Difficult Subcontractors: Ya Got to Love ‘ Em !

1. Difficult Subcontractors: Ya Got to Love ‘Em! Kevin S. Stewart, CRA Industry Contracts Officer University of California, Santa Barbara Debra Brodlie, JD Senior Contracts Associate Johns Hopkins University Bloomberg School of Public Health

2. Topics to be covered • Issues specific to type of subcontractor • For-profit entities • Foreign entities • Other Universities • Case Studies • Universal Difficulties, Navigational Tips& Final Thoughts

3. Subcontracts to For-Profit Entities • Challenges: • Proposal Stage: • Need for an RFP or RFQ by For-Profit • Obtaining cost detail in subcontractor’s proposal • Inclusion of Applicable Terms & Conditions for any resulting award • Inclusion of Export-Controlled Information! • Entity’s responses to Subrecipient Commitment Form (if applicable)

4. Subcontracts to For-Profit Entities • Challenges (cont’d) • Award Stage and Beyond: • Negotiating the agreement terms with the subcontractor • Citing the proper flowdown terms from prime agreement to apply to for-profit subcontractor • Navigating the university-to-industry landscape • (If applicable) Ensuring proper controls are in place for export control compliance • (If applicable) Verifying subcontractor’s ability to work under Federal costing principles • Ability to audit & review subcontractor’s costs & records

5. Subcontracts to Foreign Entities • Challenges • General Considerations: • Can you work with the entity at all? • Denied Party Screenings (entity, project personnel & bank) • (If Federal) DUNS number for FFATA reporting, record retention, FCOI compliance (NIH), etc…! • How much experience does the foreign Subrecipient have with contract research? • Does the foreign Subrecipient have the infrastructure necessary to document payroll, purchases, overhead costs? • Are there tax restrictions associated with working with that entity? • Do you have someone “on the inside” who knows the unique rules, restrictions, and challenges of that country? • U.S. Governing law is ideal!

6. Subcontracts to Foreign Entities • Challenges (cont’d) • You should always seek explicit approval from Sponsor before issuing a foreign sub. Do not assume it is acceptable just because it was proposed and not expressly disallowed. • In addition to your sponsor’s approval, you may need the approval of the foreign government before performing work. • Some countries have complex legal authorities with overlapping jurisdictions. • How will the language barrier issues be resolved for programmatic and administrative oversight? Have you budgeted for translators?

7. Subcontracts to Foreign Entities • Challenges (cont’d) • Financial Considerations: • How stable is the Subrecipient’s currency? Some countries (e.g., Zimbabwe) have experienced bizarre currency fluctuations in recent years, so a proposal budget prepared now may be completely inadequate six months from now. • **Always request budget in U.S. dollars** • Link your final $ amount to exchange rate specific date. • How do you intend to verify the Subrecipient’s expenditures? Consider audit and Subrecipient monitoring responsibilities. • **When in doubt, propose a Firm Fixed Price Subagreement** • Keep in mind that increase in $$ must accompany increase in scope of work! • Avoid asking a foreign subrecipient to cost-share. • If the sponsor requires cost-sharing, you are better off shouldering it all yourself.

8. Subcontracts to Other Universities • Challenges • Obtaining an institutionally-endorsed proposal submission from the institution (vs. the Rogue PI submission!) • Negotiation of subcontract terms • Navigation of different institutional practices, sensitivities • Public to private, private to public • Insurance and indemnity • Inclusion of prime contract as part of subcontract • Different policies on use of FDP templates • FCOI Issues

9. Case Studies: Difficult Subcontractors The wounds have healed, but the scars remain…

10. Case Study #1 • Study #1 “If you don’t give us what we’re asking, we’re taking you to court! You are breaking the law!” The for-profit small business subcontractor who demanded a SBIR Program data rights clause in a non-SBIR Program subcontract – and got it!

