Indirect Costs

Indirect Costs AKA: Facilities and Administration Costs

Definitions

Indirect Costs (IDC), also called Facilities and Administration Costs (F&A), 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 Costs (IDC) rates, and the distribution and use of IDC.

IDC 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. IDC recoveries are allocated to different functions of the university to help support grant activities.

Applying the appropriate IDC 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 IDC 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 IDC costs. For the purposes of this policy, full cost recovery is defined as that IDC 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 IDC. 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 IDC costs

Institutional policy does not allow IDC 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 IDC rate or the department will be responsible for cost-sharing that portion of the IDC the sponsor refuses to pay.
• To increase (or perceive to increase) the competitiveness of a proposal.

Unspent IDC Balances

As requested by the principal investigator, Sponsored Projects Accounting and Compliance Office (SPAC) within the Office of the Controller, will provide details on IDC balances available from the principal investigator’s portion of recovered IDC costs. Twelve (12) months after the project ends, any account that has had no activity will be contacted by SPAC. The designated “signatory” will be given 30 days to provide guidance for the planned uses of the unspent funds. At the end of the 30 days, any funds with no planned encumbrances will revert to a central fund controlled by the Provost and will follow the approved uses of IDC funds.

Distribution of IDC Funds

Funds recovered pursuant to this policy will be given discrete account identities. One IDC fund will be created for each PI regardless of the number of grants. The distribution of IDC recoveries is as follows:

• 25 percent to the institution (to be managed by the VP AFF).
• 25 percent to the Principal Investigator.
• 20 percent to the Office of Sponsored Research and Programs.
• 15 percent to the Supervising VP Area/President.
• 15 percent to the Dean/AVP.

Use of Recovered IDC 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 IDC 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 F&A funds. Recipients of F&A may use these funds for items such as:

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

Limited salary uses may be made of these funds in accordance with the following principles:

A.   Pursuant to Section J.8.d (2) (a) of OMB A-21, recovered funds may not be used to supplement salaries for faculty or staff during the period of the individual’s contract obligation to the institution. This will not prevent the use of such funds for summer salary determined in accordance with policies prescribed by the institution. [OMB A-21 Section J.l0.d (2) (a)]. Use of these funds for summer salaries requires written approval of the dean.

B.   Funds may be used to hire support staff to provide administrative and technical assistance to the sponsored activities enterprise. Funds may also be used for salary for research assistants, associates, scientists, post-docs, and other staff such as student employees in keeping with institutional policy.

The current MSU Denver Indirect Cost Rate is 33% on-campus or 21% for off-campus projects. If you need a copy for your grant proposal please download the MSU Denver ICR Agreement 2020