F & A Cost Rates FAQs
What are Indirect (Facilities and Administrative) Costs?
Why Does the Research Foundation Charge F&A on Grants and Contracts?
Will Adding F&A to My Budget Hurt the Chances of My Project Being Funded?
What Do F&A Costs Include?
What are Indirect Costs NOT?
How are F&A Costs Arrived At?
Who Gets the Recovered F&A Costs?
What are “Forgone” or Unrecovered F&A Costs?
Why Do Some Sponsors Not Pay F&A Costs?
If the Funding Agency Does Not Allow Any F&A in the Budget, Will SDSU Research Foundation Still Administer My Project?
How Do SDSU's F&A Costs Compare to Other Major Universities?
What Are SDSU´s Current F&A Rates?
What are Indirect (Facilities and Administrative) Costs?
- The term “indirect costs” was coined many years ago by the federal government´s Office of Management and Budget. As a result of recent changes, the new name for these costs is “Facilities and Administrative costs,” or F&A. The term “indirect costs” will soon disappear.
- F&A costs are those expenses associated with maintaining the infrastructure of universities. F&A recoveries go toward supporting research, instructional, and public service projects that are paid for with external funds (e.g., grants and contracts).
- F&A costs are real costs, but are not readily identifiable as belonging to a specific project, as direct costs are. As a result, F&A is generally stated in proposal budgets as a percentage of direct costs.
- F&A costs are incurred every time a grant or contract dollar is spent on research, public service, or instructional projects, whether or not the funds are spent through SDSU Research Foundation.
- F&A costs are built into a project budget as an integral part of the proposal, not “taken off the top” of an award. As expenditures are made in the process of conducting a project, the correct amount of money is concomitantly deducted for F&A. Similarly, if not all of the direct costs are expended during the life of a project, SDSU Research Foundation will not collect all of the F&A allowed in the budget.
Why Does the Research Foundation Charge F&A on Grants and Contracts?
The operation of any enterprise, whether it is a university, supermarket, law firm, or factory involves costs. Some are readily visible, such as employees and furniture. Others are not. In order to fully pay SDSU for the costs of its sponsored research and educational activities, certain hidden--or indirect--costs must be reimbursed by funding agencies. If these real costs are not reimbursed, the university itself would have to pay for them. This, of course, would have an adverse impact on department budgets, student fees, and university resources. Sponsors recognize this fact and, with few exceptions, are willing to pay for indirect costs. SDSU Research Foundation is responsible for including indirect costs in proposal budgets and for collecting the funds on behalf of SDSU.
Will Adding F&A to My Budget Hurt the Chances of My Project Being Funded?
F&A costs are only one part of a proposal budget. By itself, the inclusion of F&A in a budget will not affect a proposal´s competitiveness. A well-planned budget includes F&A. As long as all direct-cost items are realistic, F&A is no hindrance. This is true for two reasons. First, other applicants will also be including indirect costs in their budgets. Second, funding agencies recognize that F&A is a necessary part of a budget and do not discriminate against institutions that include F&A. The substance and content of a proposal, including its objectives, methodology, and care of preparation is far more important than F&A in determining whether a project gets funded or not.
What Do F&A Costs Include?
F&A costs include the following elements:
- Building use
- Improvement use
- Equipment use
- Operations and maintenance
- Library use
- General administration
- Department administration
- Sponsored projects administration
What are Indirect Costs NOT?
- F&A costs are not a tax and are not “transaction costs”
- F&A recoveries are not all kept by SDSU Research Foundation
- F&A costs are not taken out of a grant or contract; they are built into it
- F&A costs are not discretionary
- F&A costs are not the operating costs of a department or college
- F&A recoveries do not reimburse all of SDSU´s costs or its total investment in support of research, public service, and instructional projects
How are F&A Costs Arrived At?
- The complicated procedure for calculating F&A costs is prescribed for all universities by the federal Office of Management and Budget (OMB).
- The U.S. Department of Health and Human Services is the agency that audits this process for SDSU, and it is with DHHS that the SDSU Research Foundation negotiates and signs the F&A rate agreement.
