2.1 Nature of research contracts

2.1.2 Structure of a research contract

(The information in this section is based on ‘Contracts Issues for Non Lawyers’ by Kerrin Anderson and Tania Kearsley, Francis Abourizk Lightowlers, Commercial & Technology Lawyers, 300 Adelaide Street, Brisbane, for an Australian Tertiary Education Managers (ATEM) training program. Please contact the authors if you want a copy.)

A word of warning: if you are entering into a research contract with an international organisation there will probably be significant delays during the negotiating period. This, together with fluctuating exchange rates, can have an enormous impact on your budget. As far as possible, build a financial buffer into the budget. It is a good idea to seek advice from a colleague who has experience negotiating and working with international organisations.
Research contracts are designed to protect all parties involved in a research project: the investigators, any collaborators, and the organisation funding the project. Contracts generally follow a basic pattern or structure, commencing with:

The date of the agreement;
the names of the contracting parties;
the project title; and
the background.

This preliminary information is followed by the main body of the agreement, which covers the conduct of the project, the obligations of the contracting parties, and the expected outcomes. As a guide, the content of a typical agreement will include information under the headings listed below.

Whether you receive a contract from an outside body or you are required to provide a contract, your first action will be to contact your university’s legal office for advice. One of the most important aspects of getting a contract processed quickly is to ensure that the person who is required to either review or draft the contract is given sufficient information to allow them to determine whether the contract properly reflects the intentions of all parties. Contracts cannot be considered in a vacuum. The advice provided to you by the lawyer is based on the instructions he/she receives. You must give sufficient background information so that the terms of the contract can either be drafted or checked against the detail of the arrangements.

If possible, try to avoid using the contracting party's standard contract as such contracts are usually one-sided, drafted for commercial entities (not universities), and will require significant negotiation.

(a) What the lawyers need to know

For the purposes of reviewing or drafting a legal document, the lawyer will need the following information:

Project title
Background: the reason for entering into the contract.
Scope of work: a description of what is required.
Methodology: a description of how the work will be carried out.
Parties to the contract. A contract with a university must have the name of the university as the contracting party, not the name of the department, school, or faculty that will be undertaking the work. University departments, schools, and faculties are not recognised by the law as legal entities. The contracting body is, therefore, The University of X. Alternatively, if you want to identify the school or department undertaking the work then you could express it as The University of X acting through the School of Social Work. For all university contracts it is very important that the staff member undertaking the work is not personally named as the contracting party. The following should be avoided: Associate Professor Jill Jones, Faculty of Law, University of X. As a person over the age of 18, the staff member is capable of signing a legally binding contract but it means they are assuming personal liability for the performance of the contract terms. Generally individuals do not carry the relevant insurance to cover themselves for these types of liabilities.
Specified personnel. Provide the names of all investigators and collaborators associated with the project. Unlike in some sectors, collaboration on projects with one’s peers is widely encouraged within an academic environment. If those peers are within the same institution then this presents no difficulties legally. However, if the collaborators come from different universities or other organisations, such as CSIRO or a hospital, this does present legal problems. If the organisation that employs these people is not a party to the contract then the collaborator is not bound to observe the terms of the contract.

This raises a number of issues:

Confidentiality: you cannot disclose confidential information to them. If you do it may be a breach of the agreement.
Breaches by collaborators: the university has no way of enforcing the collaborator’s obligations to carry out specific parts of the contract, or to provide the results, or to maintain confidentiality.
Payments: The collaborator, on the other hand, may not be able to enforce the requirement to be paid for the work done. Legally, therefore, the way to deal with collaborations is either to have the other institution sign the primary contract or to arrange for a subcontract between your institution and the collaborator's institution. The latter is usually the simplest method and can often be done relatively easily by way of exchange of letters. However, there are two important issues to consider in arranging a subcontract: (1) Does the primary contract allow you to enter into subcontracts? It is often standard to include in contracts a provision that prevents subcontract without consent. Therefore it is important to ensure that, if collaborators are involved, this provision is either removed or the consent is acknowledged within the contract itself. (2) There is an issue of timing: you don't want the primary contract signed first only to find you cannot conclude the subcontract. Similarly, you don't want to bind yourself to the payment obligations under the subcontract until you know the money is committed under the primary contract. Therefore, ideally, these contracts should be negotiated and signed simultaneously.

