Financial Risk Management with Foreign Institutions

From a Central and Departmental View

Presented by: Bob Stemple,

Associate Director Research Revenue

Peggy Bartek, Sr. Grants Administrator MGH Center for Global Health

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Setting Expectations

• Specific deliverables • Scope• Communication• Cultural

Who? What? Where? When?

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Assessing Collaborators

• Financial systems • Technical expertise• Environmental factors (economic,

geographical)• Past performance, questionnaires

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Building an Agreement

• Clear deliverables• Contractual language as protection for all

parties• Managing risk, never eliminating it• Engaging local counsel• Third parties – NGOs, hospitals,

universities

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Types of Agreements

• Fixed price – what happens when currency fluctuates?

• Milestones – what happens when milestones are not met?

• Custom agreements

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Managing Risk - Ongoing

• Fluctuating exchange rates – who takes the hit?

• COMMUNICATION! – local and foreign• Roles and responsibilities – collaborator

and foreign PI• Training for local administrators• Petty cash at foreign sites

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Worldwide Research Dealing with Exchange Rates

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Subcontract from a hospital in SpainContract states to be invoiced and paid in U.S. Dollars

Date Awarded Euro Budget Expenses Payments 4/12/12 $100,000 N.A. $100,0005/14/12 $50,0006/16/12 $50,000 $50,0007/17/12 $50,000

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Subcontract from a hospital in SpainContract states Budget in Euros

Date Awarded Euro Budget Expenses Equivalent 4/12/12 $100,000 .7546 €75,4605/10/12 .8547 $50,000 €42,7356/16/12 .8547 $50,000 €32,725

Total $100,000 €75,460

Should be €42,735Short ($11,712) €10,000

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Confused? It only gets worse!

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Subcontract from a hospital in SpainContract states to be invoiced in Euros

Date Awarded Euro Expense Invoiced Payments 4/12/12 $100,0005/14/12 .7546 $50,000 €37,7306/16/12 .6546 $50,000 €32,7307/17/12 .8546 €37,730

.8546 €32,730Totals ($17,552) $82,448 €70,460

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Do of any of these pieces make sense?

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Subcontract from a hospital in SpainContract states to be invoiced & paid in Euros

Date Awarded Euro Expense Invoiced Payments 4/12/12 $100,0005/14/12 .7546 $50,000 €37,7306/16/12 .6546 $50,000 €32,730

7/17/12 $44,149 .8546 €37,7308/19/12 $34,286 .9546 €32,730

Total $78,435 ($21,565) €70,460

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Subcontract to a hospital in JapanContract states to pay in Japanese Yen

Date Awarded Mark Budget Invoiced Payments 4/12/12 $100,0005/14/12 $50,000 $50,0006/16/12 1.479 ¥73,977

Now what? ¥23,977

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The money will fit together with the research, if we work together as a team!

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You CAN control the research, you CAN’T control the world economy.

Be sure to negotiate to get terms in US Dollars