CFI Policy and Program Guide

June 14, 2002

Proposed Revisions

You will find proposed revisions to two sections of the CFI Policy and Program Guide :

  • Section 2.7 : In-Kind Contributions
  • Section 4.10 : Post-Award Agreement Changes to the Infrastructure Project.

The CFI operates on the principle that its funds must be used effectively, economically, and in the best interest of Canada’s research enterprise. The above issues are very important in terms of accountability of institutions to the Canadian public. The proposed revisions to section 2.7 are intended to outline what is expected for the valuation of such contributions as well as the documentation required to support it. Revisions to section 4.10 outline new thresholds for notifying the CFI about changes to a project.

We look forward to your feedback before Friday, June 28, 2002 on the proposed valuation process and the documentation requirements as well as on the section about post-award agreement changes.

Please e-mail feedback to Christine Charbonneau at christine.charbonneau [at] innovation.ca

Please note that in the near future we will be posting on our web site some best practices with respect to procurement practices and other financial and administrative topics.


2.7 What are eligible in-kind contributions?

In-kind contributions are defined as eligible non-monetary resources that external partners provide to eligible projects.

Those contributions may be recognized by the CFI if deemed essential to an infrastructure project.

In-kind contributions may include, in whole or in part, the value of capital items that eligible external partners donate to the eligible institution, such as equipment, facilities, and space to house and service the infrastructure.

Certain non-capital eligible costs needed to bring the infrastructure into service, such as professional services and training, may also be included as in-kind contributions.

In-kind contributions must be eligible contributions to the acquisition and development of infrastructure, not to the operating costs of research.

The CFI has recently revised the guidelines to assist institutions in the valuation of in-kind contributions (see section 4.13).

4.13 Assessing the Value of In-Kind Contributions

To ensure that in-kind contributions (see section 2.7) are assessed in a consistent and reliable manner, the CFI has obtained advice on best practices for the valuation of in-kind contributions and on documentation to be maintained at institutions in this regard. We concluded that the current guidelines for valuation were generally adequate, but that institutions needed more guidance on the type of documentation that should be maintained to support the valuation.

The resulting revised guidelines do not represent a change in policy with respect to the eligibility and valuation of in-kind contributions. However, they include more stringent documentation requirements for large in-kind contributions (category 2, below).

The CFI expects that institutions will comply with the requirements of this section for all in-kind contributions received after September 1, 2002, even if these contributions are part of previously approved projects.

Why impose special guidelines on in-kind contributions?

The CFI operates on the principle that its funds must be used effectively, economically, and in the best interest of Canada's research enterprise. To maximize the purchasing power of its investment, the CFI strongly encourages institutions to seek the best possible prices when purchasing equipment or developing infrastructure projects.

These principles apply not only to cash expenditures, but also to in-kind contributions, recognizing that, in certain circumstances, in-kind contributions may constitute an effective way for eligible partners to contribute to a project.

In-kind contributions must be assessed at their fair value to ensure the most effective use of CFI resources. An over-estimation of the value of an in-kind contribution inflates the total cost of a project. Not only is this against CFI policies, but this is unfair to all institutions as it decreases the amount available for funding other meritorious projects.

Categories of in-kind contributions

For the purposes of these guidelines, the CFI has divided individual in-kind contributions in two categories:

  • Category 1:
    • individual in-kind contributions smaller than $100,000;
    • individual in-kind contributions between $100,000 and $500,000 that represent 10% or less of total eligible project costs.
  • Category 2:
    • individual in-kind contributions between $100,000 and $500,000 that represent more than 10% of total eligible project costs;
    • all individual in-kind contributions larger than $500,000.

The same principle of fair value applies to both categories, but the documentation required increases for Category 2.

The threshold between the categories was set to take into consideration the level of risk associated with significant in-kind contributions while acknowledging the cost and effort required to provide additional documentation.

How should in-kind contributions be valued and what are the documentation requirements?

