How to Avoid UGA Findings: Direct Subcontractors

January 18, 2023 / Ed Jameson / Blog Posts
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In our last blog, we talked about how to avoid Uniform Guidance Audit (UGA) findings in your FFR or SF-425 reporting. In this blog, we’ll talk about another area of frequent findings, failure to monitor a direct subcontractor.


A direct subcontractor could be a university, a lab or a researcher who is essential to your project. In fact, their role is so vital that they are specifically named in your award.  The government considers them co-investigators.

When it comes to government awards, many direct subcontractors—especially universities—know the rules and they know their responsibilities. However, it’s important to recognize that this individual or organization is part of your grant. As such, you are responsible for their compliance.


Subcontractor Agreement

The auditor will ask to see the Subcontractor Agreement. This document should be specific and include important details such as:

  • scope of work
  • amount to be paid and payment terms
  • time of the engagement
  • reference to the actual grant number

The Subcontractor Agreement must also detail the Federal Acquisition Regulation (FAR) provisions that flow from your company to the direct subcontractor, such as FAR 52.216-7 The Allowable Cost clause, which may force the subcontractor to have their own Uniform Guidance Audit.

Invoices from your Subcontractor

You will need to produce invoices from your direct subcontractor and your auditor will check to make sure they are in agreement with the overall direct subcontractor agreement.

Proper Monitoring of Your Direct Subcontractor

Getting a major research university or in-demand researcher to work with you can be intimidating. But you must understand:

A Direct Subcontractor is a pivotal part of  YOUR award. You are responsible for their compliance and adherence to the rules of your grant.

No matter how big or prestigious your direct subcontractor, you must monitor and manage their performance. Your UGA auditor will expect to see evidence of this, and you may have to answer and demonstrate the following:

  • Did your company retain a copy of the subcontractor’s UGA audit report?
  • Did you monitor and verify the work performed by the subcontractor and ensure the validity of the amounts charged?
  • Is your direct subcontractor’s costs and period of performance consistent with the timing in the award?

It is very common for universities to have poor billing practices, so you may need to accrue their costs into your books.   


The three most common findings that we see during a Unified Guidance Audit of direct subcontractors are:

  1. A lack of a formal Direct Subcontractor agreement
  2. A Subcontractor Agreement that leaves out important terms, such as a reference to the FAR provisions
  3. Costs that do not match the time frame of the award.


Managing subcontractors and running your business, while maintaining a FAR-compliant accounting system and surviving a UGA audit can be overwhelming.  We can help you maximize your funds and decrease your risk, so you can spend less time worrying and more time innovating.

Ready to Learn More? Speak With A Government Funding Award Expert!
Call Now: 781-862-5170 – or – Schedule A Call

This is the sixth of our seven-part series about the Uniform Guidance Audit: 

  1.  Is Your Grant Subject To a Uniform Guidance Audit?
  2. What Happens During a Uniform Guidance Audit?
  3. How a UGA Auditor Tests Your Company’s Internal Controls
  4. How To Avoid Uniform Guidance Audit Findings on SF-425 Reporting
  5. How To Avoid UGA Findings: Direct Subcontractors
  6. How To Avoid UGA Findings: Direct Consultants
  7. What Happens To NIH and DOE Grant Audit Findings?
Ed Jameson, CPA, Managing Member

With over 40 years of experience as a government funding award accounting specialist, Ed is a recognized national expert in the field. In addition to helping hundreds of clients navigate FAR Part 31 compliance. he has been an active speaker and panel moderator at Tech Connect's National SRIR/STTR conferences since 2011. presents at the DOD's Mentor Protégé Summit and presents regularly for several state and local organizations.

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