Award Negotiation and Acceptance
Contracting with Industry
The contracting process generally differs from the grant process in terms of both formality and complexity. This document is intended to provide a brief overview on contracting with industry including contract review and negotiation.
Why is a Contract Necessary?
A contract is a legally binding agreement under which the University conducts research, training, and other services. Contracts set forth the understanding between two or more parties regarding important issues such as the right to publish research results, protection of confidential information, indemnification obligations, deliverables, etc. It is important to establish the obligations and rights of the parties in advance so as to avoid potential future conflicts.
- A contract sets forth the understanding, obligation, rights and remedies of the parties.
- A contract protects the University and investigators.
Parties to the Contract and Delegation of Authority to Negotiate and Execute Contracts
Agreements are between Charles Drew University of Medicine and Science (CDU) and the sponsor(s). Faculty should not be individual parties to contracts, primarily because the University’s obligation to defend and indemnify its employees does not extend to contract actions in which the employee is individually a party to the contract.
Authority to negotiate and execute research agreements is delegated to a few business officials. At CDU, responsibility for executing research agreements rests with the Office of Grants, Contracts and Compliance (OGCC). Individual faculty members are not authorized to sign agreements on behalf of CDU and should not sign any proposed agreements received from a prospective Sponsor without first contacting OGCC.
Contracts typically have many separate clauses which address the obligations that each party must perform and the rights that each party is entitled to under the contract. Each clause is reviewed carefully and changes are negotiated as required to ensure that each clause is acceptable, is consistent with other clauses in the contract, and conforms to CDU policies and practices. Contracts as a whole are reviewed for:
- Appropriate use of University resources
- Adherence to all applicable University Policies
- Legal sufficiency
- Identification of risks and liabilities
Typical Contract Clauses
- Period of Performance
- Intellectual Property/Copyrights
- Statement of Work
- Key Personnel
- Reporting Requirements
- Publication Rights
- Consideration/Financial Arrangements
- Use of Name
- Governing Law
Issues in Contracting With Industry
Challenges due to Cultural Differences
In order to understand the nature of negotiations between universities and industry sponsors, it is essential to understand the cultural differences between the research university and the industry sponsor and to appreciate the impact of those differences.
The culture of the industry sponsor is often characterized by the following traits:
- Closed, secret environment
- Profit oriented
- Procurement oriented – wants to “buy” results
The culture of the research university, on the other hand, is characterized by very different traits:
- Open, public environment
- Fundamental mission is the dissemination of knowledge
- Engages in research and education activities, does not sell products or services
Important Issues in Contract Negotiation
Each research project is unique, and the circumstances surrounding each project will affect the appropriateness and acceptability of specific contractual terms and conditions. While every contract is reviewed on an individual basis and customized according to each situation, all contracts must adhere to CDU policies and fundamental principles. Due to the cultural differences discussed in the preceding section and the limitations imposed by CDU policies, some contract provisions may require significant negotiation to arrive at mutually acceptable terms and conditions.
The issues that most often require negotiation are discussed below.
A fundamental principle of the University is that the teaching and research environment should be open so that ideas can be exchanged freely among faculty, students, and the public. CDU’s research activities are conducted as an integral part of the total educational program, and these activities often form the basis for articles in professional journals, seminars and presentations at professional meetings, and student dissertations and theses. Therefore, CDU will undertake projects only if the results can be published or otherwise promptly disseminated.
- The University must have the right to publish.
- Publications cannot be subject to sponsor approval.
- Sponsors do not have editorial rights.
- Delays must be reasonable (generally not more than 60-90 days.)
Because of CDU’s open environment, strict confidentiality of information cannot be assured. As an educational institution, CDU does not have the financial resources to sustain liability for inadvertent disclosure of confidential information. In addition, the California Public Records Act makes research agreements and their associated files, except for certain propriety information provided by the sponsor, part of the public record. For these reasons, it is in the best interests of both CDU and sponsors to have the disclosure of a sponsor’s confidential information limited to only that necessary for the conduct of the study and to clearly mark such information as “confidential.”
