Fixed Price NSF Grant May Have Hidden Consequences.

When a company is awarded a Fixed Price award, specifically a fixed price NSF grant or SBIR grant, from the government, usually all the financial risk is on the contractor.  This means the government is less interested in how the company does their accounting.  The contractor is usually not burdened with audits of their accounting system, they do not need to calculate indirect billing rates and the type of accounting system is not a concern to the government.  The burden of completing the work assigned for the price agreed upon is enough risk for the company to bear.  Recently, there have been some incidences of items that might be of concern to  a company with a fixed price grant from the NSF.

The issue came to light relative to some NSF SBIR awards.  It seems that the term "Fixed Price Grant" is somewhat of a misnomer.  It does define a specific payment schedule for the award.  Recently there has been some review by the agency where the grantee must spend the money consistent with the original budget by line item or obtain approval in writing from their respective NSF Program Manager.  Virtually all grantees have some variation from the budget.  Do they submit to the NSF Program Manager for written approval for this deviation?  I suspect that most do not.  So what is the problem?  Well, the cover page that the agency requires on the final report includes a certification that states:

(5) All of the funds committed to this award, including all associated supplemental awards, have been fully expended as designated in the grant budget.

The subsequent statement on this cover sheet states:

I certify that to the best of my knowledge (1) the statements herein (excluding scientific hypotheses and scientific opinions) are true and complete, and (2) the text and graphics in this report as well as any accompanying publications or other documents, unless otherwise indicated, are the original work of the signatories or individuals working under their supervision.  I understand that the willful provision of falsie information or concealing a material fact in this report or any other communication submitted to NSF is a criminal offense (US Code, Title 18, Section 1001).

A strict interpretation of this indicates that the certifying company could be subject to criminal penalties if they sign the final report knowing that there are variations in the expenditures to the original budget.  Now, does the NSF have rights to audit the company?  There is reason for debate on this subject.  On one side, they NSF may not have audit rights on this unless there is reason to suspect fraud.  On the other side, the company should take steps to mitigate the risk by submitting notification of budget variations.  This means that the company must use a project accounting system in order to track their expenditures to each project.  This is something that all Fixed Price grant awardees are accustomed to doing.  If you would like to learn more, please give us a call.


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