Indirect Costs

Definitions

Indirect Costs (IDC), or Indirect Cost Recovery (ICR), constitute reimbursement to the institution for ordinary expenses related to facilities (buildings and their maintenance, equipment and capital improvements, operations, and debt on buildings) and administration (administrative support, relevant fringe benefits, and other general administrative costs) needed to operate the university where the sponsored research or program takes place.

Background and Purpose

This policy describes the institution’s expectations for full cost recovery on externally funded projects, the process for requesting a waiver or reduction in the federally negotiated Indirect Cost Recovery (ICR) rates, and the distribution and use of ICR.

ICR Rates

Institutional policy imposes a duty on administrators and principal investigators (PIs) to perform work on sponsored projects on a full cost recovery basis. Thus, when allowed by sponsor policy, proposal budgets must include full direct and indirect costs. ICR recoveries are allocated to different functions of the university to help support grant activities.

Applying the appropriate ICR rate reimburses the institution for costs incurred to construct and maintain buildings, provide equipment, utilities, and general and administrative support for sponsored activities. These rates are negotiated with the cognizant federal audit agency (Department of Health and Human Services, Division of Cost Allocation) in accordance with Super Circular 200.419. Current rates are 33% of Modified Total Direct Costs for on-campus activities, and 21% of Modified Total Direct Costs for off-campus activities.

Exceptions to the Federal ICR Rates

Occasionally, the development of campus research, training, public service programs, or infrastructure may best be served by accepting a sponsored award at less than the indirect cost normally applied. Such interests must be viewed as so significant and important to the institution that funding the project at a loss is more important to the campus than recovering the full ICR costs. For the purposes of this policy, full cost recovery is defined as that ICR that is approved by the funding agency. For example, the Department of Education typically funds training grants at 8 percent. The full cost recovery is then defined as 8 percent.

Institutional Vital Interest waivers are applicable to an individual project and are appropriate only if the sponsor will not support ICR. The Provost will make the final determination if Institutional Vital Interest waivers will apply. Among the factors to be considered are:

• Short-term seed grants that attract future larger awards (< $25,000)
• Grants supporting conferences or meetings hosted by the institution
• Cases of hardship for a new investigator
• Support for equipment purchases
• Supplemental funding for student support services that the institution wishes to provide
• Supplemental funding for library holdings, performances, or exhibits
• Grants designed to enhance cultural/artistic activities
• Development of strategic partnerships

Unacceptable reasons to request a waiver or reduction in ICR costs

Institutional policy does not allow ICR waivers/reductions to be granted in the following circumstances:

• The principal investigator failed to submit the proposal via approved institutional channels (e.g. through the Office of Sponsored Research and Programs or other approved institutional channel) prior to submission to the sponsor. In these cases, the sponsor will be expected to pay the full applicable ICR rate or the department will be responsible for cost-sharing that portion of the ICR the sponsor refuses to pay.
• To increase (or perceive to increase) the competitiveness of a proposal.

Unspent ICR Balances

Beginning June 30, 2027, the Provost’s Office will review principal investigator ICR fund balances alongside simple, forward-looking spend plans. This process is designed to support thoughtful planning and encourage timely use of resources to advance faculty scholarship, grant activity, and academic priorities.

Principal investigators will be asked to submit a brief spend plan outlining how they intend to use their ICR funds. When balances are not aligned with an approved plan, funds will roll up to the Provost’s ICR fund for strategic reinvestment to strengthen faculty grant infrastructure, expand research and administrative support, and support student success initiatives connected to sponsored activity.

Existing fund balances as of June 30, 2026 will not be affected by this policy change. The Provost’s Office will develop and share the application process and standard spend-plan format no later than June 30, 2026.

Note: Having funds roll up is not viewed negatively. This process ensures resources continue to benefit the broader faculty community through intentional reinvestment.

Distribution of ICR Funds

Effective July 1, 2026, ICR funds will be allocated as follows:

• 40% to the Office of Sponsored Research and Programs (OSRP) to support proposal development, research administration, and compliance.
• 35% to Sponsored Programs Accounting and Compliance (SPAC) to support financial management, compliance, reporting, and audit readiness.
• 12.5% to the Principal Investigator.
• 12.5% to the Office of the Provost, stewarded through a collaborative, request-based process in partnership with deans, chairs, and principal investigators.

Note: For grants situated outside of the Academic Affairs Branch, the portions allocated to the Principal Investigator and the Provost may route to the corresponding Branch Vice President.

Funds recovered will be given discrete account identities. One ICR fund will be created for each Principal Investigator regardless of the number of grants.

Use of Recovered ICR Funds

Per Super Circular 200.405, A cost is allocable to a sponsored agreement if (1) it is incurred solely to advance the work under the sponsored agreement; (2) it benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods, or (3) it is necessary to the overall operation of the institution.” In keeping with these cost allocation principals defined by Super Circular 200.405, funds generated through ICR recoveries should be spent in support of sponsored activities. The following example is not intended to define specific uses, but rather to provide general guidance for the use of ICR funds. Recipients of ICR may use these funds for items such as:

• Equipment
• Supplies
• Research/program-related travel
• Services to support research/program capabilities
• Memberships, subscriptions, and journals

For all grant budgets created after July 1, 2025, please use the provisional ICR rates of 33% on campus, and 21% off campus. If you need a copy for your grant proposal please download the MSU Denver ICR Agreement 2020