There are many steps to developing a research project and preparing a proposal for submission. The Office of Research aims to provide and identify services and resources to aid the researcher’s efforts in developing and preparing a project or proposal.
Indirect Cost Rates
- Exceptions to the Negotiated F&A Cost Rates
- All About Indirect Costs – NIH “Rock Talk” (Video)
The university, as a publicly funded institution, must conduct its activities, including sponsored projects, on a “no profit, no loss” basis. Direct costs in project budgets do not fully reimburse the institution for all of its costs. For example salaries of those individuals involved in administrative services are not part of the direct costs. In addition, facility costs, general office supplies, or copying expenses are seldom included in budgets, yet those expenses are reasonable and necessary and must be borne by the institution. Accordingly, the university is required to cover all of the expenses associated with projects conducted for extramural sponsors.
The UC Regents’ policy on full cost recovery imposes a duty on all university administrators and PIs to perform sponsored projects on a full cost recovery basis — to ask for and obtain indirect costs from all sponsors. Any exception reduces revenue to the University and to each campus.
The federal Office of Management and Budget (OMB) Circular A-81, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR Chapter I, Chapter II, Part 200 (“Uniform Guidance”), defines F & A costs as “those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.” (§200.56)
As a recipient of Federal funds, UCD is required to negotiate a F&A cost rate agreement with the Department of Health and Human Services (UCD’s cognizant federal audit agency) to establish F&A cost rates for use with UCD’s extramural awards. UCD’s current rate agreement, dated July 18, 2014, covers a five-year period beginning July 1, 2013 and ending June 30, 2018.
The University negotiates “predetermined” F & A cost rates. These rates are final and not subject to upward or downward adjustment based upon actual costing experience. Typically, predetermined rates are significantly lower than those supported by the calculations used by the University to determine its actual F & A cost rate. However, by negotiating a stable F & A cost rate in a multi-year agreement the University avoids annual audits of actual cost data and annual rate adjustments, and also avoids significant rate fluctuations that may result from fluctuating cost pools.
For more information on the Composite Fringe Benefit rate which is part of this rate agreement, please see the Costing Policy & Analysis section on the Accounting & Financial Services website.
Copy of UC Davis F&A and Fringe Benefits Rate Agreement for the period of 07/01/2013 through 06/30/2018 (PDF)
|July 1, 2013 through June 30, 2014||54.5% MTDC||26.0% MTDC|
|July 1, 2014 through June 30, 2015||55.5% MTDC||26.0% MTDC|
|July 1, 2015 through June 30, 2016||56.5% MTDC||26.0% MTDC|
|July 1, 2016 through June 30, 2018||57.0% MTDC||26.0% MTDC|
|OTHER SPONSORED ACTIVITIES|
|July 1, 2013 through June 30, 2014||37.0% MTDC||24.0% MTDC|
|July 1, 2014 through June 30, 2015||38.0% MTDC||24.5% MTDC|
|July 1, 2015 through June 30, 2016||38.5% MTDC||24.5% MTDC|
|July 1, 2016 through June 30, 2018||39.0% MTDC||25.0% MTDC|
|February 1, 2006 and beyond*||26% TDC||26% TDC|
|July 1, 2013 through June 30, 2018||50.0% MTDC||26.0% MTDC|
|Effective Period||Core Grant||Non-Core Fed|
|July 1, 2013 through June 30, 2018||22.70% MTDC||54.40% MTDC|
Indirect (F&A) Costs – The minimum UC rate for State awards is currently 25% MTDC, regardless of whether the performance of the project will take place on or off campus. Over the next several years, this rate will increase as follows:
|Now – 6/30/2017||25%|
|7/1/2017 – 6/30/2018||25%|
|7/1/2018 – 6/30/2019||30%|
|7/1/2019 – 6/30/2020||35%|
- These rates do not apply when the state is acting as a pass-through entity of federal funds. The appropriate UC federally negotiated F&A Rate will apply to State agency awards made with federal funding. Please see 2 CFR § 200.414 and 2 CFR § 200.331.
- For State awards, the rate in effect for the first year of a multi-year project will be the rate used for the entire project in proposed and awarded budgets. If additional funds (not previously appropriated or budgeted) are awarded by a State agency; the proposed budget for these additional funds would use the UC-approved state rate in effect at the time the new budget request is submitted.
For more information please refer to:
- UC Office of the President Guidance Memo 16-01 – provides further discussion and guidance on State of California Model Agreement and indirect cost applicable to State-funded awards.