Confidential information may be developed during the course of a project. For instance, in sponsor-initiated clinical trials, datasets embodied in case report forms supplied by the sponsor may be considered confidential. However, the project results may not be considered confidential, as that could preclude CDU from being able to publish or otherwise disseminate the project results or using the results to perform future research.
- Confidentiality is maintained on a best efforts basis only.
- The definition of confidential information does not include the study date or results.
- Confidential information must be clearly marked.
- Separate secrecy agreements are not required.
- The agreement itself cannot be confidential.
- Investigators are not personally liable for disclosure.
Rights to Results
CDU activities are geared to the extension and dissemination of knowledge. Therefore, agreements with third parties must not restrict the ability of the University to publish or disseminate results or to use results for its own purposes. Agreements must be consistent with several core principles regarding the rights to future research results (including patents, copyrights, tangible property, and data). These core principals are:
- Research must be free to disseminate results in a timely manner.
- Agreements should respect CDU’s primary commitment to the education of its students.
- Researchers must be free to utilized results to perform future research.
- CDU must be able to make innovations and works of authorship available for the public benefit in a diligent and timely manner.
- Individuals involved in research governed by a CDU agreement must understand the rights and obligations related to future research results.
- Commitments in agreements must be consisted with CDU policies, applicable laws and regulations, and contractual obligations to others.
- Agreements shall provide fair consideration to the University and the general public for granting commercial access to future CDU research results.
- Decisions about rights to results should be based upon institutional academic and business considerations and not upon matters related to the personal financial gain of any individual.
- CDU must own and be free to utilize its data and results.
- CDU must be able to use results to perform future research.
- Commitments regarding future research results must be consistent with laws, regulations and obligations to third parties.
International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR)
Federal export control laws implemented both by the U.S. Department of State through its International Traffic in Arms Regulation (ITAR) and the U.S. Department of Commerce through its Export Administration Regulations (EAR) govern the shipment of certain items into or out of the United States. A license is required prior to shipment of items on the export-controlled lists:
Federal regulations also control the conditions under which certain technical information about controlled items can be disclosed to foreign nationals. Even if an item appears on one of the export-controlled lists, there is generally an exclusion for disclosure of technical information about the item if the technical information falls within the exclusion for fundamental research.
Fundamental research includes basic or applied research in science and/or engineering at a US academic institution where the resulting information is ordinarily published and shared broadly in the scientific community. CDU must secure a license for shipment of any items on the EAR or ITAR lists, but technically information about the items may be exchanged with foreign nationals as long as the information results from fundamental research.
It is important to understand however, CDU research will not qualify as fundamental research if CDU accepts any restrictions on the publication of the information resulting from the research, other than limited prepublication reviews by research sponsors to prevent inadvertent disclosure of proprietary information provided to the researcher by the sponsor or to ensure that publication will not compromise patent rights of the sponsor.
In addition, because CDU maintains an open academic environment, it is against policy to discriminate in employment based on citizenship. Access to CDU resources such as classrooms, libraries, laboratories, and specialized research facilities are open without regard to citizenship, residency status, or visa category. Contract provisions which restrict the participation of individuals in research projects on the basis of citizenship or require a sponsor’s prior approval of foreign nationals are therefore unacceptable.
- CDU facilities are open without regard to citizenship.
- CDU does not discriminate in employment based on citizenship.
- Contract provisions which restrict the participation of individuals based on citizenship, require a sponsor’s approval of foreign nationals or which restrict the ability of the University to publish are unacceptable.
As a public trust, CDU must make available for the public benefit the results of its research. CDU’s patent program is aimed at promoting the progress of science and technology to assure that discoveries and inventions are used to benefit the public and provide appropriate royalty revenues to CDU and the inventor(s). Except in limited situations, ownership of inventions and other research results is retained by the University. Patent rights may be granted to sponsors depending on the level of support provided. Federal regulations such as the Bayh-Dole Act, the Tax Reform Act, of 1986, and the NIH Guidelines for Sharing Research Resources may also affect the range and scope of rights that may be granted to sponsors. In exchange for granting commercial access to University intellectual property, and to ensure that CDU fulfills its fiduciary responsibilities to the public, CDU must receive fair consideration for any rights granted to sponsors.