Term of the agreement. The term of the agreement will be the duration of the research project.
Commencement and completion dates. Unless otherwise determined, the commencement date will usually be the date of final execution of the agreement (i.e., the date on which the final signature is obtained). The completion date will be determined by the duration of the project.
Project funds. The cost of the project services, plus GST. When costing your project you should refer to any relevant university policies on charging of overheads (also known as infrastructure costs or indirect costs). Also note that if your contract does not include a requirement for the payment of the GST in addition to the project amount, then 1/11th of your project amount will be deducted and remitted to the ATO in GST payment. Research contracts drafted by outside bodies may have specific financial reporting requirements that need to be carefully considered before the contract is signed. For example, the university may direct that only certified financial statements will be provided in response to contract reporting requirements, but the requirement of the contracting party may be for externally audited financial statements.
Allowances and costs. Specific items that can be recovered from the contracting party in addition to the agreed cost of the project services. Build in a degree of flexibility to cover, for example, a steep and unforeseen rise in the cost of consumables.
Purchase of and use of assets and access to facilities. Will equipment be purchased using project funds? If so, who will own the asset(s)? Will you require access to collaborators’ or the contracting party’s assets and/or premises. If so, what if any conditions will apply?
Project milestones and desired outcomes. Project milestones are usually set out in the form of a schedule under the headings: milestone, due date, details. Milestone dates are often expressed as ‘commencement plus X months’, but a specific date may be set for the achievement of each milestone. The desired research outcomes may be included in the schedule, or detailed separately.
Reports. The format and frequency of reports must be agreed. Reports are usually linked to milestones.
Primary contacts for notices, and address for notices. You need to provide the names of contact persons for project matters (usually the first-named investigator or team leader), intellectual property and legal matters (the university’s legal officer), and contract administration (your university’s research office). The contracting party must also provide the name of a contact person. In the case of the university, generally the address for service of notices will be its legal office.
Students. You must advise if students are to be involved. When you involve students in projects that are subject to external contracts, you need to remember that they are not employees of the university. Students are not bound, in the way employees are, by the obligations taken on by the university under the contract. Therefore if you need to bind the student, which will usually be the case where there are intellectual property and confidentiality obligations, there needs to be some additional arrangement between the university and the student. The form of this additional arrangement may vary from institution to institution. Some institutions make it a condition of enrolment, while others require a separate legal agreement to be entered into on a case-by-case basis.
Confidentiality and publications. One of the most significant issues for researchers, academics, and students alike is the ability to publish the results of their work in order to enhance their reputation and improve their career outlooks. This is equally important for the university. Therefore this should be drawn to the attention of the contracting party at the earliest possible time, as the contracting party’s confidentiality requirements may need to be tempered by the recognition of a right to publish. This is particularly the case with students, where a guaranteed right of publication of his/her thesis is usually mandatory. Unlimited discretionary clauses which allow publication only on approval should be viewed with extreme caution, as they do not actually guarantee a right of publication. The preferred position is to negotiate a mechanism whereby the contracting party has an opportunity to review publications before submission and to ask that the publication be withheld for a period of time to allow them to take steps necessary to protect their interests.
Intellectual Property (IP). The protection of IP is important to the researcher and the university. (If retention of IP is not an issue for the researcher, they must instruct the lawyer accordingly, otherwise the lawyer will argue to retain IP.)

Background Intellectual Property (BIP). Any project that builds on pre-existing work has the potential to involve BIP. An effort should be made to identify whether BIP is involved. Where there is BIP and it belongs to the university, you need to ensure that it is not subject to any obligations under previous project contracts. Where the BIP belongs to another institution or entity, you need to make sure you have appropriate permissions and that the terms of the contract are consistent with those permissions.
Ownership of IP. Make sure that you are aware of the university's requirements regarding the ownership of IP. It is not ideal for the contracting party to own the IP unless the research is fully costed (including a profit margin) and it is discrete – i.e., it is not the subject of an ongoing research program. Joint ownership creates too many legal issues and can result in the IP being left underutilised due to a failure of the joint owners to agree on how to deal with it.
From a university’s perspective, the best position is for the university to own the IP and to share control by way of licensing. The reasons for this are that ownership of the IP:

locks the university into further research opportunities relating to the IP in the future;
ensures future income;
allows the university to ensure that the IP benefits Australia and reaches the market place if the contracting party decides in the future it no longer has an interest in the IP (for example as a result of changing business focus);
allows the university to find other parties interested in the IP if the contracting party becomes insolvent;
allows the university to protect its ongoing research programs and the careers of its staff and students.

Management committee. Establish a management committee and detail its composition and functions as part of the agreement.

(b) Other important considerations

Signing contracts. It is important to know who within the university is authorised to sign contracts. As a corporate body, the university must act through its employees. One of the most important things to remember is that university contracts can only be signed by authorised university employees. You will need to refer to your individual university's policies on signing of contracts.

Generally, in assessing who is authorised to sign university contracts, there are two categories of contracts under consideration:

contracts where the university is purchasing goods or services from an outside party (e.g., to purchase a photocopier);
contracts where the university is providing services to a third party (e.g., a research contract).

