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Principles of Federal R&D Contracting June 14, 2005 1 General Principles of Contracting 2 An overview from 30,000 feet What is a contract? An Agreement between two or more persons or entities which creates a legal obligation to do or not to do a particular thing Statute of Frauds 3

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an overview from 30 000 feet
An overview from 30,000 feet
  • What is a contract?
    • An Agreement between two or more persons or entities which creates a legal obligation to do or

not to do a particular thing

  • Statute of Frauds


an overview continued
An overview continued…
  • Essentials of a contract
    • Competent parties
    • Subject matter
    • Legal consideration-a peppercorn?
    • Mutuality of agreement--meeting of the minds
    • Mutuality of obligation--both parties are bound


an overview continued5
An overview continued…
  • The Federal Grant and Co-operative Agreement Act
    • A copy of the statute is included in the supplemental materials
    • Defines the primary determinants for the various types of agreement.
    • Makes selection of the type of agreement uniform among federal agencies


an overview continued6
An overview continued…
  • The Federal Grant and Co-operative Agreement Act continued
    • A procurement Contract is to be used when the purpose is to acquire property or service for the direct benefit or use of the government.


an overview continued7
An overview continued…
  • The Federal Grant and Co-operative Agreement Act continued
    • A grant is used when the purpose is to support or stimulate the carrying out of a public purpose and is not to acquire property or service for the direct benefit or use of the government


an overview continued8
An overview continued…
  • So is there a difference between a contract and a grant?
    • Both are legally contracts—you could actually call the document a wambat or any other title and if it met the definition of a contract, it’s a contract


an overview continued9
An overview continued…
  • However, within the federal scheme a contract is very different from a grant
    • More difficult to administer
    • Less flexible
    • More defined rules
  • The University becomes a seller of a product.


an overview continued10
An overview continued…
  • Is it appropriate for a university to become a seller of a product?
    • It depends….Is it consistent with the University’s mission and structure?


an overview continued11
An overview continued…
  • The Board of Regents adopted a mission for the University of Wisconsin which includes:

“The mission of the [University] is … to discover and disseminate knowledge, to extend knowledge and its application beyond the boundaries of its campuses. Basic to every purpose of the System is the search for truth.”


an overview continued12
An overview continued…
  • Stated more simply, the mission of

a university is to create and transmit knowledge


an overview continued13
An overview continued…
  • Structure of a university
    • It’s been described as a diverse group of individuals united only by a common complaint over central heating and parking.


an overview continued14
An overview continued…
  • Structure of a university continued
    • A kinder and more accurate description is that a university is an “association of individual scholars and supporting staff who are dedicated to the creation, integration, transfer and application of knowledge.”


an overview continued15
An overview continued…
  • Some contracts—those which involve basic research to allow the development of the product that is the subject of the agreement may be consistent with the mission


an overview continued16
An overview continued…
  • Is a contract which simply produces a product for the government consistent with the university mission?
  • Is a contract which prohibits publication of the results consistent?


an overview continued17
An overview continued…
  • Is a contract which requires a very specific product, produced on-time and on-spec consistent with the structure of the University?


an overview continued18
An overview continued…
  • Tax consequences of activity outside the mission
    • Unrelated business income
    • Tax exempt facilities
    • Loss of non-profit status



Buyer: the purchaser of goods or services

Seller: the provider of goods or services


shifting roles
Shifting Roles


Prime Contractor


Second Tier Sub Second Tier Sub


  • The contract establishes a partnership
    • a relationship between the Buyer and the Seller(s) in which each has specific rights and responsibilities.


buyer rights responsibilities
Buyer Rights/Responsibilities
  • To represent the interests of its stakeholders
  • To prepare the Scope of Work
  • To issue the contract
  • To monitor the progress of the work
  • To accept or reject the goods or services


seller rights responsibilities
Seller Rights/Responsibilities
  • To represent the interests of its stakeholders
  • To prepare a proposal within the SOW
  • To negotiate the contract
  • To implement the project according to the contract
  • To provide the promised goods or services


the simplified process
The Simplified Process
  • Request
  • Offer
  • Acceptance
  • Performance
  • Exchange


types of contracts far part 16
Types of Contracts (FAR part 16)
  • Fixed-Price (16.2)
  • Cost-Reimbursement (16.3)
  • Indefinite Delivery Order (16.5)