- CDU owns title to its inventions and results.
- CDU must receive reasonable royalties for commercial licenses.
- Royalty rates cannot be set in advance.
- There can be no outright grant of licenses in research agreements.
Indemnification and Subject Injury
An indemnification clause specifies which party (ies) to a contract will be financially liable in the event of a claim or loss and who will be responsible for defending any claims. Most research contracts with CDU specify that the sponsor is responsible for indemnifying and defending the University for any claims that are the result of the sponsor’s negligence or willful malfeasance. The nature of the research project may require additional indemnification provisions; for instance, in sponsor-initiated clinical trials, CDU policy requires that the sponsor provide indemnification for any and all claims arising out of the conduct of the trial (excepting any claims to the extent due to CDU’s own negligence). CDU is allowed to cross-indemnify the sponsor to the extent a claim is due to the University negligence; however, any contract provision which requires CDU to indemnify a third party or indemnify the sponsor for the acts of a third party require the prior approval of The Regents.
Additionally, in sponsor-initiated clinical trials, CDU policy requires that contracts specifically state that a sponsor will be responsible for reimbursing the University for the costs of treating any human subjects who are injured as a result of their participation in the clinical trial. The subject injury provisions cannot be limited in any way, such as by limiting reimbursement obligations to emergent care only or only to injuries caused by a test article, nor may they require CDU to bill subjects’ insurer or other third party payer.
- Sponsors should indemnify the University for their negligent acts or omissions.
- Sponsors of sponsor-initiated clinical trials must fully indemnify CDU and specifically agree to reimburse the University for the costs of treating subject injuries
- CDU cannot indemnify a third party without CDU Administration approval.
Other Contract Issues
Contracts with sponsors are performed on a “no-profit-no-loss” basis. Industry sponsors are expected to fund all costs of a research project, including all direct and indirect costs. It is also CDU’s established policy to receive payment in advance of work performed. Payment schedules should be structured to provide the University with a cash flow adequate to cover ongoing expenses. Final payments withheld pending receipt of a final report or other deliverable should not be excessive (generally no more than 10-20%).
In the event a contract is terminated by the sponsor for any reason, the sponsor will be expected to reimburse CDU for all costs incurred to the date of termination and for all uncancellable obligations. If the study involves human subjects, the contract should provide for the safe withdrawal of the subjects from the research.
Any sponsor required financial and technical reports should be reasonable, i.e., within the generally accepted standards for such requirements. Any excessive reporting requirements, such as those which the campus’ financial systems cannot readily accommodate, deadlines which cannot reasonably be met, or overly-frequent reports, should be modified to the extent possible.
Agreements which contain a “Governing Law” clause should state that the agreement is governed by the laws of the State of California. In the alternative, the agreement can be silent as to governing law.
Confidential Disclosure Agreements (CDAs)
To preserve patent rights, trade secrets, business plans, and other confidential and proprietary information, organizations often require the execution of a confidentiality agreement (a.k.a. non-disclosure agreements or secrecy agreements) prior to allowing such information to be reviewed by another party. CDAs are often issued when two or more entities wish to evaluate information prior to entering into a formal business and contractual relationship. Any CDA terms, including publication and intellectual property provisions, must be consistent with all applicable CDU policies.
Equipment Loan Agreements
Agreements whereby a sponsor loans certain equipment to CDU are generally processed by Office of Research. However, those equipment loan agreements which are directly tied to other sponsored research agreements or which contain intellectual property or other complex contractual terms should be reviewed by OGCC. Please confer with your OGCC specialist for assistance.
Material Transfer Agreements
A Material Transfer Agreement (MTA) is a written agreement entered into by a provider and a recipient of research material. The purpose of the MTA is to protect the intellectual and other property rights of the provider while permitting research with the material to proceed. As with other sponsored research agreements, MTAs must conform to all applicable CDU policies. The parties to MTAs are the University and the sponsor(s), and delegation of authority to sign MTAs resets with ORA. Investigators should forward all proposed MTAs to OGCC for review and negotiation.
Contract Agreement Review Checklist
Understanding and Negotiating Legal Terms in Sponsored Research Agreements - 2003-2005