Administrative Services

Approval Date: 01/29/96
Approved By: President's Staff

Policy on Residual Balance From a Fixed-Fee Contract

The Office of Sponsored Projects is responsible for the administration of awards and grants and fixed-fee contracts for Western Illinois University. The difference between an award/grant and a fixed-fee contract is as follows:

An Award (grant) is defined by the Single Audit Act (OMB Circular A-133) as "financial assistance, and federal cost-type contracts used to buy services or goods for the use of the federal government. It includes awards received directly from the federal agencies or indirectly through recipients. It does not include procurement contracts to vendors under grants or contracts, used to buy goods and services. Audits of such vendors shall be covered by the terms and conditions of the contract" (emphasis added).

A Fixed-fee contract is a contract for the purchase of goods and services for a set amount of money, regardless of costs incurred by the recipient. Fixed-fee contracts are handled differently from normal contracts because they are usually generated from federal, state and local entities, or foundations and corporations. The contractor's original source of funds is often from a federal or state entity.

The primary distinction is that with an award or grant, the contractor has input into the project activities, budgets, line item restrictions, and end results (or reports) are required. Usually, with an award/grant, the primary emphasis is on some type of research or project and not the procurement of goods or services. With a fixed-fee contract, the contractor is acquiring a service or a product. The contractor's only involvement is approving and paying for the final product. The recipient's costs to provide those goods or services are irrelevant to the contractor.

Another distinction is that with an award/grant, unexpended funds must be returned to the granting agency; whereas, with a fixed-fee contract, unexpended funds are not returned. Completion is based upon delivery of a product, not expenditure of funds.

Residual balances remaining from the completion of a fixed-fee contract become local funds and are subject to the Legislative Audit Commission Guidelines concerning excess funds. All local funds maintained by the University must reside within a specified accounting entity. Funds within an entity are restricted to the purpose of that entity, i.e. funds placed in a public service account (the Public Service Entity) are restricted to activities that would be considered public service. Other types of expenditures would not be allowed. Therefore, the indirect cost entity is the best entity for placement of residual funds from fixed-fee contracts.

Residual funds should be distributed according to the following formula for fixed-fee contracts:

  1. The maximum indirect costs allowed by the contract budget should be calculated and funds distributed according to the WIU ICR formula. If the contract does not mention reimbursement for indirect costs, then an indirect cost rate of 8% should be applied to the project. If, due to the contract negotiation process, the indirect cost rate is less than 8%, then the difference between the negotiated rate and the 8% minimum indirect cost rate should be recovered.
  2. Funds remaining, after the ICR distribution as stated in 1. above, should be transferred to the Dean's indirect cost account where the project originated. If the project is outside of academic affairs, the transfer should be made to an indirect cost account under the control of the respective Vice President. Transfer to an indirect cost account is necessary to close out the restricted account, as funds are no longer considered restricted.