Competition is good, more is better


sealed bidding far part 14
Sealed Bidding (FAR part 14)
  • Only fixed price
  • Very specific and defined item
  • Based on price, not negotiation


commercial items far part 12
Commercial Items (FAR part 12)
  • Streamlined Procedures
  • Warranties
  • Off the shelf and easy to procure
  • Purchase order


contracting by negotiation
Contracting by Negotiation

(FAR part 15)

  • Lowest price, best value
  • Objective criteria
  • Source selection
  • Negotiation expected but not required


other than full open competition
Other than Full & Open Competition

(FAR PART 6.3)

  • Sole Source
    • One (or few) responsible sources
    • Unusual circumstances
    • Research Capability
    • International Agreement
    • Statue
    • National Security
    • Public Interest

** All Need to be justified **


procurement mechanisms
Procurement Mechanisms

(FAR Part 13.3)

  • Purchase Order
  • Credit Card
  • Unpriced Purchase order
  • Blanket Purchase order
  • Contracts (FAR 34-39)


types of acquisitions
Types of Acquisitions
  • Major Systems (FAR 34)
  • Research and Development (FAR 35)
  • Architecture and Engineering (FAR 36)
  • Services (FAR 37)
  • Information Technology (FAR 39)


basic ordering agreements
Basic Ordering Agreements
  • Discussed at FAR 16.703
  • Not a contract - no fiscal commitment
  • Terms and clauses applying to future orders between the parties during the term of the BOA


ordering agreements cont
Ordering Agreements Cont.

Terms and Causes (continued):

  • A description of supplies or services to be provided;
  • Methods for pricing, issuing and delivering future orders under BOA


time materials labor hour
Time & Materials/Labor Hour
  • Discussed at FAR 16.6
  • Reimbursement of hours worked, not costs incurred
  • Fixed hourly rate that incorporates salary, fringe benefits, F&A, and fee
  • Rates invoiced must match proposed rates
  • CAS Disclosure Issues


other transaction agreement
Other Transaction Agreement
  • DoD Authority: 10 US Code 2371
  • Often used with consortia
  • Payments usually based upon achieving milestones
  • Neither assistance nor procurement
  • All terms negotiated for each OTA – Bayh-Dole does NOT apply


teaming agreement
Teaming Agreement
  • Often used for collaborations with industry:
    • Preparation of a collaborative proposal
    • Establishing a consortium under an OTA


teaming agreement continued
Teaming Agreement continued
  • Addresses common issues:
    • Membership in the collaboration
    • Intellectual Property sharing
    • Proprietary Information
    • Reporting
    • Payment


non disclosure agreement
Non-Disclosure Agreement
  • Addresses the confidentiality of information shared between parties
  • Potential Problems:
    • Often signed directly by PI, without knowledge of the institution
    • Excessive time requirements


material transfer agreement
Material Transfer Agreement
  • Governs the transfer of biological or other materials between parties.
  • Usually addresses confidentiality and intellectual property rights
  • May also include payment for the cost of providing the material


memorandum of understanding
Memorandum of Understanding
  • Establishing an “understanding” between parties
  • Often used to establish the terms of an informal collaboration
  • May be legally binding, even if that is not the intent…


competitive cycle
Competitive Cycle
  • Solicitation
  • Pre-Bid Conference
  • Proposal
  • Transmittal
  • Proposal Review
  • Verification/Discussion/Negotiation
  • Best and Final Offer
  • Offer/Acceptance


competitive cycle continued
Competitive Cycle continued
  • Bridging
  • Modifications
  • Closeout or contract extension


pre proposal activity
Pre-Proposal Activity
  • Identify your customers
  • Prepare a market assessment
  • Evaluate strengths and weaknesses
  • Review the RFP
  • Assess your past performance/current resources


pre proposal continued
Pre-Proposal continued
  • Weigh the risks and opportunities.
  • Attend the pre-bid conference.

