3 Things to Know About Indirect Costs (aka F&A)
What are Indirect Costs?
Indirect costs refer to expenses that are necessary to support research but are not easily linked to a specific research project. Indirect costs are sometimes called Facilities and Administrative (F&A) costs or overhead costs.
Examples of indirect costs include reimbursing for portions of:
- State-of-the-art research labs
- Personnel to support accounting and administration
- Compliance support (e.g., human subject protections, export control, and research security)
- High-speed data processing
- Library resources
- IT Services
- Utilities
How are Indirect Cost Rates Established?
Indirect costs rates are negotiated between a cognizant agency assigned by the federal government and the University. The Department of Health and Human Services (HHS) – Cost Allocation Services is responsible for reviewing and approving legally binding rates for the University of California. These negotiated indirect costs rates are generally applied to each funded research project to cover their share of the institution’s indirect costs.
The percentage is based on detailed historical cost data submitted to HHS in accordance with federal cost principles (2CFR 200). The data includes a rigorous review of:
- The institution’s expenses for facilities, operations and administrative support, and
- The volume of all funded research.
A review is conducted every 3-4 years as part of the indirect cost rate negotiation process.
Why is Indirect Cost Reimbursement Important?
Research drives innovation, strengthens national security, and improves public well-being. By investing in research, partners support the U.S. economy to address critical challenges such as climate change, energy efficiency, cybersecurity, and social inequalities. It is through research that we not only solve problems but also create new economic opportunities in emerging sectors that support economic growth and help the U.S. remain competitive globally.
Indirect cost recovery allows research institutions to:
- Cover the cost of actual expenses that are essential for the institution to conduct research.
- Allocate to the funding agency their share of the institutional infrastructure necessary to support and conduct the research (such as facilities, equipment, and personnel).
- Ensures the long-term financial stability of our national research environment to adequately support groundbreaking discoveries and innovations.
- Support the costs of ensuring compliance with grant management and other administrative functions necessary for research oversight.
- Sustain the research infrastructure that provides access to the vast pool of expertise, talent, and cutting-edge facilities that make U.S. growth possible.
Key Takeaways
Reimbursement of indirect costs cover the institution’s actual expenses necessary to support research.
Rates are based on detailed negotiations with the institution’s federal cognizant agency and costs are verified by detailed audits and reviews.
Indirect costs are essential for maintaining research facilities that comply with federal regulations and allow the U.S. to compete in a global environment, leading to scientific, medical, military, economic, and other innovative advances.
Insufficient reimbursement of indirect cost funds limits the institution’s capacity to support research and disincentivizes them from investing in cutting edge facilities.
For more information, visit the University of California’s policy and guidance.