- Chapter 8 of the UC Contract and Grant Manual
- UC Costing Policy and Analysis: Facilities and Administration (F&A) Rates/Recovery
- Facilities that may use “Off Campus” F&A rate (PDF)
- Indirect Cost Rate Applicable to Clinical Trials
- Indirect Cost Return Program (Directive 95-094) Indirect Cost Recovery Reports from the UC Davis Office of Resource Management and Planning
- UCOP information about F&A (indirect cost) Rates and Recovery
The above rates must be used when estimating F&A costs in proposals to extramural sponsors. Use of a rate other than those identified above requires approval of a waiver request.
For the majority of projects, calculate the Modified Total Direct Cost (MTDC) base and multiply by the appropriate F&A cost rate to find the F&A cost amount.
The Uniform Guidance defines MTDC as “all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and subawards and subcontracts up to the first $25,000 of each subaward or subcontract (regardless of the period of performance of the subawards and subcontracts under the award). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward and subcontract in excess of $25,000.” (§200.68) – Calculate the Modified Total Direct Cost (MTDC) base by subtracting the excluded costs listed below from the budgeted Total Direct Costs:
- Equipment and capital expenditures;
- Patient care costs for services provided by a hospital or clinic, including UCD Medical Center, but not the laboratories of academic departments or organized research units or salaries of personnel providing the services;
- Rental, lease and maintenance costs of off-campus space;
- Tuition and fee remission;
- Financial aid paid directly to University students, but not as salaries and wages, when allowable under the terms of the award;
- Participant support costs (§200.75)
- Subawards issued to other UC campuses; and
- The portion of each non-UC subaward that is in excess of $25,000. Simply stated, UCD indirect costs are assessed on the first $25,000 only of each sub-award. Renewal of a prime award generally requires the issuance of a new subaward, hence indirect costs are charged to the first $25,000 of the renewed subaward. The indirect costs charged by a subaward recipient are not limited by this exception.
Then, multiply the result (MTDC base) by the appropriate F&A cost rate to find the F&A cost amount.
To calculate F&A costs in Clinical Trial budgets – Multiply the total of all budget items (Total Direct Cost, TDC) by the Clinical Trial Agreements F&A rate.
For more information please refer to:
Regents’ Standing Order 100.4(m), which authorizes the President to negotiate and approve all indirect cost rates, also incorporates the authority to approve exceptions to the approved rates. Thus, University policy allows for indirect cost rate exceptions to be granted under certain circumstances, as described below.
Authority to approve exceptions to negotiated indirect cost rates is at The Office of The President (UCOP), and has not been redelegated to Chancellors or Laboratory Directors. Therefore all requests for exceptions to the policy of application of full applicable indirect cost rate must be approved by the Office of the President.
Each approved exception reduces revenue to the University and to each campus.
Requests for exceptions to indirect cost recovery must balance local campus interests with University-wide institutional interests. Without full indirect cost recovery, the University is subsidizing the cost of the project for the sponsor.
Reasons to seek Exceptions to Recovery of full Indirect Cost
Non-Profit Sponsors sometimes restrict reimbursement of indirect cost to less than the full applicable rate. Sponsor restrictions may be by statute, bylaws or policy of non-profit entities. For governmental sponsors, it may also be by codified agency regulations or program terms published in the sponsor’s solicitation or announcement.
The above generally neither applies to for-profit corporations/organizations nor to foreign governmental entities. The Attorney General of The State of California has ruled that reductions of indirect cost rates for such sponsors are improper gift of public funds for private benefit.
Under certain rare circumstances, an exception based on sponsor policy may be considered for a legitimate, general University community service, scholars’ or fellowship program sponsored by a for-profit corporation. The criteria for considering a sponsor policy exception for such a program would include all of the following: 1) the sponsor has published an announcement calling for proposals under which grants would be awarded; 2) exceptions to University policies for the subject program, such as intellectual property language, are carefully considered and justified, specifically in light of the indirect cost rate exception, and approved by the appropriate University authority; and 3) the announcement does not require a specific deliverable to the corporation other than technical/final and financial reports. Such a program would have to be clearly distinguishable from research contracts which state anticipated outcomes in specific areas of corporate interest solicited by the corporation, and provides the sponsor for certain rights to the resulting intellectual property.
Campus Vital Interest
- Please note that due to current budgetary concerns, approval of this type of exception is extremely rare.
In rare situations the development of campus research, training or public service programs or infrastructure may best be served by accepting a sponsored award at less than the applicable indirect cost rate. These situations may include, but are not limited to: small seed grants which may attract future larger awards; awards which include contributions of major equipment, or building renovation funds; awards for a community relations interest vital to the campus; supplements for a student services activity which the campus must provide; or other types of supplemental funding for an established campus program such as for library holdings, performances, or exhibits.