- SDSU and SDSU Research Foundation work together to determine what the University´s F&A costs are, and to present the documentation to the government.
- OMB puts a 26% cap on SDSU's administrative costs, even though the actual costs are higher. The difference between 26% and SDSU's negotiated F&A rate (as of July 1, 2006, 49.5% of modified total direct costs*) is accounted for by costs pertaining to facilities, equipment use, maintenance, electricity, janitorial services, and other non-administrative items.
*Modified total direct costs: Total direct costs, including salaries, benefits, travel, supplies, etc. less equipment costing more than $5,000 per unit, student stipends, and subcontract amounts over $25,000.
Who Gets the Recovered F&A Costs?
Recovered F&A costs are used for many purposes throughout the university. Much of the recovered funds are returned to the college deans and principal investigators. Some uses of F&A include:
- Sponsored Project Support (funds allocated to college deans and principal investigators)
- Project space (including Alvarado and Sky Park)
- General project support (phones, office renovation, etc.)
- University Programs (including faculty grants-in-aid and fellowships)
- Liability and other insurance; janitorial services and utilities in project space
- General research administration (grant accounting, proposal submission, payroll and personnel, purchasing, clerical support, and other expenses associated with running an enterprise that receives $130 million per year for research and educational projects and that employs thousands of people on over 1,000 projects at any one time)
What are “Forgone” or Unrecovered F&A Costs?
- When SDSU and SDSU Research Foundation accept a grant or contract that does not reimburse F&A costs at the full negotiated rate, the difference is called “forgone” or unrecovered F&A.
- F&A are real costs and are incurred whether or not the sponsor pays for them. Because the University and SDSU Research Foundation must still support the infrastructure that enables SDSU faculty to attract funding and conduct projects, F&A costs must be covered from other sources. It is for this reason that “full” F&A costs should be included in proposal budgets whenever possible
Why Do Some Sponsors Not Pay F&A Costs?
- Private foundations, nonprofits, and most charitable organizations that sponsor university projects state that their intention is to help support specific programs, but not to pay all of the costs of a project. They can therefore leverage their funding with other sources of support. Such sponsors typically limit the amount they will allow for F&A.
- Some federal programs (e.g., educational training grants) establish funding limits in much the same way as charitable organizations. This is more likely to be the case if no deliverables are required from the project director.
- Contracts with private corporations should recover SDSU´s federally-negotiated F&A rate, but some smaller industrial firms will only pay for part of the F&A expenses
If the Funding Agency Does Not Allow Any F&A in the Budget, Will SDSU Research Foundation Still Administer My Project?
Yes. SDSU Research Foundation administers grants and contracts for faculty regardless of whether F&A is allowed or not.
How Do SDSU´s F&A Costs Compare to Other Major Universities?
- SDSU´s F&A rates are just about average when compared to similar institutions across the nation.
- Variations in F&A rates from university to university are common. Some institutions have rates above 70% others charge as little as 35%. There are dozens of factors that account for differences in F&A rates, including costs of heating and cooling, age of buildings, amount of administrative activity devoted to research management, need for replacement of research equipment, and the “balance” between research and instruction on campus. In addition, some state institutions choose to bear a greater share of research costs than others. A lower F&A rate does not mean the research costs are less at one institution than another. It only means that the costs are being shifted to the university or the state´s taxpayers and not charged to the sponsor
What Are SDSU´s Current F&A Rates?
As with most universities, SDSU has several F&A rates.
The rates are as follows and are in effect until June 30, 2006.
- Research On Campus: 50% MTDC (Modified Total Direct Costs), 49.5% MTDC as of July 1, 2006
- Research Off Campus: 26% MTDC
- Instruction On Campus: 54.3% MTDC
- Instruction Off Campus: 26% MTDC
- Other Activities On Campus: 33.5% MTDC
- Other Activities Off Campus: 24% MTDC
- Intergovernmental Personnel Act (IPA) Off Campus: 8.7%
“Other Activities” refers to projects that are neither research nor instruction. Examples can include filmmaking, editing a journal, and conferences.