This section will discuss basic legal concepts of contracting, including subcontracts and IRS implications for contracting with individuals.

Overview


Essential Elements to Form a Binding Contract


Expected Clauses in a Contract


General Resources for Information on Contracting

 


Subcontracting

A subcontract is defined as a formal arrangement by which responsibility for a sizable portion of the scope of work of a research project is transferred from the University to a third party. In other words, it is a financial mechanism used when the intent is to have another institution or third party carry out an integral portion of the project’s scope of work. Subcontracts are not entered into with individuals and subcontracts are not issued to vendors (i.e. payment for goods and services). Subcontracts are issued when a collaborator will: perform work as part of institutional appointment

Characteristics indicative of a payment for goods and services received by a vendor are when the organization:


Service Provider (Independent Contractor)

An individual or firm retained to provide professional advice or services for a fee. Here the service provider acts as an independent contractor, gives professional advice or service to a project in exchange for compensation. In general, a service provider is engaged when a particular unique expertise is required. A service provider rarely produces a written product. The selection of consultants should meet the following minimum standards:


Overview of Subcontracting from Other Universities


Internal Revenue Service (IRS) Issues

When establishing independent contractor relationships, it is important to understand the nature of the relationship as it may be defined under IRS tax code?

For federal tax purposes, the usual common law rules are applicable to determine whether a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business. All evidence of the degree of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Relationship of the Parties.

Behavioral Control covers facts that show whether the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.

Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes the extent to which the worker has unreimbursed business expenses

Relationship of the Parties covers facts that show the type of relationship the parties had. This includes:


Flow Through Requirements

Just as certain terms and conditions are important to the contractual relationship between the sponsor and the prime awardee, these same terms and conditions are also important to the prime awardee/subcontractor relationship.  For federal awards, certain terms must be included in lower tier subcontracts.  State law will also dictate the inclusion of certain terms in the subcontract.  Some critical flow through terms include

Federal Terms

State Laws

Subcontracts will also include appendices that establish the scope of work, serve to limit local authorities (requiring prior approval), establish reporting requirements and/or incorporation additional terms and conditions.  The prime award is incorporated into the subcontract as an appendix.

Resources