Such interests must be viewed as vital to a campus, by campus officials, to the extent that funding the proposed project at a loss, by not collecting full indirect, is more important to the campus than recovering the full indirect costs.
In the case of equipment contributions in lieu of indirect costs, the value of the equipment must be at least equal the indirect costs lost through waiver. Further, the subject equipment must not be required for performance of the proposed work, because if it were required, it should be purchased as part of the direct cost funding for that project. Additionally, title to the equipment must be retained by the University so that the value from the use of the equipment continues beyond the period of the award.
Procedure to Seek Exceptions to Recovery of full Indirect Cost
If there are justifications as stated above to seek an exception to the policy to apply less than full indirect cost rate to a proposal, please contact Office of Research, Sponsored Programs, prior to submission of the proposal.
If the Director of Sponsored Programs (and the Vice Chancellor for Research for those based on vital programs) endorses the request, it will be forwarded to the Office of the President for further consideration. The UCOP will approve or deny the request and the Principal Investigator will be notified of the decision. Because this process could take several weeks, it is recommended that requests be forwarded to the SPO at the earliest convenient time so that proposals can be forwarded to sponsors in time to meet their deadlines. If the request is not received by the Sponsored Programs Office in time to process the request before the proposal has to be submitted to the sponsor, the budget must reflect the applicable Federally-negotiated indirect cost rate. The proposal may contain a cover letter stating that a waiver has been requested from the Office of the President, and if approved a revised budget will be forwarded.
Questions regarding indirect cost waivers should be directed to the members of Sponsored Programs assigned to the requesting researcher’s department/unit.
Organized Research – All research and development activities of an institution including sponsored research. Sponsored research includes all research and development activities that are sponsored by Federal and non-Federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.
Instruction – Instruction means the teaching and training activities of an institution, except for research training as described above. Instruction includes all teaching and training activities, whether they are offered for credits toward a degree or certificate or 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. Instruction also includes sponsored instruction and training which means specific instructional or training activity established by grant, contract, or cooperative agreement.
Other Sponsored Activities – This means programs and projects financed 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.
Clinical Trial – The controlled, clinical testing in human subjects of investigational new drugs, devices, treatments or diagnostics, or comparisons of approved drugs, devices, treatments or diagnostics, to assess their safety, efficacy, benefits, costs, adverse reactions, and/or outcomes.
Such studies may be conducted under an industry-developed protocol or an investigator-developed protocol. These studies are most often conducted in conjunction with obtaining new drug or device approval from the U.S. Food and Drug Administration, under Phase I, II, III, or IV, although they can be designed with the sole purpose of collecting and analyzing data about approved drugs or devices in order to contribute to medical knowledge about the treatment of a disease or medical condition.
Financial support for a clinical trial must be provided by a private entity, including pharmaceutical companies, interest groups, or charities. In all cases, the study must include the prospective enrollment of human subjects and the controlled testing of a drug, device, or diagnostic under an approved protocol.
Retrospective chart reviews, analysis of existing medical data and records, laboratory research, animal studies, and federally-funded projects are not categorized as clinical trials for purposes of applying the clinical trial F&A cost rate.
Direct Costs – Direct costs are those costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity and are directly assigned to such activities relatively easily with a high degree of accuracy.
Facilities and Administrative Costs – F&A costs are those 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. The Uniform Guidance defines F & A costs as “those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.” (§200.56)
Modified Total Direct Costs (MTDC) Base – The MTDC base is the total direct costs for a project less those budget items that are excluded by agreement with the audit agency. The excluded costs are: equipment, construction, alterations and renovations, hospital or clinic charges for patient care, space rental or lease, tuition and fee remission, scholarships, participant support costs, and the amount that exceeds $25,000 of any subaward or subcontract. See the Calculation section for more information.
Off-Campus Projects – Projects that are based at facilities not owned, or leased and maintained by the University. However, if the project is conducted in leased space and the lease costs are directly charged to the project, the off-campus rate must be used. If the project involves both on-campus and off-campus sites, either the on-campus or off-campus rate generally should be applied, consistent with where the majority of the work is to be performed as measured by salary cost. The use of both on- and off-campus rates may be justified if both rates can be clearly identified with a significant portion of project salaries, meaning 25% or more of total salary/wage costs and the project’s total salary/wage costs exceed $250,000.
Project Period – Project period means the total time for which support of a program has been approved, initially or by a renewal award. As used by the Public Health Service, Project Periods consist of one or more annual budget periods with funding for future years beyond the initial budget period provided on a non-competing basis.
Total Direct Costs (TDC) – TDC is the total of all direct costs budgeted for a project.