The valuation method depends on the type of contribution while the documentation requirements will depend on the size of the contribution. In some cases, the fair market value of contributions is known. In other cases, the value must be assessed using commonly accepted methods. In all cases, a description of the valuation method used must be provided to CFI at the time of finalization of the award. All relevant supporting documents must be retained on file at the institution for audit purposes. The CFI does not require copies to be sent at any time.

For category 2, there may be a requirement for a third-party appraisal of the in-kind contribution. Appraisals are not required at the time of application. They are only required after a project has been approved by the CFI. In general, the CFI advises that appraisals be done at the time of award finalization. However, the CFI realizes that this may not be possible, particularly for projects that span several years. In all cases, appraisals should be completed at the latest upon transfer of ownership of the related equipment or eligible item to the institution. The CFI will accept appraisals by a third party who is independent of, and without interest in, the project, and has expertise in the infrastructure and in the performance of appraisals.

The CFI will reimburse the institution upon submission of the appraiser’s invoice for appraisal costs related to category 2 items where no alternative valuation method was available. Any appraisal costs in excess of $10,000 should be approved by the CFI prior to proceeding with the appraisal.

Institutions are expected to follow existing institutional policies and procedures, which must meet the CFI guidelines and minimum requirements outlined in the table below.

Contributions by external partners that are treated as charitable donations for income tax purposes will normally be subject to existing policies and procedures of the institution. The CFI will accept values determined using these policies and procedures.

Note : the CFI reserves the right to make the final determination of eligibility and fair value of in-kind contributions and to disallow expenditures. To avoid a situation where in-kind contributions may be later deemed ineligible or unfairly valued, institutions are advised to contact the CFI early in the process if they foresee problems in complying with the guidelines for a given project.

Valuation of in-kind contributions
Type of contribution Acceptable practices Documentation required at the institution
1. Equipment, related warranties, materials & components, including software Donated new: value of selling price to most favoured customer net of “normal” or “educational” discount. Category 1: quotation and written confirmation from the supplier of the amount contributed and of the normal or educational discount, if any.
Category 2: third party appraisal to assess fair value; or, three supplier quotations received as a result of public tendering to support the best available price.
  Special discounts: difference between selling price to most favoured customer (after “normal” or “educational” discount) and actual selling price. Category 1: quotation and written confirmation from the supplier of the amount contributed and of the special discount provided in addition to “normal” or “educational” discount.
Category 2: third party appraisal to assess fair value; or three supplier quotations received as a result of public tendering to support the best available price.
  Donated used: fair market value or the original value of the asset less maximum capital cost allowance over the age of the item in accordance with the Income Tax Act. Category 1: supplier confirmation of the value.
Category 2: third party appraisal of fair market value.
  Long-term loan: rental equivalent based on most favoured customer rates (excluding financing charges). Category 1: supplier confirmation of rental rate to most favoured customer.
Category 2: third party appraisal of fair market value.
  If one-of-a-kind:
Category 1: supplier’s incremental manufacturing cost, i.e. excluding general R&D costs.
Category 2: appraised value.
Category 1: confirmation from supplier detailing cost of materials, number of hours and time value as well as overhead rate applied; or
Category 2: third party appraisal.
2. External Professional services Billing rates charged to fee paying clients.
or
Fees charged for similar services provided to fee paying clients.
Note : Commercial rates are not acceptable
Categories 1 and 2:
  • Written confirmation from the service provider supporting that the rates quoted or the value assigned to the donated service represents fair value consistent with actual rates or fees charged to fee paying clients for similar services.
  • Written confirmation from the service provider supporting the number of hours of service donated.

Category 2: confirm with the CFI on a case by case basis whether additional documentation is required.
3. Datasets Price of dataset charged to a third party plus incremental costs to customize. If not otherwise sold to third parties, incremental cost to customize. Categories 1 and 2:
Confirmation/quote from the supplier supporting the value of the dataset (or comparable dataset) as charged to a third party.
Confirmation from the supplier supporting incremental costs to customize (e.g. hodefaulty rate and number of hours).
Category 2: confirm with the CFI on a case by case basis whether additional documentation is required.
4. Travel Travel costs (economy) incurred by a supplier that are donated to a particular project. Written confirmation from the supplier of the amount paid and donated to the project.


