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External Commercial Projects Procedure

Category Finance
Type Procedure
Approved by Chief Financial Officer, 11 August 2012
Date Procedure Took Effect 11 September 2012
Last Approved Revision 20 July 2015
Sponsor Chief Financial Officer
Responsible Officer Senior Management Accountant
Review Date 20 July 2020

Purpose

These procedures provide guidance to the Heads of Department, Principal Investigators and Department Managers on the management of commercial projects.

Definitions

  • CCW - Costing and Consents Worksheet
  • DVC - Deputy Vice-Chancellor
  • Finance One - University Financial System
  • PI - Principal Investigator
  • PVC - Pro Vice-Chancellor
  • PBRF - Performance Based Research Funding

Policy Content

Introduction

An external commercial project has:

  • An element of profit
  • A majority of external customers in either number or value of revenue
  • External customers do not operate as part of the University
  • Projects not meeting both of the above are considered internal commercial projects

Commercial projects do not qualify for PBRF.

Procedure Content

Commercial projects provide an opportunity to leverage both the expertise of staff members and facilities to earn additional income for the University.

The Research and Enterprise Office is responsible for the setting of policy and procedures relating to the initial stages of a commercial project including budgeting, pricing and contracting.

The Financial Services Division is responsible for setting the accounting procedures for commercial projects.

Departments and Principal Investigators (PI's) are responsible for monitoring the financial performance and completion of the project according to the contract.

Before Commencing Work on the Project

The following procedures are completed prior to work commencing on the project.

Budgeting

All commercial projects are supported by a budget prepared using the Costing and Consents Worksheet (CCW). The CCW is prepared on a full cost basis, meaning all the direct and indirect costs are included, to determine the budgeted contribution the project is to make to the University.

Pricing

Commercial projects have a profit element.  The contracted price must be greater than the total cost of the project.

Overhead Waiver

The CCW allows the PI to recommend the waiver of overhead. Department overhead waivers are approved by the Head of Department (HOD) and Central overhead waivers by the DVC Research and Enterprise. In the case of Health Sciences’ projects, overhead waiver requests must be approved by the Dean or PVC in addition to the HOD.

Overheads may only be waived if there is a clear and substantiated benefit to the University. Benefits may be tangible or intangible but should be expressed as an amount and compared to the value of the overhead waived.

Contracting

A contract for each commercial project is required. Only the DVC Research and Enterprise, or delegate, may approve and sign a contract with a third party. The relationship is between the University and the contracting party. Undertaking an activity outside of the contractual relationship can create legal and insurance issues. For example, the activity will fall outside of the University’s insurance policy and may result in personal liability for the individual conducting the project.

Set up in Finance One

A commercial project is set up in the Finance One system as an E Activity Type. Completed applications to open an E Activity are signed by the HOD and sent to the Financial Accountant along with a copy of the last page of the CCW showing the summary budget and sign offs. Spending must not take place prior to the activation of the E Activity, and all costs and revenue associated with the project must be recorded against the Activity.

If a new commercial project commences outside of the budget or budget review periods, Financial Services will open up the E Activity, but no budget may be loaded. A budget is still required, and will be loaded at the next budget or budget review round.

Procedures Followed During the Life of the Project

The following procedures are completed during the period the project is active through to its conclusion.

Project Monitoring

Departments are required to perform basic project administration including:

  • Invoicing customers according to the requirements of the contract
  • All work must be completed at the contract price
  • Recording indirect salary costs to the project by journal entry
  • Monitoring project end dates to ensure that projects are completed and accounts closed in a timely manner

In addition to these administrative tasks, the Department needs to:

  • Verify that overhead is calculated properly and any amount calculated over the waived amount is charged to the project
  • Request a rate change to the project when the commercial overhead rate changes and the project can bear the higher rate
  • Ensure that projects continue to be viable. Where the planned return is unlikely to be achieved, the HOD and the Research Office should be informed, and a solution identified. Solutions may include an approach to the customer for additional funding, change in approach to the project or other opportunities

Commercial Surplus Transfer and Project Closing

The Research and Enterprise website hosts transfer and closing forms that are completed to either transfer a surplus during the life of the project or to request a balance transfer and project closing at the conclusion of the project. Surpluses may not be transferred to another commercial project, an external research account (P or Q Activities), or a research committee account (R Activity).

At the project conclusion, the Department

  • Verifies that all invoicing is complete and in accordance with the contract
  • Ensures all indirect salaries and other costs are recorded
  • Makes a comparison of actual results to budget
  • Calculates overhead on a life to date basis to ensure that the correct amount based on actual salary costs has been charged and:

    Charges overhead if the calculated amount exceeds the amount waived.

    Recovers overhead on projects with an overhead waiver when the project finishes in a surplus.  The amount recovered is agreed between the Head of the Department and the Principal Investigator.

  • Project deficits are followed up with the Principal Investigator and the Head of Department.  A discussion should be held with the Research and Enterprise Office to determine the potential of recovering additional costs from the customer
  • Forms may be completed by the Department Administrator but must be signed by the Principal Investigator and the Head of Department.Completed Forms are returned to the Enterprise Contracts Manager who will in turn supply the form for action to the Financial Services Division

Carry Forward

The actual surplus or deficit in an E Activity will carry forward to the next year.

Related Policies, Procedures and Forms

Contact for Further Information

For further information, contact the Senior Management Accountant, extn 8222 or email michael.mcalpine@otago.ac.nz