Make the bid/no bid decision.


  • Technical Expertise
  • Price
  • Management Plan
  • Implementation Schedule
  • Past Performance
  • Reputation


types of proposals
Types of Proposals
  • Unsolicited
  • Informal/casual
  • Formal/very defined


unsolicited proposal
Unsolicited Proposal
  • Innovative and unique
  • Independently originated
  • No direct government involvement


informal proposal
Informal Proposal
  • Letter or Oral Proposals
  • Statement of Work and Deliverables
  • Budget
  • Some terms and conditions
  • Specific and unique requirements
  • Other Specifics


formal proposal
Formal Proposal

(FAR table 15.1)

  • Part I – The schedule
  • Part II – Contract clauses
  • Part III – List of documents, exhibits and other attachments
  • Part IV – Representations and Instructions
  • Amendments


steps for proposal preparation
Steps for Proposal Preparation
  • Critically and thoroughly read proposal information

-Compare with institution practices -Compare with institution mission

  • Ask Questions


steps continued
Steps continued
  • Define Rolls
    • Technical
    • Financial
  • Write an exception letter
  • A signed proposal is an offer
  • Best and Final Offers
    • After negotiations


review of proposal

Review of Proposal

From the perspective of a prime awardee and a subawardee


as a prime awardee
As a Prime Awardee
  • Make sure you know who all of your subawardees are
  • Get your subawardees involved in reviewing terms, especially IP
  • Include your subawardees’ exceptions with your exception letter


as a subawardee under a non profit
As a Subawardee, Under a Non-Profit
  • Non-profits have varying policies, and/or levels of expertise – do not assume that the flow-down terms will be acceptable
  • Try to get a copy of the RFQ/RFP in order to include your comments at time of submission


as a subawardee under a for profit
As a Subawardee, Under a For-Profit
  • For-profits have different priorities – the right to publish is usually not one of them
  • Try to get a copy of the RFP/RFQ – at least make sure that they are aware that publication and foreign national restrictions will be a problem


subawardee continued
Subawardee Continued
  • Flow-downs from large for-profits are often re-written and become boilerplate


what is intellectual property
What is Intellectual Property
  • Generic term
  • Better to think about the issues in terms of those types of IP that are afforded specific legal protection


intellectual property cont
Intellectual Property cont.
  • Those types that are of primary importance to universities
    • Patents
    • Copyright
    • Trademark


a brief nod at copyright
A Brief Nod at Copyright
  • Copyright protects the tangible embodiment of the IP, it does not protect the underlying idea or concept


a brief nod continued
A Brief Nod continued
  • Original owner of the copyright is the author
    • The person(s) who showed at least minimal originality and creative and fixed the work in a tangible form


a brief nod continued67
A Brief Nod continued
  • Original owner of the copyright is the author continued
    • The employer of the person if the work is a work for hire; “a work prepared by an employee within the scope of employment.”


a brief nod continued68
A Brief Nod continued
  • As a general rule, a university and its researchers are comfortable giving a sponsor a non-exclusive and perhaps even a royalty free license to copyrightable research products.
  • Exception to the rule: computer software which may be patentable and copyrightable.


a brief nod continued69
A Brief Nod continued
  • Federal contract may assert some right to copyrightable materials produced during the work.
    • Data Banks
    • Technical Data
    • Computer Software
    • Reports


patents are a different story
Patents are a different story
  • A patent is the legal protection afforded an invention or discovery.
    • “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or…useful improvement thereof, may obtain a patent….” 35 USC 101


patents continued
Patents continued
  • It is expensive and time consuming to obtain a patent


the bayh dole act
The Bayh-Dole Act
  • 1980 federal law which provides the basis for University ownership of federally funded inventions.
  • Statutory cite: 35 U.S.C. §§200 -212
  • Regulatory cite:37 CFR Part 401 et seq
    • A copy is included in your supplemental handouts


relevant provisions of bayh dole
Relevant Provisions of Bayh-Dole
  • Establishes a uniform patent policy for federally sponsored inventions.
  • Encourages universities to promote the utilization of inventions arising from federal funding.


