Budget Preparation: Indirect (F&A) Costs
Indirect costs, also known as "facilities and administrative (F&A)" or "overhead" costs, are project-related expenses that cannot be identified readily and specifically to a particular sponsored project, e.g., the costs of heat and air conditioning, electricity, building maintenance, security, libraries, administrative services, etc. Accurately attributing each of these costs to each sponsored project would be very difficult. Nevertheless, indirect costs are real costs to the university and the government recognizes the university's right to claim them as expenses related to sponsored projects. To this end, the university and the federal government negotiate rates for indirect cost reimbursement based on a.) The type of work being done (research, education, public service/outreach) and b.) whether the majority of the work is being done on- or off-campus, with “off-campus” defined as facilities not owned or leased by the university. To be classified as off-campus, more than 2/3 of the project work should be occurring at off-campus location(s).
Any limitations by the sponsoring agency on negotiated indirect cost rates must be approved by the Vice President for Research and Economic Development (VPRED), but there are instances in which that acceptance is automatic (e.g., when a federal agency has a restricted rate). Your Sponsored Programs Administrator (SPA) can help you determine whether a waiver request form must be submitted to the VPRED for approval. Please allow extra time (up to 5 business days before proposal is due) for this process. Note that waivers will rarely be considered for limitations to indirect rates imposed by for-profit entities.
All federal sponsors are expected to pay the federal negotiated indirect rates; exceptions should be documented in the Program Announcement or RFP. All direct nonfederal sponsors (i.e. funds are not being "passed through" from a federal agency) other than the State of Idaho offices are expected to pay the university's fully burdened rate.
Please view detailed information on the current indirect rates.
Calculating indirect costs
In the budget, indirect costs are calculated by multiplying the sponsor’s overhead rate by the direct cost base. Depending upon the sponsor, the direct cost base may be either the simple total of all direct costs in the budget (Total Direct Costs or TDC), or the “modified” total direct costs (MTDC), which is TDC minus the total of all items in the budget that do not bear overhead. Most federal sponsors use MTDC.
On budgets for federal sponsors, subtract the following line items from the direct-cost base to arrive at MTDC, per U of I’s negotiated rate agreement:
Equipment (> than $5,000 and with a useful life of more than one year); capital expenditures; charges for patient care; student tuition remission; rental costs of off-site facilities; scholarships and fellowships; that portion of individual subcontracts over $25K; participant support costs; and any other agency-specific exclusions.
Example 1 (TDC):
A PI is submitting a proposal for a one-year project starting 1/1/16 with direct costs of $150,000 to the XYZ Foundation. The sponsor limits indirect costs to 15% of TDC). The Total Project Cost is:
$150,000 Total Direct Cost (TDC) base
+22,500 15.0% indirect costs on TDC base
$172,500 Total Project Cost (TDC + indirect cost)
Example 2 (MTDC):
A PI is submitting another proposal to the NSF for the same time period and the same direct-cost amount. Of the $150,000, $40,000 is for a subcontract to WSU. Here, the Total Project Cost is:
$150,000 Total Direct Costs (TDC) base
-15,000 Less $15,000 subcontract cost (1st 25,000 of subcontract is subject to indirect costs)
$135,000 Modified Total Direct Costs (MTDC) base
$61,020 45.2% indirect rate on MTDC base
$211,020 Total Project Cost (TDC + indirect)
Example 3 (TPC):
The TPC method is unusual in that it allows indirect costs to be charged not only on direct expenses, but also on the indirect expenses themselves. The easiest way to do this calculation is to first convert the TPC rate to a TDC rate using the following formula:
TPC indirect rate/(1-TPC indirect rate) = TDC rate (ex. 20% TPC = 20%/(1-20%) = 25%)
Once you have converted your rate, you may use the TDC formula of multiplying all direct costs by the TDC rate:
$150,000 Total Direct Costs
37.500 25% indirect rate (TDC rate) and (TPC x 20% = $37,500)
$187,500 Total Project Costs (TDC + indirect)