10 C.F.R. Subpart E—Pre-Award Business Evaluation
Title 10 - Energy
(a) The contracting officer must determine the qualification of the recipient, as described in §§603.510 and 603.515. (b) As the business expert working with the program official, the contracting officer also must address the financial aspects of the proposed agreement. The contracting officer must: (1) Determine that the total amount of funding for the proposed effort is reasonable, as addressed in §603.520. (2) Assess the value and determine the reasonableness of the recipient's proposed cost sharing contribution, as discussed in §§603.525 through 603.555. (3) If contemplating the use of a fixed-support rather than expenditure-based TIA, ensure that its use is justified, as explained in §§603.560 and 603.565. (4) Determine amounts for milestone payments, if used, as discussed in §603.570. Program officials can be a source of information for determining the reasonableness of proposed funding (e.g., on labor rates, as discussed in §603.520) or establishing observable and verifiable technical milestones for payments (see §603.570). Prior to award of a TIA, the contracting officer's responsibilities for determining that the recipient is qualified are the same as those for awarding a grant or cooperative agreement. If the recipient is a consortium that is not formally incorporated, the contracting officer has the additional responsibility described in §603.515. (a) A consortium that is not formally incorporated must provide a collaboration agreement, commonly referred to as the articles of collaboration, which sets out the rights and responsibilities of each consortium member. This agreement binds the individual consortium members together and should discuss, among other things, the consortium's (1) Management structure; (2) Method of making payments to consortium members; (3) Means of ensuring and overseeing members' efforts on the project; (4) Provisions for members' cost sharing contributions; and (5) Provisions for ownership and rights in intellectual property developed previously or under the agreement. (b) If the prospective recipient of a TIA is a consortium that is not formally incorporated, the contracting officer must, in consultation with legal counsel, review the management plan in the consortium's collaboration agreement to ensure that the management plan is sound and that it adequately addresses the elements necessary for an effective working relationship among the consortium members. An effective working relationship is essential to increase the project's chances of success.
Title 10: Energy
PART 603—TECHNOLOGY INVESTMENT AGREEMENTS
Subpart E—Pre-Award Business Evaluation
§ 603.500 Pre-award business evaluation.
§ 603.505 Program resources.
Recipient Qualification
§ 603.510 Recipient qualifications.
§ 603.515 Qualification of a consortium.
Total Funding
§ 603.520 Reasonableness of total project funding.
In cooperation with the program official, the contracting officer must assess the reasonableness of the total estimated budget to perform the RD&D that will be supported by the agreement.
(a) Labor. Much of the budget likely will involve direct labor and associated indirect costs, which may be represented together as a “loaded” labor rate. The program official is an essential advisor on reasonableness of the overall level of effort and its composition by labor category. The contracting officer also may rely on experience with other awards as the basis for determining reasonableness.
(b) Real property and equipment. In almost all cases, the project costs should normally include only depreciation or use charges for real property and equipment of for-profit participants, in accordance with §603.680. Remember that the budget for an expenditure-based TIA may not include depreciation of a participant's property as a direct cost of the project if that participant's practice is to charge the depreciation of that type of property as an indirect cost, as many organizations do.
Cost Sharing
§ 603.525 Value and reasonableness of the recipient's cost sharing contribution.
The contracting officer must:
(a) Determine that the recipient's cost sharing contributions meet the criteria for cost sharing and determine values for them, in accordance with §§603.530 through 603.555. In doing so, the contracting officer must:
(1) Ensure that there are affirmative statements from any third parties identified as sources of cash contributions, and
(2) Include in the award file an evaluation that documents how the values of the recipient's contributions to the funding of the project were determined.
(b) Judge that the recipient's cost sharing contribution, as a percentage of the total budget, is reasonable. To the maximum extent practicable, the recipient must provide at least half of the costs of the project, in accordance with §603.215.
§ 603.530 Acceptable cost sharing.