For the first type of contract, the university may have financial delegations that allow different persons at different levels to sign purchase orders up to designated limits.

For the second type of contracts (no matter how trivial), there will be only one or two people authorised to sign. Check with your internal legal office or contract services division to find out the names of your institution’s authorised signatories.

Conduct of project - ethics approvals. All ethics approvals should be obtained BEFORE the contract is signed because if approval is subsequently withheld the project cannot proceed and the university will be in breach of its contractual obligations. Alternatively, the contract should include a term that the performance of the contract is conditional upon obtaining all necessary ethics approvals.
Warranties, indemnities, and other matters.

Warranties. There should be nothing in the agreement that requires the university to warrant or guarantee particular outcomes. Research, by its nature, is uncertain and therefore the university cannot guarantee that the results the contracting party is seeking will be achieved.
Indemnities. There should be no liability for consequential losses between the parties. The nature of any indemnities provided in the contract will need to be considered in the context of the particular project and also in light of the requirements of the insurance policies held by the university.
Insurances. Universities are large, well-funded organisations that hold comprehensive insurance policies. Requirements to take out individual policies for specific projects or that require the contracting party or its interests to be noted on such insurance policies are not generally acceptable. If the university had to do this for each project it would be a significant administrative cost. Universities are large enough and sufficiently financially secure that these clauses are not warranted.
Termination provision. This allows for the project to be terminated if there is a material breach of the agreement.
Dispute resolution. This provides a mechanism to resolve disputes before resorting to court action.

Volunteers. Some projects may envisage the use of outside volunteers. It is important to remember that volunteers are not employees of the university and should not be directed to perform work that would normally be undertaken by university staff. Usually, volunteers are covered by the university's public liability insurance for damage they may do to other people and property in the course of their work for the university. However, you should confirm the extent of insurance coverage for volunteers with your own institution. Most universities do not provide personal accident insurance for volunteers. If this is the case in your university, you must ensure that volunteers are aware of the advantages of having such insurance and that they are encouraged to arrange cover before commencing the project. As volunteers are not employees of the university, the same considerations raised above in relation to students will apply where there is an external contract, and a separate agreement should be entered into with them.

Activity

Case Study: Why do I need to worry about all this stuff?

Sally Superstar was a young researcher with plenty going for her. She was bright, hard-working, and passionate about her research. She was good at promoting her work and, as a result, had attracted the attention of DodgeyBrothers.com. They could see that her expertise and knowledge in the area of interactive software would add a whole new dimension to their on-line business.

Although Sally was bright and hard-working, she was also impatient and impulsive. She designed a project that would develop cutting-edge applications, and included a request for a student stipend. The contract was drawn up by DodgeyBrothers' lawyer and it stipulated, as one of its deliverables, completion of the PhD project. The funding was generous. Sally didn't really understand the terms of the contract, in particular the one relating to IP, or the restrictions on publishing, but the Dodgeys were really cool guys and she didn't foresee any problems. She was over 18 and therefore capable of signing a legally binding document, so that is what she did.

Nerdy Nick was delighted to take up the PhD stipend, and everything looked rosy.

One year into the 3-year project and all was going well. Sally's results were excellent and she started to write a paper for submission to a prestigious journal. She was good at communicating with DodgeyBrothers and over a drink after a project meeting, mentioned the article she was writing. Her attention was immediately drawn to the contract she had signed. To her horror she saw that she had agreed not to publish her results until the project ended. This was a devastating blow to the young star who needed 'runs on the board' to advance her career. In addition, her failure to fully understand the IP clause meant that neither she, nor the university, owned the software IP. It belonged to DodgeyBrothers. Any hope of commercialising her application was dashed.

The following month, Nerdy Nick decided he was bored with the project and announced that he didn't want to pursue PhD studies any longer. (He had become a Second Life devotee and was trading successfully in cyberspace). She tried, but failed, to get a replacement student. She was in a seriously difficult position now: one of the project deliverables was completion of the associated PhD project. Under the contract, she was obliged to complete the student project.

In desperation, she turned to the University Legal Office for help, at which time the full extent of her woes became apparent when she learned that having signed the contract herself, she was personally liable for the performance of the contract terms.

Read the commentary on this case study:

Why do I need to worry about all this stuff? – Case study explanation/commentary

It is unlikely that anyone would be as naïve as Sally Superstar, but it illustrates the type of problems that can arise when contracts are not reviewed by a lawyer. Always seek legal advice before entering into a research contract, and make sure the lawyer knows exactly what you expect to get from the project.

Please consider these questions.

Are there any instances when you might not wish to retain IP?
If the retention of IP was likely to be an issue, what type of advice would you be looking for from your university’s lawyer?

Module 6: Grant and Contract Administration