What Is a Cooperative Agreement?
Cooperative agreements are flexible arrangements whereby money is transferred from federal agencies to local organs of the government for attaining a public purpose. They are distinct from traditional procurement agreements and are not governed by federal regulations. This exclusion from the ambit of federal rules makes cooperative agreements extremely pliable. They can be tailor-made in order to suit the purpose for which they are being drafted. The solicitation for a cooperative agreement occurs through an application.
Typically, a sponsor is substantially involved in a cooperative agreement. Another benefit of being outside the scope of federal regulations is that cooperative agreements do not have to be reported as per the statute. The reporting requirements of a cooperative agreement are governed by its terms and conditions.
Who Are the Parties to a Cooperative Agreement?
A cooperative agreement spans over various stakeholders. Funds are typically transferred from the federal agencies to local government entities, which then again transfer this money for some public purpose. The recipient of this money could be a private individual, a civil society organization, or any other such entity involved in the tasks of public purpose. Keeping the aforementioned in view, the following may be parties to a cooperative agreement:
- Local state department/agency: The agency which receives money from the federal department and is responsible for its disbursement to the recipient.
- Recipient: The recipient could be anyone, including an individual, a civil society organization, a non-governmental organisation, etc.
A cooperative example may be:
A is the local department on health and sanitization, B is a doctor who wants to conduct a free medical clinic for the poor, B applies to A and enters into a cooperative agreement, this application is further sent to the federal agency which releases the funds, and finally, A disburses this money to B. Typically, in such a scenario A and B will be parties to the cooperative agreement.
What Is the Purpose of a Cooperative Agreement?
The purpose of a cooperative agreement is to:
- Enable individuals and other organisations involved in public purpose activities to avail of funds through a structured process.
- Establish a connection or a link between the federal arm of the government, the local arm of the government, and the citizens for whom the government functions.
- Have an organised structure and institution in place for the disbursement of funds.
Contents of a Cooperative Agreement
A Cooperative Agreement template consists of the following key clauses:
- Scope and goals of the cooperative agreement: A cooperative agreement should ideally contain the background or the context in which such agreement is being entered into. The objectives of the agreement, the purpose of the cooperative, details of the recipient who shall be receiving the funds etc.should be included in the agreement.
- Funds: The quantum of funds that shall be released as a consequence of this agreement should also be included in the agreement.
- Public purpose: The agreement should also contain an explanation as to how the objectives of the agreement are linked to public purpose. Basically, a small paragraph explains why the federal government should release funds to the recipient under this agreement.
- Statement of Work: The cooperative agreement should, among other things, list out all the work or activities the recipient shall perform as a part of this agreement. For instance, A, an organization for children’s education, shall open schools or launch vocational programs or encourage education of girl child, etc.
- Involvement of the local agencies: If the recipient requires the local agencies to be involved or requires their assistance in any manner whatsoever, the same should be mentioned. If no or less assistance is required, this should also be mentioned in the agreement.
- Term of the agreement: The term of the agreement should not typically exceed five years until and unless the local agency authorizes so in writing. This is so because the funds of the government cannot be used endlessly. This should ideally be till the time the purpose stated in the agreement is achieved.
- Key officials: Officials from the local agency and from the recipients’ side should be appointed for monitoring and supervising the work sought to be performed under the agreement.
- Disbursement of funds: Funds are typically awarded and disbursed as a lump sum amount once every year. The method of payment, method for requesting advance, bank accounts, and any such other details should be included in the agreement.
- Insurance: Typically, the recipient is required to obtain insurance before they can lay their claim on the funds released.
How to Draft a Cooperative Agreement?
An effective Cooperative agreement can be drafted using the following guidelines:
- Ascertain the purpose behind the agreement: Before you sit down to draft the agreement, you should outline the purpose for which the money is being requested,
- Clarify the rationale: A brief paragraph clarifying the rationale behind the request will help in structuring the agreement.
- List out each specific work under the statement of work. This will make the agreement more comprehensive and will help the government agencies in assessing the authenticity of your demands.
- A prior assessment of how much money is required to attain the desired purpose should be done. The quantum of funds required should be stated accordingly.
- Timelines of deliverables should also be specified.
- Any request for advance or reimbursement should be provided for. A proper procedure to request for the same should be outlined.
- Provisions entitling termination of the agreement and modification of the same should also be included in the agreement.
- Typically risk mitigation clauses such as indemnity and limitation of liability should also be included.
- A mechanism of reporting requirements should be built-in.
- Third-party rights and a clear disclaimer that no employer-employee relationship shall be established between the government agency and the recipient should be included.
A cooperative agreement is essentially an agreement entered into between the government and the recipient. Hence, there is a minimal scope of negotiation. Typically, the onerous terms are on the recipients as they are the ones who are asking for money. Hence most of the obligations are imposed upon them. However, slight negotiation may be possible as to the term of the agreement and the quantum of the funds to be released.
Benefits and Drawbacks of a Cooperative Agreement
The advantages are:
- Less taxation: A cooperative agreement is entered into for a public purpose. Hence, the taxes levied on the same are less than a business otherwise started.
- It encourages more people and organisations to get involved in public purpose activities as funding requirements are taken care of.
- It provides a logical and structured approach to availing of funding for social welfare initiatives.
- Having a written agreement in place which each specification laid out helps in enforcing claims and prevents disputes.
- It does not follow the lead of traditional procurement contracts and hence is free to decide on a number of its terms and conditions.
- The parties can decide upon the reporting requirements.
The disadvantages are:
- Excessive regulatory mechanism: A cooperative agreement, as it is entered into with a local government agency, is subject to a plethora of government regulations. For instance, the term cannot exceed five years.
- Greater accountability of the recipient: The recipient has greater accountability as the funds are being disbursed by the federal agencies.
- Scope for negotiation is very less, and sometimes this may make the recipient feel that onerous terms are being imposed upon them.
What Happens in Case of Violation?
Generally, in case the terms of a particular agreement or contract are violated by any of the parties, then such an action is considered as a breach due to the fact that the contract is subject to those terms and conditions. The same aspect can be seen in a cooperative agreement as well. The breaching party is obviously liable to pay for all the damages for the losses incurred by the other party who has not breached the agreement(1).
n any cooperative agreement, there is an explicit mention of what happens in case of violation, what would be the damages and how they would be calculated, how the situation would be resolved, whether negotiation or arbitration is an option or not, etc. In case there is an arbitration or negotiation clause mentioned, then the parties can use the procedure to resolve their issues effectively.
A cooperative agreement can be an extremely effective way for companies or businesses to raise money. It is also a very efficient method of encouraging entities and individuals to engage in activities that promote public purpose.