4.10 Post-Award Agreement Changes to the Infrastructure Project

The information contained in this section only applies to changes taking effect after the award agreement is in place. The institution must keep proper documentation of all changes for audit purposes.

An institution must use CFI funds to purchase or develop the specific infrastructure project and to cover the specific eligible costs agreed to by the CFI, and laid out in the award finalization documentation. The institution may, however, change the vendor and the model-year of an item of equipment.

The institution must notify the CFI Institutional Coordinator immediately if:

  • the institution is unable to carry out or complete the project;
  • there will be a change to the nature of the infrastructure
  • there will be a significant variance in the budget or project costs, anticipated end date of the project, or in cash flow projections;
  • there is a change in the designated project leader;
  • in the case of a New Opportunities or Canada Research Chair Infrastructure award for multiple candidates, there is a change in status of any of the Researchers

In the following, the “total eligible costs” means the total eligible costs amount agreed to in the Award Agreement. Significant variance in budget or project costs is defined as a variance exceeding 10 percent of the total eligible costs, or $200,000, whichever amount is lower. Significant variance in a project’s anticipated end date means more than six months. Significant variances in projected cash flows means that the timing of expenditures from one fiscal year to the other over the course of a project deviates by more than 20 percent of the total eligible costs for the project, or $500,000, whichever is lower.

The CFI may consider and accept amendments to the project and budget. CFI approval may be required depending on the nature and scope of the proposed change.

  • The institution must request approval in writing prior to changes in the nature of the infrastructure, or for significant variances in the budget, project costs, or a project’s anticipated end date. All requests should be sent to the Institutional Coordinator, and should include an explanation for the change, showing that it is essential to the project and describing the impact of the change on the project. Requests for CFI approval of changes in the nature of the infrastructure, or significant variances in the budget or project costs must be made by the President or designated representative. Requests for a significant change in a project’s anticipated end date, or notification of a significant variance in projected cashflows may be submitted by the President or designated representative, Account Administrator, or CFI Liaison.
  • Variances that are below the thresholds of “significance” defined above will be accepted as long as the costs are eligible and the items relate directly to the project.

Can an institution accept "cash back" from a supplier?

The CFI recognizes that, as part of the discussions and negotiations leading to the purchase of equipment, suppliers may offer (or institutions may request) that instead of a discount on equipment, which is considered by the CFI as an in-kind contribution, the equivalent in cash be returned to the institution (i.e. cash back). The CFI will accept such cash back arrangements only if the amount is included in the project budget and counted as a contribution to the specific project.

The CFI does not endorse or recognize the procurement of equipment that would be predicated by, or linked to, a promise of cash back, or a cash rebate that is not counted as a contribution to the specific project, but would benefit the institution in some other way.

Can an institution accept additional or improved equipment from a supplier?

The CFI considers that accepting an offer to acquire additional or improved equipment for the amount originally approved is the same as a decrease in eligible costs or a change to the project. As long as these changes are below the “significance” threshold, they are acceptable. The institution must get prior approval from the CFI if there is a change in excess of 10 percent of the total eligible costs, or $200,000, whichever is lower.

What happens if final costs differ from the award agreement?

In the following, the “final costs” means the final total of actual eligible costs when all the infrastructure has been acquired.

If final costs are higher than the costs anticipated in the award agreement, the CFI is not responsible for expenditures in excess of the funds approved.

If final costs are lower than the costs estimated in the award agreement, and if other funding partners contribute their agreed share, the institution may use up to 10 percent of the total eligible costs, or $200,000 (whichever amount is lower), to acquire eligible infrastructure directly related to the project. The institution can do this even if these items were not included in the approved budget.