Indirect costs are those that are incurred for common or joint objectives to support a sponsored project. These are general costs associated with facilities, administration, and other shared services that cannot be identified readily and specifically for a particular sponsored project, an instructional activity, or other institutional activities.
Frequently Asked Questions
Sponsored program costs are composed of direct and indirect costs. The Facilities and Administrative (F&A) rate is the apportionment of indirect cost for each $1 of direct costs expended to deliver a program. Indirect costs are allocated to sponsored projects using the F&A rate and as such are reimbursed to LTU. The terms indirect cost and F&A may be used interchangeably.
Direct costs are costs that can be specifically identified and are necessary for program delivery, such as project personnel salary and fringe benefits, supplies, travel, services and equipment. Costs which support common purposes may be termed indirect. Indirect costs for facilities and instrumentation, library resources, administrative support for sponsored projects, general supplies, services and technology infrastructure are difficult to discretely measure relative to each project, but are necessary costs for performance. For Federal programs, the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200 Uniform Guidance), governs procedures for direct and indirect cost allocation.
Lawrence Tech’s most recent federally negotiated F&A Agreement (effective September 15, 2021) establishes a rate of 49% of Modified Total Direct Costs (MTDC), which excludes cost of equipment over $5,000 with a useful life of more than one year, capital expenditures, facility rent (if applicable), graduate tuition, participant support and subawards/subcontracts for the portion of each agreement over $25,000.
The F&A rate is derived from the computation of pooled indirect cost over the base of direct costs for sponsored projects.
Costs included in the direct cost base are:
- Direct salaries, wages and fringe benefits charged to sponsored accounts
- Materials and supplies charged to sponsored accounts
- Equipment charged to sponsored accounts
- Services charged to sponsored accounts
- Travel charged to sponsored accounts
Costs included in the F&A indirect cost pool are:
- Use allowances for buildings, equipment, technology infrastructure, capital improvements, and other expenses associated with facilities operations.
- Depreciation associated with facilities, equipment, and capital improvements.
- Interest expense associated with certain facilities, equipment, and capital improvements funded in whole or in part by loans.
- Maintenance, janitorial services, utilities, furniture and equipment, insurance, and other related costs.
- Administration in support of instruction, research, sponsored activities, or other normal university-wide operations.
- College and departmental administration in support of instruction, research, sponsored activities, or other normal departmental operations.
- Library services, technology and infrastructure.
It’s important to note that costs normally considered indirect (listed above) should not be direct-charged to federally funded projects since the indirect rate covers these expenses. Charges for general office supplies, phone service and equipment, books, periodicals and subscriptions, postage, data storage and clerical support, are also costs normally considered indirect. For programs where a lower F&A rate is used, it may be appropriate to direct-charge costs normally considered indirect.
The negotiated F&A rate of 49% of MTDC is required by the government to be used for Federally funded programs unless otherwise specified in the program announcement or limited by statute (2 CFR 200.414(c)).
Federal and other sponsored fellowships for scholar support, travel and conference awards generally do not usually provide F&A support, as such awards require negligible infrastructure-based resources. Education and training programs limit F&A reimbursement, certain other non-research directed programs are limited by governmental statute and LTU’s F&A reimbursement to an organization without a federally negotiated agreement is generally limited to 10%. Foundations and other non-profit sponsors also usually restrict F&A reimbursement. Due to the complexity of F&A rules applied to a myriad of sponsors, requests to accept lower than 49% F&A must be approved by a dean and LTU’s provost before proposal submittal.
Industry Sponsored Projects (ISPs) are categorically excluded from the F&A requirement. These projects support student education, are for-course credit and are non-federally funded. Sponsored Research and Institutional Grants assists with administration of ISPs because research compliance may be involved, effort and expense for research may be appropriate in some circumstances and ISPs are sponsored funds conditioned upon student support.
Waived indirect costs may be considered cost share. Federal sponsors are not permitted to evaluate proposals based on cost share unless it’s explicated listed as an evaluation factor in the funding announcement (2 CFR 200.306). To be considered cost share, federal sponsors must prior-approve the inclusion of the cost share commitment in a proposal. This is done by including a request or requirement in the funding announcement. For non-federal programs, the cost-benefit to LTU for sharing in costs of a sponsored program is a factor for consideration. Because it’s an organizational consideration of cost vs benefit and involves resource expenditure, F&A waivers (indirect cost share) must be approved by a dean and LTU’s provost prior to proposal submittal. If included in a sponsored proposal budget, cost share becomes a commitment requiring accounting and reporting.
F&A reimbursement of LTU costs are calculated monthly and distributed as follows:
- 25% - PI’s discretionary fund
- 25% - Dean’s discretionary fund
- 25% - Provost’s research initiatives fund
- 25% - Lawrence Technological University General Fund
Indirect Cost Disbursement Additional information on how indirect cost recovery funds are distributed at Lawrence Tech.
Download Indirect Cost Disbursement for information on how indirect cost recovery funds are distributed at Lawrence Tech.