Research Development

Funding

Indirect Costs

Indirect costs, as they have historically been called, refer to costs that the federal government has ruled allowable under grants and contracts, but that support the basic infrastructure at the institution for the conduct of research and sponsored programs management. More recently, they've come to be called "facilities and administration" costs to better describe their intended purpose. These are general costs that the institution must incur to provide an environment for research to take place, and may be viewed similar to "overhead" in the corporate sector. In the simplest illustration, they "pay the light bill in the lab".

F&A costs are very real costs and pay for many things, including the salaries and related costs that keep a sponsored programs office running as well as providing dollars for institutional activities such as cost sharing, matching, and reserves for special research needs and initiatives. They differ from "direct" or project costs in that they are not attributed to a particular activity and are therefore discretionary once they enter the university's financial system. In contrast, direct costs in grants and contracts are usually required to be spent on precisely whatever category of expenditure was proposed in the submission, directly related to project performance (e.g. salaries, supplies, and equipment).

In federal grant-making F&A is usually expressed as some percentage of the direct costs, excepting a few categories of project cost such as equipment, tuition, and others. Universities have a negotiated "federal rate agreement" that determines the upper limit of rates that can be used in submissions to federal agencies. However, it is not uncommon for private foundations not to allow F&A at all, and some agencies or programs (e.g. many programs from the Department of Education), have a reduced F&A on projects that generally demand less university infrastructure for their performance.

The federal government acknowledges that there may be times when institutions need or desire to waive a portion of the allowable F&A but, unless required or well justified, the institution is expected to adhere to the federal rate agreement in a consistent manner.

Faculty need to be alert as to how budget limitations are expressed in requests for proposals (RFPs). Some federal agencies (e.g. the National Institutes of Health) commonly report the upper limits of budget amounts for grants as direct costs. Hence, a $500,000 upper limit for "direct costs" means the faculty member can request that much for the actual project. F&A costs would be added to that amount when the budget is developed. However, other agencies (such as the National Science Foundation), routinely will state a limit as "total costs". In that case, the F&A costs must also come from that amount, and hence the amount available for project costs is less. The Office of Research staff, or the grants and contracts administrators at the Research Foundation can assist if there is confusion or concern about F&A costs for a specific proposal.

See Old Dominion University's policy on Indirect Cost Recovery.