Hi All,

My company submitted a CPFF proposal (~$3.5M) to a major university as a sub. The solicitation was a DOD BAA which provided that contracts, grants, or other instruments may be awarded. We've been informed that the university was selected for award, and that a grant will be used by DOD rather than a contract. The university claims that, because it is a grant, fee is not allowed, but that we can "absorb" the fee amount originally proposed in other areas.

I've done a fair amount of reading and cannot find any reference to a prohibition on fee under a grant. However, I've never dealt with grants before, so perhaps I've missed something somewhere. Does anyone have any information or insight regarding prohibiting fee on grants to awardees and sub-awardees?

the DODGAR states in

§22.205

(B ) Fee or profit. Payment of fee or profit is consistent with an activity whose principal purpose is the acquisition of goods and services for the direct benefit or use of the United States Government, rather than an activity whose principal purpose is assistance. Therefore, the grants officer shall use a procurement contract, rather than an assistance instrument, in all cases where:

(1) Fee or profit is to be paid to the recipient of the instrument; or

(2) The instrument is to be used to carry out a program where fee or profit is necessary to achieving program objectives

Since the awarding agency determined that this was appropriate for an assistance award rather than a procurement fee or profit is expressly not allowed at the prime or subcontractor level.

UVA, I disagree with your analysis. When dealing with grants, we have to recognize that second tier work can be done in the form of a sub-award, which is governed by grant principles, or a contract (not a subcontract) where the grantee is acquiring supplies or services. If the second tier work is done by a contractor, I see no prohibition against that entity receiving fee or profit on the work done.

It sounds like the university wants to treat your arrangement as a subaward and is applying the same policy regarding fee/profit that is being applied to them. The term "subaward" is defined at 32 CFR § 22.105 as:

An award of financial assistance in the form of money, or property in lieu of money, made under a DoD grant or cooperative agreement by a recipient to an eligible subrecipient. The term includes financial assistance for substantive program performance by the subrecipient of a portion of the program for which the DoD grant or cooperative agreement was made. It does not include the recipient's procurement of goods and services needed to carry out the program.

In my days as a grants officer, I would not have agreed to a CPFF subcontract under a grant if the sub would be responsible for substantive program performance.

If you are performing experiments on the rats--no fee/profit. If you are purchasing the rats and rat food--profit ok.

Thanks to everyone for the info! There is R&D involved, but we are also building and delivering hardware to be used by the university.

DODGAR 22.205(a)(1), an assistance instrument (i.e., a subaward) is appropriate when "the principal purpose of the activity to be carried out under the instrument is to stimulate or support a public purpose (i.e., to provide assistance), rather than acquisition (i.e., to acquire goods and services for the direct benefit of the United States Government)".

As stated above, we are delivering hardware (which will be the result of some R&D work - at the very least there will be NRE) to the university. So shouldn't the university use a procurement instrument rather than a grant?

Not necessarily. The fact that hardware will be delivered doesn't mean the arrangement should be a procurement contract, per se.

You will have to convince the university that the principal purpose of your work is not to stimulate or support a public purpose. They may or may not agree. Good luck.