Indirect Cost

F & A Indirect Cost Indirect Cost Indirect Cost Rate Agreement

FY2020 Rate SnapshotOverview

Indirect costs—also known as facilities and administrative (F&A) costs, or overhead—are actual costs that the University of Louisville incurs in its day-to-day operations. Indirect costs include clerical support, library operations, utilities, depreciation of buildings and equipment, physical plant operations and maintenance, sponsored programs administration, and general administrative expenses for central offices such as the president, provost, human resources, and purchasing. These expenses are not readily identifiable with individual projects and therefore cannot be directly charged to sponsors. In order to recover these real costs, they are budgeted and charged to sponsored projects as indirect costs.

UofL’s practice of full cost recovery imposes a duty on all university principal investigators to perform sponsored projects on a full cost recovery basis — to ask for and obtain full indirect costs from all sponsors.

Indirect Cost Rate Agreement

As a recipient of federal funds, the University of Louisville is required to negotiate an indirect cost rate agreement with the federal government. The U.S. Department of Health and Human Services (DHHS) is UofL’s cognizant federal agency with whom we negotiate the indirect cost rates for UofL’s externally sponsored awards. UofL’s current Indirect Cost Rate Agreement covers the five-year period beginning July 1, 2018 and ending June 30, 2023.

The following are accepted as full recovery of indirect costs for the applicable types of sponsored projects.

ACTIVITY TYPE

RATE  

BASE  

DEFINITION

Organized Research

On Campus

FY20-FY22 56%

FY23 56.5%

MTDC

All research and development activities of the university that are separately budgeted and accounted for, whether sponsored by federal or non-federal agencies and organizations. Organized research includes training in research techniques (research training) utilizing the same facilities as other research and development activities.

Organized Research

Off Campus

26%

MTDC

Instruction

On Campus

40%

MTDC

All teaching and training activities of the university with the exception of research training.

Instruction

Off Campus

26%

MTDC

 

Other Sponsored Activities

On Campus

38%

MTDC

Programs and projects funded by federal and non-federal agencies and organizations which involve the performance of work other than instruction and organized research. Examples of such programs and projects are health service projects and community service programs.

Other Sponsored Activities

Off Campus

26%

MTDC

 

Industry Clinical

On Campus

FY20-FY22 56%

FY23 56.5%

MTDC

Clinical research and clinical trials that are sponsored by industry and performed on-campus.

Industry Clinical

Off Campus

30%

TDC

Clinical research and clinical trials that are sponsored by industry and performed off-campus.

Exception: Entities with Published and Uniformly Applied Rates

 

TDC

If a federal, state, or local government entity or nonprofit entity such as a foundation or health agency does not allow or limits the indirect cost rate as set forth in a published and uniformly applied policy, UofL will abide by that sponsor’s policy. The published guidelines or policy must accompany any proposal submission bearing less than UofL’s full recovery rate. The reduced rate will be applied to total direct costs (unless the sponsor’s policy specifies otherwise). If the rate is not supported by a published policy or in written guidelines that apply to all applicants, the university’s full negotiated rate should be applied.

Indirect costs are assessed on a percentage basis against certain costs of the project — such as salaries, fringe benefits, supplies, travel, consultants, subawards, maintenance contracts, etc. Four key factors are used to help determine the appropriate indirect rate to apply to a sponsored project:

Location
Activity
Base
Sponsor

Location

Depending on whether a project is conducted on-campus or off-campus, different indirect rates may apply.

Use the on-campus rate when:

  • A project is being conducted in space owned by the university
  • A project is being conducted in leased space and the lease costs are charged to the university

Use the off-campus rate when:

  • A project is being conducted in facilities not owned by the university
  • A project is being conducted in leased space and the lease costs are being directly charged to the project
  • More than 50% of the salaries and wages being directly charged to the project are incurred at an off-campus facility

If a project is determined to be off-campus, it is considered wholly off-campus. Separate on- and off-campus rates cannot be applied to a single project.

Activity

Knowing the type of activity being conducted is critical to selecting the right indirect cost rate. The activity types negotiated and/or recognized by UofL are:

  • Organized research
  • Instruction
  • Other sponsored activities
  • Industry clinical projects

Base

The base is the sum of costs to which the indirect cost rate is applied. Typically, indirect costs are assessed either on a total direct cost (TDC) basis, a modified total direct cost (MTDC) basis, or a total cost (TC) basis. Review the university's and sponsor’s guidelines for direction. If the guidelines are unclear or if a base other than TDC, MTDC or TC is specified, please discuss with your respective sponsored programs representative.

Total Direct Costs (TDC)

In this base type, indirect costs are assessed on all direct costs. The TDC cost base is used for agencies or nonprofits when published, universally applied policies restrict indirect cost recovery below UofL’s negotiated rate. TDC is also used for industry-sponsored clinical projects.

