balloon the overall budget?
       
    • Enter: Subcontracts
      In recognition of PI-directed research for subrecipients taking place outside of UT, subcontract overhead costs are capped at the first $25,000 of the total subcontract cost. (increasing to $50,000 in January 2024)
      Service contracts aren't capped at all.
      
      So a $100,000 subcontract is assessed $25,000 in overhead (indirect) costs, bringing that total to $125,000.
      That same contract as a service agreement? $158,500. And the bigger the contract, the bigger that number gets. So yeah... there could be a motivation to hang onto the subcontract designation. 
      
      But to do so is not only out of compliance with university policy, it can also get us in trouble at the federal level. We can go aaaaaall the way down that rabbit hole, but how about we summarize with just the tip of the iceberg, which (in part) gets described in the Code of Federal Regulations, § 200.331.
      
      Here's the summarized less contracty-language version:
      Funded, sponsored research agreements come with a slew of things a PI has to sign off on, or be up on, including responsibilites in research training and certification, intellectual property concerns, peer-reviewed and vetted outcomes of research and publications, human subjects concerns, etc. 
      
      These same expectations are handed to teams that are contractually obligated to maintain similar designations, responsibilites, etc. When you hand over responsibility of research to a team that is really only in it as a service provider, we could be running afoul of things we don't even know to articulate.
       
      • The federal government makes clear that universities need to carefully make the determination of which funding mechanism is appropriate, but what they don't expressly spell out within the Code of Federal Regulations description of what is a sub, what is a service contract, is that to not do so can have implications that reach into areas such as conflict of interest, integrity of research, audit findings, stewardship of funds, any and all of which can impact the university's standing and ability to secure sponsored funding, especially federal sponsored funding. While we're looking out for our PIs, OSP is looking out for the university. 
        
        So all that to say: Don't do it.
        Truly an intellectual partner? Yes to the subcontract.
        If it's a service/product partner, NO to the subcontract, yes to the service agreement.
        
        And if you find yourself stuck in a tough spot, bring it to the Research Support Office. We can work with our PIs with help from the CoLA Associate Dean of Research to either help craft a compliant subcontract with a legitimate intellectual stake, or provide recommendations for the appropriate funding mechanisms.

 

While it is often clear when a subcontract is needed, here are four examples of why it's important to discuss the concept of what should or should not be a subcontract:

1. A faculty member requested a subcontract be drawn up so that he could conduct some work on a research problem. Upon further inquiry, it turned out there was no primary award. The faculty member assumed it would need to be a subcontract (perhaps to his own university to clarify how he was spending his time) when actually, what he needed was a new research agreement - an unfunded agreement because there was no source of funding to cover the faculty member's time.
   
   He was planning on conducting this research during his academic year (research activity is part of a faculty member's academic year) and he was collaborating with a group of researchers he had worked with before. There was nothing 'sub' about the work, and subcontracts are required to have funding tied to the deliverables of the associated statement of work.
    
2. An Assistant Professor wanted to draw up a subcontract with a non-UT group on her prime award with the National Science Foundation. But the group that was proposed to do the work was expected to provide goods and services without having an intellectual stake in the research -so this was not a subcontract, it was a service request that was processed through the university's Business Contracts Office. Interestingly, the non-UT group recommended that we process the proposed activity as a subcontract in order to conserve funding.
   
   On its face, that sounds like a nice thing to do, however, processing a fee-based service as a subcontract team with an intellectual stake in the outcome of the research was not an ethical request. FYI, the group may not have understood the ramifications of the situation.
    
3. A foreign-based university approached a UT faculty member to craft an agreement to do work on a project. The university drew up an agreement that existed on its own with no reference to (what we learned about later) the prime award the foreign-based university had received from a European research council.
   
   The problem with this is that an agreement that is connected with an already-existing other agreement must match all relevant terms and conditions - this is known as a 'flow-down' requirement. This is why it's important to ask the questions and establish the facts of the situation to determine when a subcontract is needed. Upon inquiry, the terms and conditions of the prime award, and a redacted version of that award were included in the subcontract that was drawn up for the UT faculty member. 
    
4. A foreign-based non-profit organization approached us to create a subcontract for a PI at UT to do some portion of work connected to one of their existing awards. After crafting all the documents and fleshing out the details, it suddenly became clear that the non-profit expected us to treat the associated funding as unrestricted gift funds, despite them being tied to a fully fleshed out subcontract.
   
   The non-profit ended up having to scrap the whole subcontract plan and simply gift entirely different funding to UT because the sponsor (who in this case became a donor) had a long, developed relationship with the UT PI and realized it was in their best interests to gift the funds and only request general updates without obligation toward completion of any particular tasks or objectives. 

Panel 5. Add body text in this space.