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POLICY
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ADMINISTRATIVE POLICY

Charging of Facilities and Administrative/Indirect Costs to Sponsored Projects

Effective Date: August 1996
Last Update: May 2010
Responsible University Officer:
  • Vice President for Research
Policy Owner:
  • Associate Vice President for Research Administration
Policy Contact:
CONSULTED WITH: Faculty Consultative Committee

Printed on: . Please go to http://policy.umn.edu for the most current version of the Policy or related document.

POLICY STATEMENT

Principal Investigators are responsible for including Facilities and administrative (F&A or indirect) costs in proposals for sponsored projects funded by external entities unless an exception has been approved in advance.

Sponsored Projects Administration (SPA) sets F&A rates with the federal government based on formulas and negotiation processes set forth in OMB A-21. Principal Investigators (a) must use the federally approved rates for all sponsored projects, unless an exception to policy has been granted in advance of proposal submission or it meets the criteria for a reduced rate; and (b) may not offer or promise a reduced rate to a Sponsor in advance of receipt of an approved waiver. Principal investigators can petition for such F&A reductions for an individual project. Colleges have the authority to approve most waivers; the Vice President for Research will make decisions on waivers that have broad institutional impact. See Administrative Procedure: Requesting Facilities and Administrative (Indirect) Cost Reductions for guidance. Waivers will not be approved for an entire type or class of project.

Indirect Cost Recovery (ICR), generated by F&A rates applied to external funds, must be shared by the colleges substantially contributing to the work of a sponsored project and is typically also shared among departments contributing to the work of a sponsor project, usually in proportion to their contribution. Units must document ICR sharing arrangements at time of proposal review and submission.

REASON FOR POLICY

This policy has been established to meet the compliance standards set forth in Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions. These require that all costs incurred for the same purpose, in like circumstances, are treated only as either direct costs or F&A/indirect costs. Principal investigators and administrators involved in sponsored projects must understand and comply with this policy in order to ensure that costs are properly charged and meet federal costing standards.

The policy and its associated procedures streamline the process for small projects and for many routine transactions as well as create a uniform understanding about how F&A should be shared when there are contributions from more than one college. A transparent, equitable way to allocate the ICR to contributing units is critical in promoting interdisciplinary projects.

PROCEDURES

FORMS/INSTRUCTIONS

APPENDICES

FREQUENTLY ASKED QUESTIONS

There is no FAQ for this policy.

ADDITIONAL CONTACTS

Subject
Contact
Phone
Fax/Email
Primary Contact(s)
612-624-1648
Direct charging policy questions
Grant Administrator
612-624-5599
 
ICR sharing questions
Frances Lawrenz
612-625-2046
Indirect cost calculation questions
Indirect Cost Unit
612-626-9895
 

DEFINITIONS

Allocate
To assign an item of cost, or a group of items of cost, to one or more sponsored agreements, function (e.g., research or instruction), or subdivision (e.g., college or center). (adapted from Cost Accounting Standards).

"A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received or other equitable relationship." (from OMB Circular A-21, Section C4).

  • Example: An educational institution normally allocates the cost of equipment required to conduct a project directly to the sponsored agreement.
Allowable Costs
Costs that are (a) reasonable; (b) allocable to sponsored agreements under the principles and methods outlined in OMB Circular A-21; (c) given consistent treatment through application of those generally accepted accounting principles appropriate to the circumstances; and (d) conform to any limitations or exclusions set forth in OMB Circular A-21 or in the sponsored agreement as to types or amounts of cost items. (OMB Circular A-21, Section C2).
  • Example: A piece of equipment required to conduct the study is an allowable cost to the project but entertainment costs are not.
Direct Costs
"Those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy." (OMB Circular A-21, Section D1).
  • Example: Travel is normally charged as a direct cost to a project.
Facilities and Administration Costs (F&A Costs)
F&A costs are "costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity." Examples include operation and maintenance expenses, and costs incurred for sponsored projects administration. For more detailed information, see Understanding F&A Costs in appendices. (OMB Circular A-21, F&A costs are synonymous with indirect costs.)
Indirect Costs
See "Facilities and Administration."
Indirect Cost Recovery (ICR)
Revenue received by the university when F&A rates are applied to direct costs charged to sponsored projects. This revenue is returned to academic units consistent with the University budget model. Examples are operation and maintenance of buildings and grounds, central administrative expenses, research administration and library costs.
Indirect Cost Rate or F&A Cost Rate
A composite rate applied as a percentage of the sponsored project's direct costs to recover the University's F&A/indirect costs. In business and industry, this is known as “overhead.” The federally negotiated F&A/indirect cost rates for research and other sponsored activities are developed by the University in accordance with OMB Circular A-21 and negotiated on behalf of all federal agencies with the Department of Health and Human Services (DHHS).
The rate is variable according to the type of project and where it is being conducted. See the F and A Rate Chart in the appendices.
OMB Circular A-21
Office of Management and Budget Circular A-21, Principles for Determining Costs Applicable to Grants, Contracts, and Other Agreements with Educational Institutions.
This document is a set of uniform regulations that the University must follow in regards to charging of costs to grants, contracts, and other agreements with educational institutions. Each federal agency implements these regulations in its own policy handbook. The OMB Circular is the backbone of agency regulations; the agency cannot impose regulations that are inconsistent with the Circular or impose additional requirements.
Proposal Routing Form
An internal form used to route a proposal for sponsored funding through the process of administrative review and approval.
Reasonable Costs
"A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made."(OMB Circular A-21, Section C3).
Sponsored Project
An externally funded activity that is governed by specific terms and conditions. Sponsored projects must be separately budgeted and accounted for subject to terms of the sponsoring organization. Sponsored projects may include grants, contracts (including fixed price agreements), and cooperative agreements for research, training, and other public service activities.
Unallowable Costs
Costs that cannot be charged to a project per sponsor guidelines or any other costs incurred by the University that Office of Management and Budget (OMB) Circular A-21 specifies cannot be included in the development of the indirect cost rate charged, nor as a direct cost to a Federally sponsored project, nor included in ISO/department recharge rates.