bayh dole continued
Bayh-Dole continued
  • Universities may elect to retain title to inventions developed through government funding.
  • Universities must file patents on inventions they elect to own


bayh dole continued75
Bayh-Dole continued
  • Disclosure to the government within a reasonable time
  • Written election of title within two years of disclosure


bayh dole continued76
Bayh-Dole continued
  • If title is elected, agreement to file a patent application prior to any statutory bar
  • Preservation of government rights


bayh dole continued77
Bayh-Dole continued
  • Prohibition against assignment to a third party
  • Requirement to share royalties with the inventor


bayh dole continued78
Bayh-Dole continued
  • Requirement that balance of royalties, after expenses, be utilized for the support of scientific research or education
  • Preference for license to small business


data ownership
Data Ownership
  • Data is the coin of the realm in academe
    • Publication to support our mission
    • Critical in responding to misconduct allegations


  • Academics must have the ability to publish the results of research
  • Tenure depends on the number and quality of publications


publication continued
Publication continued
  • If we give up the right to publish, are we being true to our mission?


confidential information
Confidential Information
  • Whose information is it?
    • If sponsors, may be acceptable to agree to keep it confidential
    • If created during research, conflict with mission?
    • Classified research


specific issues

Specific Issues

Contract Administration


  • Establishes the grounds under which the parties may prematurely end the contract
  • Government contracts are rarely mutual
  • Basic types of termination:
    • Convenience
    • Default


  • Provides the sponsor the right to inspect the work on-site
  • May also impose quality control standards


  • The terms under which the sponsor will consider deliverables to have met the requirements of the contract
  • Beware of terms such as “acceptable”


key personnel
Key Personnel
  • Identifies those contractor personnel who are essential to conduct of the project, and who may not be changed with sponsor approval
  • To ensure as much flexibility as possible, keep this list small


  • Establishes the manner in which payments by the sponsor will be made
  • Ideally, payments should be based on expenditures (cost-reimbursement)


payment continued
Payment continued
  • Less ideal are payments based upon milestones or specific deliverables
  • Beware of phrases such as “payment upon successful completion”


stop work order
Stop-Work Order
  • Establishes the conditions under which the sponsor can temporarily halt all or part of the effort
  • Usually includes time limits and financial recourse for the contractor, due to costs incurred
  • If you receive one, make sure to re-issue the order to all subcontractors


sensitive but unclassified
Sensitive but Unclassified
  • Basis for the most commonly seen publication restriction 252-204-7000
  • Determination is at discretion of the government


flow down
  • Clauses that:
    • Must be flowed-down as written
    • Must have their substance flowed-down
    • Flow-down by operation of law or long-standing federal policy (Christian Doctrine)


flowdown continued
Flowdown continued
  • Are necessary in order for the prime to meet its obligations
  • The prime chooses to flow-down based on circumstances


review of award
Review of Award
  • Formal Proposal
    • Statement of work and deliverables updated
    • Budget latest version
    • Dates and Milestones
    • Correct contact points
    • Changes from exception letter


informal proposal96
Informal Proposal
  • Review as if starting from beginning
  • Check statement of work and budget
  • Reviews all clauses and alternates
  • Negotiate as appropriate
  • Keep PI informed
  • No such thing as “almost”


be sure before signing
Be sure before signing….
  • Expectation of performance
  • Amendment is only method for change


the starting point
The Starting Point
  • The exceptions letter documents your concerns with the proposed terms and conditions of the contract.
  • Respond to the RFP
  • Be specific
  • Offer alternatives


negotiation objectives
Negotiation Objectives
  • To achieve a framework for the work
  • To arrive at an agreement
  • To set a positive tone
  • To be consistent with institutional policies/procedures


negotiation questions
Negotiation Questions
  • Contractor or subcontractor?
  • History?
  • Program, contract, or legal staff?
  • Method of communication?
  • Stakeholder participation?
  • Key issues?
  • Cultural differences?


