Fixed Price and Cost-Reimbursement Type Agreements

With a firm fixed price type, UT agrees to complete all work and, more or less (depending on the rest of the contract language), will assure the sponsor that all deliverables will be provided, no matter how much it winds up costing.

If it costs more to complete the work than the fixed price, then the department (PI/Chair, and if the fixed price is significant, the Associate Dean or Dean may be asked to provide their concurrence) agrees to bear that financial  risk. If it costs less than the fixed price, then UT keeps the difference. Note at UT Austin, funds remaining at completion of a fixed price SRA are swept by Accounting Office and can not be kept by the department. This practice is consistent with the concepts that UT is not making a profit, and discourages practices that would not inconsistent with applicable cost accounting practices or our status as a state university.

Generally, most of our faculty performs research on a cost-reimbursement basis because they are not providing an assurance of certain outcomes. The faculty researcher may also be limited by funding or time, and except for reports, deliverables are not necessarily guaranteed. Thus, it is important to look at the scope SOW and get input from the PI for context.

For the purposes of the contract/SRA, the ultimate purpose of the SOW is so that the parties can determine what exactly is/was expected of UT at the time the contract is entered into. A clear SOW under a fixed price agreement becomes even more important. Too, if the fixed price agreement has milestones that link UT’s right to be reimbursed or paid under a contract to our achievement of the specified SOW objectives and/or milestones, it is critical that the parties have a “meeting of the minds” on these objectives and exactly what is expected by UT. Since most SOW’s under cost-reimbursement type SRA’s permit a PI to have freedom in carrying out the scope, the SOW itself should clearly state such intent, goals and objectives, including any reporting that the PI commits to provide.

There have been instances in which we permitted the sponsor to use terms interchangeably (or were forced to accept inconsistent terms), and as a result, the parties were confused and the project was administered in uneven manner, inconsistent with standard contracting practices.