11. Case Study #1 • Facts: • Department of Defense Agency Prime Contract • Subcontractor was a small business who had performed under previous Small Business Innovation Research (SBIR) Program contracts • Subcontract included flowdown of DFARS Clause 252.227-7013 (Rights in Technical Data--Noncommercial Items) • Subcontractor requested removal and replacement with DFARS Clause 252.227-7018 (Rights in Noncommercial Technical Data and Computer Software--Small Business Innovation Research (SBIR) Program)

12. Case Study #1 • Technical Data that subcontractor was to provide under subcontract included components previously provided under a SBIR Program contract, to which Gov’t only had SBIR Data Rights • Subcontractor further contended that work under subcontract constituted a SBIR Phase III effort, and therefore SBIR Data Rights would attach to all technical data delivered under effort. • DFARS Clause 252.227-7013 only allows for limitations on Gov’t use of data on basis of development from private expense (limited rights) and mixed funding (Government purpose rights)

13. Case Study #1 • Gov’t approval had to be obtained to allow for SBIR Data Rights clause inclusion, as well as for inclusion of data rights assertions. • Prime Contract had to be amended to include DFARS Clause 252.227-7018 (Rights in Noncommercial Technical Data and Computer Software--Small Business Innovation Research (SBIR) Program) • Data Rights Assertions were incorporated as an Appendix • Subcontract was modified accordingly

14. Case Study #2 • Study #2 “You want our final invoice now? Sorry, we’ll need at least two years after the end of the subcontract term to submit our final invoice.” The large business subcontractor who asserted their rights under FAR Part 42 to submit their finalized billing only after they’d had their DCAA audits completed and indirect rates settled for all the years of the subcontract term.

15. Case Study #2 • Facts: • Subcontractor had contractually agreed to submit final invoice within 60 days of end date • At the end of subcontract term, subcontract (after being requested to submit their final invoice), asserted that they would not be able to submit until their final indirect rates had been audited and approved by DCAA • Estimated completion date: 2-3 years after end date of subcontract

16. Case Study #2 • Deliberation ensued as to whether to hold subcontractor to what they’d agreed to in the subcontract. • Ultimately engaged Federal agency to verify that if we honored subcontractor’s request to wait to submit final invoice, agency would pay. • Agency confirmed, and subcontractor was allowed to wait until their final DCAA audit was completed to submit final updated billing; account was left open at institution.

17. Case Study #3 • Study #3– Small foreign NGO understands cost-reimbursable contract to mean that it invoices based on the supplied budget, not actual costs—how to handle!

18. Case Study #4 • Study #4—Small foreign institution needs monies up front under HHS grant—otherwise work cannot proceed—how to handle? Strategies? PI anxious and upset.

19. Universal Difficulties • When the risk assessment of the subcontractor yields that more stringent/restrictive T&Cs need to be placed on subcontractor than are in the prime award • When the PI/other researchers get involved and are counterproductive to subcontract negotiations • When the PI/other researchers are embroiled in a dispute with the subcontractor • When the subcontractor is not abiding by the terms of the subcontract!

20. Tips – For-profit Entities • Get to know the departmental administrators that deal in for-profit subs well -- ensuring they’re aware of the unique issues is extremely helpful! • Particularly when it comes to soliciting proposals! • Recognize that issues with small businesses may be very different with those with large businesses • (If applicable) Make sure your subcontractor doesn’t have any limited data rights assertions!

21. Tips – Foreign Institutions • Send a cheat sheet with a contract, so foreign institutions can better understand what they are signing. • (If applicable) Encourage administering departments to obtain foreign recipient questionnaire during proposal process so we know exactly what we are dealing with and can structure contract correctly.

22. Tips – For All Subcontractors • Listen/understand each institution’s internal policies -- but understand that Federal/State law does control many/most terms and conditions. • Keep your PIs/researchers and departmental administrators informed – get them on your side! • Try to find commonalities and build out from there… each side will have to give something

23. Final Thoughts • Prime Awardee & Subawardees: we’re in a partnership to meet the requirements of our prime award… we’re in this together! • Any questions??? • If you would like to discuss anything covered today further or receive additional information from either of us: • Debra Brodlie, JD: dbrodlie@jhpsh.edu • Kevin Stewart, CRA: stewart@tia.ucsb.edu THANK YOU!