negotiation roles
Negotiation Roles
  • Sponsored Project Administrator= Contract Officer
  • Principal Investigator=Program Officer


roles continued
Roles Continued
  • Others: Sponsored Project Accounting, Legal, Technology Transfer, Risk Management, Chair, Dean, Faculty


negotiation perspective
Negotiation Perspective
  • You represent your institution, first
  • You represent your Principal Investigator, second
  • Do not allow yourself to get co-opted


negotiation knowledge
Negotiation Knowledge
  • Institutional Policies, Procedures, Practices
  • Sponsor Regulations, Policies, Procedures, Practices
  • What is negotiable . . . what isn’t?
  • What precedents have already been set?


negotiation strategy
Negotiation Strategy
  • Review the agreement in detail
  • Identify the problems
  • Prioritize the problems
  • Prepare a follow-up exceptions letter
  • Explain the problems to those that

need to know


negotiation strategy cont
Negotiation Strategy cont.
  • Identify your key counterpart
  • Find out how much “negotiation” has taken place
  • Learn what the PI wants
  • Study the scope of work


negotiation planning
Negotiation Planning
  • Understand the context
  • Learn about your counterpart’s concerns
  • Identify and prioritize your objectives
  • Examine alternatives and options


planning continued
Planning Continued
  • Select a strategy, tactics, and counter-tactics
  • Assign roles and responsibilities
  • Practice!


negotiation making the deal
Negotiation – Making the Deal
  • Determine who has authority
  • Set agenda and tone
  • Establish a timeline
  • Ask questions and wait for answers
  • Focus on objectives
  • Stick to your strategy


making the deal continued
Making the Deal continued
  • Keep the PI informed
  • If necessary, escalate!
  • Be prepared to counter offer
  • Be prepared to walk away
  • Get everything in writing


negotiation reminders
Negotiation Reminders
  • Explain who you are
  • Be friendly, but formal
  • Be forthright and honest
  • Work to develop trust
  • Be patient and persevere
  • Use telephone and email carefully


reminders continued
Reminders Continued
  • Do not rush or be rushed into decisions
  • Don’t ever stop negotiating


negotiating subawards
Negotiating Subawards
  • Approval of funding agency
  • Contact subaward organization
  • Start with your template
    • Include and attach prime award
  • “Substitute name” or “Appropriate sections”
    • Specify sections for emphasis
    • Specify sections not appropriate
    • Flow down appropriate clauses /alternates


negotiating continued
Negotiating continued
  • Flow-down appropriate clauses/ alternates
  • Define deliverables and milestones
    • Flow-down dates prior to prime requirements


timing of negotiation
Timing of Negotiation
  • Contact prior to prime negotiation
  • Style and workload
    • Entire agreement or piece-by piece
  • Review and amend as necessary
  • Chronology


managing the transition
Managing the Transition
  • Review the final draft and negotiation minutes
  • Conform the contract
  • Obtain final reviews, approvals, and signatures


managing the transition cont
Managing the Transition cont.
  • Distribute copies of the signed contract, with notes
  • Review the RFP, proposal, and contract, again
  • Brief the PI before setting up an account
  • Prepare a contract administration plan


managing the project
Managing the Project
  • Develop a plan to manage risk
  • Establish milestones
  • Schedule reporting
  • Establish approval protocols
  • Develop an evaluation plan and schedule
  • Monitor implementation


managing the relationship
Managing the Relationship
  • Understand the sponsor’s needs
  • Set realistic objectives
  • Communicate regularly
  • Disclose problems
  • Document decisions and actions


managing continued
Managing Continued
  • Be flexible and willing to compromise
  • Honor commitments
  • Share success



“One of the biggest challenges in creating and maintaining a successful long-term business partnership is building trust. Trust is like quality; it is difficult to accurately describe, but you know it when it’s there.”

-Gregory A. Garrett, World Class Contracting