The contracting officer may accept any cash or in-kind contributions that meet all of the following criteria.
(a) In the contracting officer's judgment, they represent meaningful cost sharing that demonstrates the recipient's commitment to the success of the RD&D project. Cash contributions clearly demonstrate commitment and they are strongly preferred over in-kind contributions.
(b) They are necessary and reasonable for accomplishment of the RD&D project's objectives.
(c) They are costs that may be charged to the project under §603.625 and §603.635, as applicable to the participant making the contribution.
(d) They are verifiable from the recipient's records.
(e) They are not included as cost sharing contributions for any other Federal award.
(f) They are not paid by the Federal Government under another award, except:
(1) Costs that are authorized by Federal statute to be used for cost sharing.
(2) Independent research and development (IR&D) costs, as described in 48 CFR part 31.208–18, that meet all of the criteria in paragraphs (a) through (e) of this section. IR&D is acceptable as cost sharing, even though it may be reimbursed by the Government through other awards. It is standard business practice for all for-profit firms, including commercial firms, to recover their IR&D costs through prices charged to their customers. Thus, the cost principles at 48 CFR part 31 allow a for-profit firm that has expenditure-based, Federal procurement contracts to recover through those procurement contracts the allocable portion of its research and development costs associated with a technology investment agreement. Contracting officers should note that in accordance with section 603.545, they may not count participant's costs of prior research, including IR&D, as a cost sharing contribution.
§ 603.535 Value of proposed real property or equipment.
The contracting officer rarely should accept values for cost sharing contributions of real property or equipment that are in excess of depreciation or reasonable use charges, as discussed in §603.680 for for-profit participants. The contracting officer may accept the full value of a donated capital asset if the real property or equipment is to be dedicated to the project and the contracting officer expects that it will have a fair market value that is less than $5,000 at the project's end. In those cases, the contracting officer should value the donation at the lesser of:
(a) The value of the property as shown in the recipient's accounting records (i.e., purchase price less accumulated depreciation); and
(b) The current fair market value. The contracting officer may accept the use of any reasonable basis for determining the fair market value of the property. If there is a justification to do so, the contracting officer may accept the current fair market value even if it exceeds the value in the recipient's records.
§ 603.540 Acceptability of fully depreciated real property or equipment.
The contracting officer should limit the value of any contribution of a fully depreciated asset to a reasonable use charge. In determining what is reasonable, the contracting officer must consider:
(a) The original cost of the asset;
(b) Its estimated remaining useful life at the time of the negotiations;
(c) The effect of any increased maintenance charges or decreased performance due to age; and
(d) The amount of depreciation that the participant previously charged to Federal awards.
§ 603.545 Acceptability of costs of prior RD&D.
The contracting officer may not count any participant's costs of prior RD&D as a cost sharing contribution. Only the additional resources that the recipient will provide to carry out the current project (which may include pre-award costs for the current project, as described in §603.830) are to be counted.
§ 603.550 Acceptability of intellectual property.
(a) In most instances, the contracting officer should not count costs of patents and other intellectual property (e.g., copyrighted material, including software) as cost sharing because:
(1) It is difficult to assign values to these intangible contributions;
(2) Their value usually is a manifestation of prior research costs, which are not allowed as cost share under §603.545; and
(3) Contributions of intellectual property rights generally do not represent the same cost of lost opportunity to a recipient as contributions of cash or tangible assets. The purpose of cost share is to ensure that the recipient incurs real risk that gives it a vested interest in the project's success.
(b) The contracting officer may include costs associated with intellectual property if the costs are based on sound estimates of market value of the contribution. For example, a for-profit firm may offer the use of commercially available software for which there is an established license fee for use of the product. The costs of the development of the software would not be a reasonable basis for valuing its use.
§ 603.555 Value of other contributions.
