The University has, in the past, occasionally encountered financial problems resulting from subcontract agreements with small, financially unstable organizations.  Such problems arise not only when the University is engaged as a subcontractor but also when it issues a subcontract to another organization.  Typical problems include the following:

1. Inability to collect funds due upon completion of a subcontract by the University -- Small organizations may encounter cash flow problems as a consequence of insufficient capital to meet their obligations.  This may result in late payment or non-reimbursement to the University for the work completed. 
   
   
2. Inadequate financial records to meet audit requirements by organizations on a subcontract to the University - - Small organizations may not have sufficient capital to refund audit disallowances resulting from inadequate accounting of funds expended.  This problem has been encountered in spite of a "audit requirements" clause and a "prompt repayment of audit disallowance" clause in the subcontract agreement.

All future subcontract agreements will include the following condition so that the University will be protected against a recurrence of these problems:

As a part of any subcontract process, a review of the organization's financial history will be required.  An exception to this condition will be made for the following subcontracting organizations:

1. Another university.
2. A large or well-known organization.
3. An organization with which we have had previous satisfactory dealings.