Budgeting F&A (aka “indirect costs”)

In accordance with the Facilities and Administrative Cost Recovery policy, the university’s federally negotiated indirect cost rates are applied to all sponsored projects regardless of the sponsor, unless an exception exists or an F&A waiver has been granted. The most common type of exception is when a sponsor’s published policy establishes a specific F&A rate for its projects.

There are three things to consider when budgeting indirect costs: calculation base, activity type and location of work. SPA will help investigators with these calculations as part of the proposal development process.

Calculation Base

There are three possible base options:

Modified Total Direct Cost (MTDC) base is used when federally negotiated rates are applied. It is derived by excluding certain costs from the direct cost total. At NIU, MTDC excludes equipment and fabrication of equipment, capital expenditures, charges for patient care, participant support costs, tuition remission, rental costs of off-site facilities, scholarships and fellowships; as well as the amount of each subaward over $25,000. Always check the specific agency guidelines for instructions on budget calculations as some sponsoring agencies and funding programs vary in their application of these categories.

Total Direct Cost (TDC) base is used when a sponsor mandates an F&A rate that is less than NIU’s federally negotiated F&A rate.  When using a TDC base, the sponsor’s allowed rate is applied to the total direct costs, and no exclusions are taken prior to calculating the indirect costs. If the sponsor’s published guidelines require certain costs to be excluded from the calculation base, NIU will honor that requirement.

Total Cost (TC) base is used when the sponsor states that only a certain percentage of total project costs can be charged for indirect (F&A) costs.

The following three examples are provided to illustrate how different indirect cost bases affect project costs:

MTDC Base

In case #1 the table below, NIU is allowed to charge the federally negotiated on-campus rate for organized research. Direct costs total $100,000 and $10,000 of this amount is for equipment (an item excluded from MTDC under NIU’s F&A agreement with DHHS).

Case #1 MTDC Base On-Campus Rate

Personnel Costs

$90,000

Equipment

$10,000

Total

$100,000

MTDC Base

$90,000 (less equipment)

F&A rate (49% x MTDC)

$44,100

Total Request

$144,100

TDC Base

In case #2  in the table below, NIU is prohibited by official sponsor policy from charging the federally negotiated on-campus rate for organized research. The sponsor allows a rate of 10% with no exclusions. As in case # 1 direct costs total $100,000 and $10,000 of this amount is for equipment.

Case #2 TDC Base On-Campus Rate

Personnel Costs

$90,000

Equipment

$10,000

Total

$100,000

TDC Base

$100,000 (equipment included)

F&A rate (10% x TDC)

$10,000

Total Request

$110,000

TC Base

In case #3 as presented in the table below, the sponsor has indicated that no more than 10% of the total costs (the total amount requested) can be used for F&A. Unlike case #2 above, it is not appropriate to simply multiply 10% against the Total Direct Cost base because in case #2 the F&A ($10,000) is only 9% of the Total Costs (10,000 divided by 110,000 equals .09). For such cases you will need to know both the maximum amount of F&A that can be charged as well as the “actual” F&A rate being used.

Determining the Maximum Amount of F&A to Charge
  • Step 1: Deduct the allowed F&A percentage from 100% (e.g., 100% subtracted by 10% equals 90%).
  • Step 2: Divide the amount of Total Direct Costs in the budget by this percentage to obtain Total Costs (e.g., $100,000 divided by .90 equals $111,111).
  • Step 3: Multiply the Total Costs obtained by the percentage for allowable F&A. This will generate the maximum allowed F&A (e.g., $111,111 multiplied by .10 equals $11,111).
  • Step 4: Check the calculation. The Total Costs minus the Total Direct Costs should equal the amount of the F&A charged to the sponsor (e.g., $111,111 subtracted by $100,000 equals $11,111). 
Case #3 TC Base On-Campus Rate

Personnel Costs

$90,000

Equipment

$10,000

Total Direct Costs (TDC)

$100,000

Total Cost (TC) ($100,000 / .90)

$111,111

F&A rate (10% of TC)(.10 x $111,111)

$11,111

Determining the Actual F&A Rate Used

Using the information provided above: 

  • Step 1: Identify the sponsor’s allowed F&A percentage of Total Costs (e.g., 10%).
  • Step 2: Deduct the allowed F&A percentage from 100% (e.g., 100% minus 10% equals 90%).
  • Step 3: Divide step 1 by step 2 for the “actual” indirect cost rate being used. (e.g., 10% divided by 90% equals .1111 which also equals 11.11%).

Activity Type and Location of Work

The F&A rate will vary when using a NIU federally negotiated rate because rates are set according to project type and the location where the work will be performed. The rates and general guiding definitions for allocating activity type and campus location are found below.

Activity Type On-Campus Rate Off-Campus Rate

Instruction and Training

49%

26%

Organized Research

49%

26%

Other Sponsored Activities/Public Service

32.9%

26%

Instruction and Training

Teaching and training activities of the institution – with the exception of research training which should be identified as research - that are intended to elicit some measure of “educational change” in a learner or in a group of learners. Instruction includes all teaching and training activities, whether they are offered for credit(s) towards a degree or certificate on a non-credit basis, and whether they are offered through regular academic departments or separate divisions, such as a summer school division or an extension division.

