Non-Federal Payment Policy

POLICY ON BUDGET AUTHORITY AND METHOD OF PAYMENT FOR AGREEMENTS WITH NON-FEDERAL SPONSORS

APPLICABILITY/PURPOSE

Payment terms must provide a positive cash flow for the life of the project. If funds are not on hand when expenditures are incurred, the University must use other sources of funding to subsidize the project until payment is received. Arizona Revised Statutes Titles 15 and 35, and Article 9, Section 7 of the Arizona State Constitution indicate that state funds must be used for allocated purposed, i.e., not to subsidize for-profit agencies that contract with the University.

The Non-Federal Payment Policy applies to sponsored agreements where all of the following exist:

  •  
    • Agreement totals (direct plus indirect) are $25,000 or greater.
    • The sponsor is non-federal. Non-federal is defined as a for-profit company/industry.
      • The policy does not apply to industry sponsors issuing sub-federal awards to the University of Arizona.
      • The policy does not apply to industry sponsors that are designated as small businesses.

ACCEPTABLE PAYMENT TERMS

Payment terms should be established so that sufficient cash exists to cover the expenditure activity of the project throughout the life of the project.

The University of Arizona requires 25% (or greater) advance payment on agreements with business and industry. Beyond the advance payment, the remaining schedule of payments can be adjusted depending on the length of the project, milestone/deliverable schedules, and/or the anticipated schedule of expenditures. Some acceptable examples are:

  1.  
    1. Advanced payment at startup with subsequent payments made by invoice on a cost reimbursement basis.
    2. Advanced payment at startup with subsequent fixed payments on a quarterly basis.
    3. Advanced payment at startup with subsequent fixed payments based on project milestones.

The unexpected balance will be refunded to the sponsor at the end of the project if required by terms of the agreement.

EXAMPLES OF UNACCEPTABLE PAYMENT TERMS

  1.  
    1. The total amount of the project is paid upon completion.
    2. Payment terms either provide only a small advance payment, or none at all.
    3. The payment terms call for cost-reimbursement invoicing with no advance payment.
    4. Payment terms indicate that an amount will be withheld until the end of the project. This may be acceptable if the withheld amount is a very small portion fo the total amount (less than or equal to 10% of the award total).

NON-FEDERAL PAYMENT POLICY WAIVERS (NFPP WAIVER)

If an agreement's payment terms do not meet the Non-Federal Payment Policy, and the sponsor will not revise them, a waiver of the policy is required. Use the  Non-Federal Payment Policy Waiver Request Form to justify waiver of the policy from Research, Discovery & Innovation. In the justification, it is not sufficient to simply state that the college/department is aware of its responsibilities should the sponsor default. The justification must indicate why it is in the University's best interest to accept the project with payment terms that do not provide a positive cash flow.

BUDGET AUTHORITY

With acceptable payment terms or an approved NFPP Waiver, budget will be loaded to the University financial account in the amount authorized by the terms of the agreement. If small cash deficits accrue due to fluctuations in the spending pattern during the project period, the budget will not be reduced nor will the account be frozen*. The account will be frozen if a budget deficit occurs.**

*Cash deficit:                  cash received is less than expenditures incurred

**Budget deficit:             budget loaded is less than expenditures incurred

Unresolved cash or budget deficits:

Normally, the entire authorized project budget will be loaded to the account at the beginning of the project, regardless of the method of payment. Examples of exceptions include clinical trials, projects with a fixed-rate/fee payment basis, and high-risk-sponsors, in which case the budget is loaded as cash is received (cash-basis). Departments must either submit a backstop on account setup to cover expenditures for these cash-basis accounts, or accept the risk of the agreement and permit budget to be loaded in full. Running the cash-basis account in deficit without a backstop is not permissible. 

PAYMENT DEFAULTS

It is the responsibility of the principal investigator, department, and/or college to cover unreimbursed costs in the event of default of payment. See Bad Debts for more information.

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