What is a Federal Contract?
A federal contract is a mechanism through which the federal government can fund research and development projects, as well as service and procurement actions. Federal contracts require a high degree of oversight, frequent reporting, specific deliverables, and strict adherence to their terms and conditions, which include clauses from the Federal Acquisition Regulation (FAR). This page is mainly aimed at direct FAR contracts issued by the government to the university. However, much of this information is applicable when the university is a subcontractor to another entity that has received a FAR contract.
Federal contracts are considered by the Government to be instruments for procurement of goods and services, with Part 35 of the FAR specifically applying to the purchase of “Research and Development”. FAR 35.003 provides the following guidance as to when contracts should be used for research and development: “Contracts shall be used only when the principal purpose is the acquisition of supplies or services for the direct benefit or use of the Federal Government. Grants or cooperative agreements should be used when the principal purpose of the transaction is to stimulate or support research and development for another public purpose.”
Government agencies also have their own clauses that implement and supplement the FAR. These may appear as additional terms and conditions in the FAR contract from a particular agency. Examples include DFARS (Defense Acquisition Regulations Supplement), HHSAR (Health and Human Services Acquisition Regulation), and NFS (NASA FAR Supplement).
How can I identify a FAR Contract?
FAR contracts are normally identifiable by their reference to the Federal Acquisition Regulations. Examples of FAR Clauses include: 52.227-11 Patent Rights—Ownership by the Contractor, DFAR 252.225-7001 Buy America Act, or HHSAR 352.237-75 Key Personnel.
The cover page will often indicate that it is a “contract”, and the contract number itself can also be a clue. For Example: If the sponsor is the NIH then the Contract Number will begin with HHSN or N01.
Federal Contracts normally come in two forms: a standard contract form or an Order for Supplies or Services (a/k/a “PO”), and the cover page of the contract may also indicate that it is a federal contract.
How does a FAR Contract Differ From Grants and Cooperative Agreements?
A FAR contract differs from federal grants and cooperative agreements in many respects, the most important of which follow:
Lack of Expanded Authorities
Many federal grant policies, including NIH, NSF, and DOE, allow for expanded authorities, which refers to the operating authority provided to grantees under federal grant mechanisms that waive certain prior approval requirements. For instance, many grant policies allow for pre-award spending up to 90 days before the effective date of the contract.
Unlike federal grants, FAR contracts do not allow for expanded authorities. Not only is it ill-advised to spend before the start date of the award, a FAR contract is usually effective on the date of last signature on the contract. Therefore, Project Activations are rarely, if ever, processed to begin work before execution of a FAR contract.
Equipment
Equipment under the Grants Policy Statements is generally defined as “an article of tangible nonexpendable personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit.” 45 CFR Parts 74.2 and 74.34. On the other hand, equipment under the FAR means “tangible item that is functionally complete for its intended purpose, durable, nonexpendable, and needed for the performance of a contract” and does not contain any acquisition cost threshold. See FAR 52.245-1.
Federal grants generally allow the Grantee to retain title to equipment (i.e., tangible property with an acquisition cost of $5,000 or more) purchased with grant funds for use in the project. However, FAR contracts typically incorporate FAR 52.245-1, Government Property, which states that the government retains ownership of equipment (all tangible items, regardless of acquisition cost) purchased with contract funds.
Nonetheless, with regard to nonprofit educational institutions conducting research and development, Alternate II of FAR 52.245-1 is appropriate, which allows for non-profits to retain ownership of equipment under $5,000 if the Contracting Officer’s approval was obtained before the acquisition.
Prior Approval for Subcontracting
Grantees are generally allowed to issue Subawards from federal grants, but subcontracting from a FAR contract requires prior approval of the Contracting Officer (CO).
Termination Rights
Unlike grants which are terminable at will, there are generally no termination rights for convenience of the Contractor under a FAR contract. Once the university signs the agreement, we are required to perform even if the Principal Investigator leaves the University.
Additional Differences:
| | FAR CONTRACT | GRANT/COOPERATIVE AGREEMENT¹ |
|---|---|---|
| LEGISLATIVE GOVERNANCE | FAR | Title 2 of the Code of Federal Regulations |
| PRINCIPAL PURPOSE | Procurement or acquisition of supplies or services for direct benefit or use of Federal Government or when the agency decides in a specific instance that the use of a procurement contract is appropriate. FAR 35.003; 31 U.S.C § 6303. | Transfer a thing of value (i.e., money) to the State or local government or other recipient to carry out a public purpose of support or stimulation authorized by a law of the United States. FAR 35.003; 31 U.S.C. §§ 6304, 6305. |
| OMB OVERSIGHT | Office of Federal Procurement Policy | Office of Federal Financial Management |
| RELATIONSHIP BETWEEN PARTIES | Buyer/Seller | Partnership |
| NUMBER OF AWARDS PER SOLICITATION | Generally one award per each solicitation | Multiple awards per one Funding Opportunity Announcement (FOA) |
| SCOPE OF WORK | Generally provided by Government | Generally proposed by Applicant |
| EVALUATION OF PROPOSAL | Criteria set forth in solicitation, including technical evaluation and cost/price analysis | Technical merit |
| PERFORMANCE STANDARDS | Strict adherence to scope of work, schedule of milestones, requires delivery of contracted-for goods or services | Best efforts in performing research in accordance with scope of work, no specific timetables |
| RIGHT TO SUBCONTRACT | Limitations on subcontracting – prior approval is required | Subawarding is allowed |
| COSTS IN PERFORMING WORK | Result of contract type as negotiated by the parties | Must be reasonable, allowable, allocable, and treated consistently |
| PUBLICATIONS | Publications may be restricted² | Publications encouraged |
| TERMINATION RIGHTS BY RECIPIENT | No right to terminate; may be terminable by the government for material breach, etc. | Yes, terminable at any time |
| REPORTING OBLIGATIONS | Per contract or as negotiated | Usually on annual basis, can be more frequently |
| PAYMENT SCHEDULE | Per contract or as negotiated | By budget period |
| USE OF DELIVERABLES | Government has use of goods or services | Public has access to research results or services |
| RENEWABILITY | Usually not renewable; government may retain right to issue and fund option periods | Usually renewable |
¹For purposes of this table, grants and cooperative agreements are discussed together because they are similar except for the degree of agency involvement in the project (i.e., there is substantial programmatic involvement of the agency under a cooperative agreement, whereas there is not such involvement by the agency under a grant. 31 U.S.C. §§ 6304, 6305.
²Publication restrictions in FAR contracts are problematic for universities for many different reasons, the most prominent of which is they implicate export control laws and may inhibit students’ ability to publish in order to graduate. Thus, JROC reviews FAR contracts with a keen eye toward any publication restrictions and seek their removal during our negotiations.