For types of participant contributions other than those addressed in §§603.535 through 603.550, the general rule is that the contracting officer is to value each contribution consistently with the cost principles or standards in §603.625 and §603.635 that apply to the participant making the contribution. When valuing services and property donated by parties other than the participants, the contracting officer may use as guidance the provisions of 10 CFR 600.313(b)(2) through (b)(5).
Fixed-Support or Expenditure-Based Approach
§ 603.560 Estimate of project expenditures.
(a) To use a fixed-support TIA, rather than an expenditure-based TIA, the contracting officer must have confidence in the estimate of the expenditures required to achieve well-defined outcomes. Therefore, the contracting officer must work carefully with program officials to select outcomes that, when the recipient achieves them, are reliable indicators of the amount of effort the recipient expended. However, the estimate of the required expenditures need not be a precise dollar amount, as illustrated by the example in paragraph (b) of this section, if:
(1) The recipient is contributing a substantial share of the costs of achieving the outcomes, which must meet the criteria in §603.305(a); and
(2) The contracting officer is confident that the costs of achieving the outcomes will be at least a minimum amount that can be specified and the recipient is willing to accept the possibility that its cost sharing percentage ultimately will be higher if the costs exceed that minimum amount.
(b) To illustrate the approach, consider a project for which the contracting officer is confident that the recipient will have to expend at least $800,000 to achieve the specified outcomes. The contracting officer must determine, in conjunction with program officials, the minimum level of recipient cost sharing required to demonstrate the recipient's commitment to the success of the project. For purposes of this illustration, let that minimum recipient cost sharing be 60% of the total project costs. In that case, the Federal share should be no more than 40% and the contracting officer could set a fixed level of Federal support at $320,000 (40% of $800,000). With that fixed level of Federal support, the recipient would be responsible for the balance of the costs needed to complete the project.
(c) Note, however, that the level of recipient cost sharing negotiated should be based solely on the level needed to demonstrate the recipient's commitment. The contracting officer may not use a shortage of Federal Government funding for the program as a reason to try to persuade a recipient to accept a fixed-support TIA, rather than an expenditure-based instrument, or to accept responsibility for a greater share of the total project costs than it otherwise is willing to offer. If there is insufficient funding to provide an appropriate Federal Government share for the entire project, the contracting officer should re-scope the effort covered by the agreement to match the available funding.
§ 603.565 Use of a hybrid instrument.
For a RD&D project that is to be carried out by a number of participants, the contracting officer may award a TIA that provides for some participants to perform under fixed-support arrangements and others to perform under expenditure-based arrangements. This approach may be useful, for example, if a commercial firm that is a participant will not accept an agreement with all of the post-award requirements of an expenditure-based award. Before using a fixed-support arrangement for that firm's portion of the project, the agreement must meet the criteria in §603.305.
Accounting, Payments, and Recovery of Funds
§ 603.570 Determining milestone payment amounts.
(a) If the contracting officer selects the milestone payment method (see §603.805), the contracting officer must assess the reasonableness of the estimated amount for reaching each milestone. This assessment enables the contracting officer to set the amount of each milestone payment to approximate the Federal share of the anticipated resource needs for carrying out that phase of the RD&D effort.
(b) The Federal share at each milestone need not be the same as the Federal share of the total project. For example, the contracting officer might deliberately set payment amounts with a larger Federal share for early milestones if a project involves a start-up company with limited resources.
(c) For an expenditure-based TIA, if the contracting officer establishes minimum cost sharing percentages for each milestone, those percentages should be indicated in the agreement.
(d) For a fixed-support TIA, the milestone payments should be associated with the well-defined, observable, and verifiable technical outcomes (e.g., demonstrations, tests, or data analysis) that are established for the project in accordance with §§603.305(a) and 603.560(a).
§ 603.575 Repayment of Federal cost share.
In accordance with the Energy Policy Act of 2005 (Public Law 109–58), section 988(e), the contracting officer may not require repayment of the Federal share of a cost-shared TIA as a condition of making an award, unless otherwise authorized by statute.
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