Financially Closing Out Fixed Price Agreements

Purpose: To describe the disposition of residual balances currently on fixed price agreements, fee for service agreements or any other related fixed fee agreements.

Source: Policy Statement dated May 1990 and University Policy

Background: Fixed price agreements are generally discouraged because of risk involved.  A fixed price contract requires that NAU perform work to the sponsor's specifications regardless of the actual cost of doing the work.  Therefore, the university must budget carefully to ensure that actual cost and the price paid by the sponsor will match.

All costs for a fixed price project must be expensed directly to the project agency/org.  Facilities and administrative costs are charged at the outset of the award in the original amount budgeted.  Direct costs are identified by the project director and charged as they occur.  All project-related costs must be charged to the project agency/org.

Thus with accurate budgeting and charging costs, there should be neither a deficit nor a substantial surplus of funds at project completion.

Policy: Upon project completion, both deficit and surplus balances on fixed price agreements must be transferred to a non-sponsored account.  Note for cost reimbursement type of funding the residual funds will be returned to the sponsoring agency.

If Costs Exceed the Sponsor's Funding at Project Completion

If costs exceed the sponsor's funding at project completion, Sponsored Projects Services (SPS) will take one or more of the following steps until all project costs are covered:

  1. write a memo to the project director requesting an alternative unrestricted fund source to absorb the overrun.
  2. contact the department chair, dean, or other contact person at the college level for an unrestricted account to absorb the cost overruns

    and/or

  3. cover the cost overruns of the college, department, centers with facilities and administrative cost recovery funds.

Note: This procedure applies to cost overruns on cost reimbursement awards as well.

If the Sponsor's Funding Exceeds Costs at Project Completion

If the sponsor's funding exceeds project costs, SPS will:

  1. book facilities and administrative costs (based on project budget) that had been waived up to the federally negotiated rate, if applicable.

    and/or

  2. Residual funds on fixed price fee for services and other related fixed fee contracts in the amount of 5% of the total award, up to $5,000, can be retained by the department. Residual funds in excess of $5,000 are to be transferred to the Office of the Vice President for Research account to be used to support research and development. Only the Office of the Vice President for Research can authorize the generating department's use of the excess funds over the 5% or $5,000.  The request to use the excess funds must be made in writing and approved by the Office of the Vice President for Research.