Sponsored Instruction

  • Any project for which the purpose is to instruct any student at any location and can include NIU students or staff, teachers or students in elementary or secondary schools, or the general public.
  • Curriculum development projects at any level, including projects that involve the evaluation of curriculum or teaching methods.
  • Programs involving NIU students in community service activities for which they are receiving academic credit.
  • General support for the writing of textbooks or references books, video or software to be used as instructional materials.

Organized Research

All research and development activities that are sponsored by Federal and non-Federal agencies and organizations including the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities. The definition does not include sales and service or testing activities.

Sponsored Research

  • A systematic study directed toward the fuller knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications towards processes or products in mind.
  • A systematic study to gain knowledge or understanding necessary to determine the means by which a recognized need may be met or to apply knowledge towards the production of useful materials, devices and systems or methods.
  • Dissemination of project findings to advance the knowledge and understanding of a particular phenomenon, field or program. This includes support for the writing of books or conferences when the purpose is to publish research results.
  • External funding to maintain research facilities or incur the purchase of research equipment.
  • Activities intended to promote the active participation in research projects and train individuals in research techniques or methods.

Categories of Research

Basic Research

Experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts without any commercial applications or particular uses in mind.

Basic research probes compelling questions such as:

  • How are human populations distributed with respect to altitude?
  • How did the universe begin?
  • How do the properties of human blood affect coagulation?
  • How to molecules react under various heat and cold conditions?

Applied Research

Original investigation undertaken in order to acquire new knowledge to meet a specific recognized need and to solve practical real-world problems.

Applied research seeks to investigate ways to:

  • Predict weather patterns
  • Treat or cure a specific disease
  • Improve warehouse production processes
  • Improve worker productivity

Other Sponsored Activities/Public Service

Programs and projects sponsored by Federal and non-Federal agencies and organizations which involve the performance of work other than instruction and organized research.

Other Sponsored Activities/Public Service include (but are not limited to): 

  • Public service programs designed to make available to the public the various unique resources and capabilities of the institution for the specific purpose of responding to a community need or solving a community problem.
  • Student support programs designed to enhance the emotional and physical well-being of NIU students as well as to their intellectual, cultural, and social development outside of the context of the institution’s formal instruction and research activities.
  • Testing and evaluation activities that are conducted for the primary benefit of the sponsor that do not meet the definition of research.*
  • Personnel agreements supporting the joint hiring and salary support of NIU faculty and staff (e.g. Joint appointment agreements with Argonne National Lab and Fermilab).
  • Workshop and travel grants that do not meet the definition of research.

*When the preponderance of activity is data collection, evaluation and reporting – such projects will be defined as research when the intended goal is to contribute to generalizable knowledge beyond the population or program from which the data was collected.

Location of Work – Determining On Vs. Off Campus Rates

One factor in determining the appropriate F&A rate to apply to a project budget is whether the project is designated as “on-campus” or “off-campus.” An on-campus F&A rate includes both the Facilities (e.g., buildings and maintenance, utilities, library resources, IT infrastructure, etc.) and Administrative (e.g., departmental administration, sponsored programs administration, etc.) components of the F&A. Projects using the off-campus rate do not recover the Facilities component and can result in lower rate calculations when the university negotiates rates with the federal government.  

On-campus

Based on the university’s federally approved indirect cost rates, on-campus locations include space in buildings owned and/or leased by the university. These locations include the university’s regional campuses. An on-campus designation is appropriate when university facilities are required and used for the project. When a sponsored project receives an on-campus designation, reimbursement of facilities-related costs occurs indirectly through the application of the F&A rate rather than through a direct space charge (i.e. rental costs).

Off-campus

Off-campus locations include space not owned by the university and where the university bears no lease cost for occupying the space. An off-campus designation is appropriate when university facilities are not necessary or used for the project and/or any reimbursement of facilities-related costs occurs through a direct space charge (e.g. lease). The off-campus F&A rate is lower than an on-campus rate because it does not include the Facilities component of the rate.

Circumstances under which the off-campus rate may be applied to NIU projects include:

  • The nature of the work and requirements of the award require that it be performed off-campus. Conferences, short-term collaboration travel, or working remotely (e.g. from a home office) are not sufficient reasons to use the off-campus rate.
  • Non-university-owned buildings and administrative work areas will be leased or purchased through the sponsored project for more than fifty (50) percent of the entire project term.
  • More than fifty (50) percent of NIU project personnel time/effort will be expended at an off-campus location.
  • The above circumstances apply to the entire project/project period.

The extent of subcontract work (i.e. non-NIU collaborating institutions) included in a project is not a factor in classifying a project as on or off-campus. The federal government already limits the amount of F&A the university can recover on these contracts by restricting F&A to the first $25,000 for each subcontract per competitive award period. Only one F&A rate (i.e., on vs off campus) will generally be applied to NIU projects. Application of the off-campus rate outside of the above circumstances must be discussed with the assistant vice president for research, and may require documented approval via the F&A waiver form.