Sponsored projects are externally-funded activities in which a formal written agreement, i.e., a grant, contract, or cooperative agreement, is entered into by Stanford University and the sponsor. The primary source of information and financial services for sponsored research funds is the Office of Sponsored Research (OSR), a department within the Office of Research Administration. For information about the concept of a fund and all fund types, refer to Fund Types.
All spending of funds is guided by a common set of principles and policies described in Administrative Guide chapter 3.1: Funds Management. Additional considerations for sponsored research funds are described on this page.
For policy guidance on the expenditure of restricted funds, which by definition includes sponsored research funding, refer to Administrative Guide Policy 3.2.1: Responsibility for University Funds.
OSR provides pre-award and post-award administrative services for sponsored projects. They collaborate with partner groups in other central and school offices to coordinate research administration services, systems, and processes. They review and endorse sponsored projects proposals, negotiate and accept awards, and issue subawards on behalf of Stanford. In addition, they establish accounts in the financial system and fulfill the sponsor's financial reporting requirements. Refer to Office of Sponsored Research (OSR) on the DoResearch website for more information.
Types of Sponsored Project Awards
- Cost reimbursement grants/contracts: Under these projects, sponsors reimburse expenses incurred. The majority of sponsored projects at Stanford fall under this category, and they may be government funded or privately funded. Sponsored terms and conditions determine the university's reimbursement for direct/indirect costs.
- Event/milestone grants/contracts: These types of projects provide funding as certain events occur or as milestones are met. An example of this type of project is a clinical trial where funding is based on the number of patients participating in the trial and is received incrementally.
- Fixed price contracts: This type of contract sets a fixed price for the delivery of the work stipulated in the contract, regardless of actual expenses incurred by Stanford on the contract. Stanford bears a financial risk where expenses exceed the fixed price. These types of sponsored projects are rare for Stanford and may be government funded or privately funded.
Project Payment Categories
- LOC-Letter of Credit – Many government grants and contracts are on a letter of credit system, the university can draw cash based upon anticipated cash needs. The university submits an invoice to the government agency and cash is wired electronically into Stanford's bank account. Generally the money is received for expenses already incurred, but there are circumstances when money is received in advance of future expenses.
- RAE-Reimbursement of actual expenses incurred – These grants and contracts, specifically, make payments as expenses are incurred. Stanford sends the sponsor an invoice for the amount of expenses incurred and the sponsor submits payment.
- OTH-Other – This category includes clinical trials as well as a variety of payment methods. Sponsors of clinical trials often provide a start-up payment to get the trial going, and then provide for additional fees based on meeting milestones. Sometimes this category includes items that resemble LOCs, RAEs, or PSs, but have been classified as Other.
- PS-Payment Schedule – This category consists of awards that provide a particular payment schedule by date. Sometimes the payments take a pattern (the same amount every month, quarter, year) and sometimes they are quite varied (one amount on Sept. 3, another amount on June 15, etc.) The university may negotiate with sponsors based on cash needs.
- ADV-In advance – Represents cash received in advance of the research or project.
Stanford policy is that revenue recognition needs to be in line with Generally Accepted Accounting Principles (GAAP).
- Revenue recognition – Revenue recognition is based on accrual accounting in accordance with GAAP. Revenue is recognized when earned, and expenses are recognized when incurred. Revenue is considered earned when the university has substantially met its obligation to be entitled to the benefits represented by the revenue. Revenue is recorded when earned, regardless of the timing of cash receipts. In the event a project stipulates performance measures, revenue is considered earned when the performance measures are completed.
- Invoicing and cash receipt - Revenue recognition, invoice processing and cash receipts may or may not occur at the same time. Revenue is recognized when earned, while invoicing and cash receipt may occur independently of the earning process. For example, cash may be received at the start of the project, prior to the university incurring any expense or performing any work. When cash is received in advance, cash and a deferred revenue liability are recorded, but revenue is not recognized.
- Deferred revenue – Deferred revenue results when cash is received in advance of revenue being earned. Deferred revenue is recorded as a liability until it is earned. Once earned, the liability is reduced and revenue is recorded in the general ledger. When recording cash receipts, it is important to determine whether the cash represents earned revenue or deferred revenue.
- Percentage of completion – Many projects funded by grants and contracts are long-term, meaning that the projects will continue for one year or more. For long-term contracts, GAAP allows the revenue to be recognized on a percentage-of-completion basis if "circumstances are such that total profit can be estimated with reasonable accuracy and ultimate realization is reasonably assured." Current income recognized under the percentage-of-completion method is based upon (a) the total income projected for the contract at the time of completion, and (b) the expenses incurred to date. The percentage-of-completion is measured using the proportion of costs incurred versus the total estimated cost to complete the contract.
Guidelines by Sponsored Project Award Type
| Award Type | Funding | Revenue Recognition | Deferred Revenue |
|---|---|---|---|
| Cost reimbursement grants/contracts | Expenses are reimbursed after they are incurred. There are many variations of cost reimbursement contracts. Many include stipulations regarding unallowable costs or limits on certain types of costs. Procedures should be in place to ensure that only allowable costs are charged to the award. Refer to the original award document for specific information. | Revenue is directly related to the costs incurred on cost-reimbursement contracts. Revenue is recognized as expenses are incurred. Expenditure adjustments may create an adjustment to revenue. | While cost reimbursement, by definition, implies that payments are made after costs are incurred, this is not always the case. When payments are received in ADVANCE, or they EXCEED expenditures to date, the liability, Deferred Revenue, is recorded. Once the advance payment or excess payment is earned, the liability is reduced and revenue is recorded. |
| Event/milestone grants/contracts | Funding is provided as certain events occur or milestones are met. Funding may provide an initial payment to cover start-up costs, then additional funding is provided once additional milestones or events are achieved. | Revenue is recognized in conjunction with the milestones. Although the initial payment may be received in advance of achieving the milestone, the revenue is not recognized until the milestone is completed. See discussion of deferred revenue below. | If payments are received in advance of the performance milestone as designated in the contract, Deferred Revenue, is recorded. Once the milestone is achieved, the liability is reduced and revenue is recognized. |
| Fixed price contracts | Government contracts that are fixed-price will clearly state this on the award document. Federal fixed-price contracts, which often span several years, may have a Limitation of Funds clause that requires disbursement of the award amount in allotments. | Revenue is recognized on a percentage of completion basis. The percentage of completion basis records revenue as a percent of cost incurred to date, divided by the total estimated expenses. The total estimated expense is the fixed price award. Expenses are monitored against the award amount to ensure that expenses do not exceed the award amount. If an expense exceeds the contract award, the expense is transferred to a project that has funds available to cover the expense. At the end of the project, if the total award received exceeds the cumulative project expenses, the excess is recorded as revenue. | If payments are received in advance or in excess of the percentage completed, Deferred Revenue is recorded. Once the advance or excess payment is earned, the liability is reduced and revenue is recorded. |