RESPONSIBILITIES

Principal Investigators
Ensure the appropriateness of all charges on sponsored projects. Ensure the consistent application of direct costing practices to their federally sponsored projects with the assistance of the unit administrator and Sponsored Projects Administration. Prepare proposal budgets, justify expenses, charge costs, and track expenses. Determine whether it is appropriate to request an F&A reduction. If so, write the reduction request and forward for review. Adjust the proposal budget as needed to accommodate the approved rate reduction, or to charge full applicable F&A costs if an approval cannot be granted by the sponsor?s deadline.
Unit Administrator
Assist principal investigators in preparing proposal budgets, justifying expenses, charging costs and tracking expenses. Ensure consistency of charging practices within the unit, review sponsored project proposals for justification of direct costs requested, especially when costs normally charged as F&A/indirect are proposed as direct costs. Assign the appropriate function code for nonsponsored accounts. In conjunction with principal investigators, maintain financial records for reviews by internal or external auditors.
Department Head
Establish effective processes and controls that will ensure compliance with this policy. Communicate these practices to all responsible employees within the college and departments.
Evaluate F&A reduction requests. If concurring with the request, sign and forward to collegiate research associate dean. Otherwise, deny request and return it to the principal investigator.
Collegiate Research Associate Dean
Establish effective processes and controls that will ensure compliance with this policy. Communicate these practices to all responsible employees within the college and departments.
Evaluate F&A reduction requests. Either sign and return to principal investigator, forward to associate vice president for research administration or deny request and return it to the department head and principal investigator.
Associate Vice President for Research Administration
When appropriate, evaluate F&A reduction requests and make recommendations to investigator, department head, collegiate research associate dean, or vice president for research. Implement tracking and reporting function for regular and strategic waivers as outlined in procedure.
Vice President for Research
Approve or deny F&A reduction requests that are strategic in nature and notify investigator, department head, collegiate research associate dean, and associate vice president for research administration, consulting with others as needed.
Sponsored Projects Administration (SPA)
Assist in interpretation of federal regulations, such as OMB Circular A-21. Develop and maintain policies and procedures in accordance with the regulations. Establish sponsored project accounts in the University's accounting system and assign the appropriate function codes. Maintain files of sponsors' published F&A policy documents. Maintain F&A rate charts. Contact principal investigator to determine whether a F&A reduction has been approved.

RELATED INFORMATION

HISTORY

Amended:
May 2010 - Updated procedure for obtaining F&A rate reductions or waivers.
Amended:
July 2008 - Updated Policy and procedure to reflect Enterprise Financial System rollout.
Amended:
February 2008 - Added Appendix D, Scenarios for Allocating Indirect Cost Recovery (ICR) Funds.
Amended:
June 2007 - In Procedures, removed references to "waiver." Also changed reasons why a reduction might be granted and the process for obtaining a reduction. Updated the procedure to require ICR sharing for proposals meeting the criteria. Replaced Appendix C, Questions and Answers of F&A Costs with brochure, Understanding F&A Costs.
Amended:
November 2005 - In Procedure 2.1.3.1, clarified section on charges based on actual usage. Added new Procedure 2.1.3.4, Sharing Indirect Cost Recovery Among Collaborating Collegiate Units.
Amended:
June 2005 - Updated rate information and corrected links.
Amended:
October 2003 - Added information regarding charging cell phones and pagers. Added F&A Waiver Request form.
Amended:
September 2002 - Updated procedure for cost waivers to route cost waiver requests to the Assistant Vice President for Research, rather than to the Vice Provost for Research. Responsibilities section updated to reflect this change.
Amended:
September 2000 - Former Procedures 2.1.3.1, 2.1.3.2 and Mark Brenner memo on Interpretations of Allowable Direct Costs merged into Procedure 2.1.3.1 - Charging Direct Costs to Sponsored Projects. Added new procedure 2.1.3.2 - Charging Facilities and Administrative (Indirect) Costs to Sponsored Projects, using information from former policy 2.1.8, Requesting Facilities and Administrative (Indirect) Cost Waivers. Procedure 2.1.3.3 and 2.1.3.4 superceded by policy and procedure on removing uncollectible costs charged to sponsored projects. Added new Procedure 2.1.3.3 - Obtaining Facilities and Administrative (Indirect) Cost Waivers using information from former procedure 2.1.8.1, Requesting Facilities and Administrative (Indirect) Cost Waivers. Moved the F and A/Indirect Cost Rate Chart from the former policy on obtaining a F and A cost waiver to the policy on charging direct and indirect costs. Added new appendix, Questions and Answers regarding Facilities and Administrative / Indirect Costs (formerly on the Vice President for Research's website).
Made policy and its procedures consistent in their application to federally versus nonfederally sponsored projects. Revisions only differentiate between the two groups in the section on justifying charging administrative expenses to projects.
In the policy, added some definitions and changed others to match federal definitions.
In the procedure on charging direct costs, changed the focus to emphasize identifying the cost to the project and provided instructions for adequately justifying the proposed charges.
Effective:
August 1996
Supersedes:
Guidelines for Charging Costs Directly to Grants and Contracts - July 1994; As of September 2000, Policy 2.1.8 - Requesting Facilities and Administrative (Indirect) Cost Waivers.

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Last modified on November 11, 2013