[Occasionally, we like to revisit posts from days gone by that either (1) are always relevant, or (2) are the subject of recent questions received by our office. Today, we'll again compare the two types of subagreements.]
Originally Published November 15, 2011
You know what a fixed price subagreement is, right? It’s an agreement in which the statement of work (SOW) contains specific performance milestones and deliverable based payment schedule. The deliverables listed in the SOW should directly correlate to the payment schedule. In other words, how much will be paid when for what.
The exact deliverables listed in the statement of work are the same as those listed on the payment schedule. Still with me?
We like fixed price agreements for lots of reasons. First, the subrecipient assumes the risk. That means that if the subrecipient goes over budget, we are not obligated to make additional payments. Second, because the deliverable is tied to the payment, if they don’t produce, you don’t pay. Third, there is less administrative burden during the project since you don’t need to confirm that costs are reasonable or review financial reports.
So I assume you also know what a cost reimbursable agreement is, correct? Cost reimbursement provide payment for allowable incurred costs, to the extent written in the subagreement. These agreements estimate (I repeat, estimate) the total cost of the subagreement for the work to be performed in the statement of work and evidenced by and in accordance with the included budget.
Cost reimbursement subagreements should be used when you have a less defined statement of work and few or no clearly identified deliverables. Got it?
Should the subrecipient need more than the estimated total, a request is sent and modification done to include additional costs. Our favorite CR subagreements are those that obligate money and establish a ceiling that the subrecipient may not exceed without the prior approval of ORA. If a modification to add funds is not executed by both parties, then the work is being performed at the subrecipient’s own risk (insert creepy laugh). Make sure you check the expenses every invoice to be sure they are reasonable for the amount of work that’s been done so far.
So, there you have it. That’s the skinny on Fixed Price vs. Cost Reimbursable subagreements.