Modified Total Direct Costs (MTDC)

The MTDC base is the default base used for federal and most other projects, except when guidelines/terms specify otherwise. Modified total direct costs consist of all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). These form the base to which indirect costs are applied.

Indirect costs are NOT applied to equipment (as defined in UofL's rate agreement), capital expenditures, patient care costs, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $25,000.

Total Costs (TC)

The total cost (TC) base includes all direct and indirect costs, with no exclusions. Indirect costs are calculated as a percentage of the total project amount.

Sponsor

UofL’s negotiated rate agreement applies to projects sponsored by the federal government. With few exceptions, the rates are also applicable to other sponsor types, including state government agencies, local government agencies, foundations, and nonprofits.

Sponsor Published Rates

If a federal, state, local or international government entity or nonprofit entity such as a foundation has a published rate that is less than the indirect cost rate set forth in our negotiated rate agreement, UofL will accept the entity’s rate; however, documented evidence of the entity’s indirect rate must accompany the proposal. (NOTE: An email from the sponsor does not suffice as documented evidence.) In such cases the indirect cost rate will be applied to total direct costs (TDC) rather than modified total direct costs (MTDC) unless otherwise specified. If the rate is not supported by a published policy or in written guidelines, UofL's full indirect cost rate must be applied. When in doubt, contact your respective sponsored programs representative.

The following guidelines may help you in determining the appropriate indirect cost rate to be applied to a sponsored project. As always, please feel free to contact your sponsored programs representative for assistance.

  1. Does the federal, state, local, or nonprofit sponsor have a published and uniformly applied indirect rate that is less than our federally negotiated rate?
    a. Yes: UofL will accept the entity’s rate; however, written evidence of the entity’s applicable rate must accompany the proposal. The rate will be calculated on total direct costs (TDC) unless the sponsor specifies otherwise.
    b. No: Proceed to 2.
  2. Will the project involve federal funds?
    a. Yes: Apply the federally negotiated rate calculated on MTDC unless the sponsor specifies otherwise.
    b. No: Proceed to 3.
  3. Is the sponsor a foundation, health agency, international, state or local government that does not have a published or uniformly applied policy regarding payment of indirect costs?
    a. Yes: Apply the federally negotiated rate calculated on MTDC.
    b. No: Proceed to 4.
  4. Is the project a government-sponsored or nonprofit-sponsored clinical trial or clinical research?
    a. Yes: Apply the federally negotiated rate calculated on MTDC.
    b. No: Proceed to 5.
  5. Is the project an industry-sponsored clinical research study or clinical trial?
    a. Yes: Apply the 30% rate calculated on TDC if the project is being performed off-campus; apply the federally negotiated organized research rate if the project is being performed on-campus.

The University of Louisville has adopted the following definition from the National Institutes of Health for a clinical trial:

Research study in which one or more human subjects are prospectively assigned to one or more interventions (which may include placebo or other control) to evaluate the effects of those interventions on health-related biomedical or behavioral outcomes.

In comparison, UofL considers the following to define clinical research:

Non-interventional or non-prospectively assigned project conducted with human subjects or on human-derived material such as tissues, specimens, and cognitive phenomena (e.g., observational or specimen study, chart review, survey research).

How Are Indirect Cost Rates Determined?

The federal government recognizes that it is not possible to accurately capture all costs of an organization that are allocable to a particular sponsored project. Federal guidelines define a process for grouping costs into specified cost pools, which are then distributed to appropriate activities in a cost allocation process. Once the cost allocations are made, negotiations take place between the university and its cognizant agency to negotiate the indirect cost rates. Rates cover organized research, instruction, and other sponsored activities.

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How Are Indirect Cost Rates Applied?

Federally negotiated indirect cost rates are applied to modified total direct costs (MTDC). Modified total direct costs exclude equipment, capital expenditures, charges for patient care and tuition remission, rental costs, scholarships and fellowships, as well as the portion of each subaward in excess of $25,000. At UofL, equipment is defined as tangible personal property (including information technology systems) having an acquisition cost of $5,000 or more and a useful life of more than one year (see UofL's rate agreement for additional details). Please note that on project budgets that include indirect rates other than our federally negotiated rates, the rate is generally applied against total direct costs (TDC).

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How Are Recovered Indirect Costs Distributed at the University of Louisville?

Please see UofL’s Indirect Cost Distribution Policy.

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What Are the Current Indirect Cost Rates at UofL?

For the latest indirect cost rates, see UofL's current Indirect Cost Rate Agreement.

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Are Indirect Cost Exceptions Allowed?

Only in exceptional circumstances are reductions in the negotiated indirect cost rate considered. For additional guidance see the F&A Reduction/Cost-Burdening Request Form.

Indirect Cost Rate Agreement

Video: Understanding the Facilities and Administration (F&A) Cost Calculation

Presented by Ann Holmes, Asst. Dean, Administration and Finance
University of Maryland, College of Behavioral and Social Sciences
February 2017

F&A Reduction/Cost-Burdening Request Form