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Contract Development

Frequently Asked Questions about Indirect Costs


What are F&A or Indirect Costs?

The term "indirect costs" was coined many years ago by the federal government’s Office of Management and Budget. As a result of recent changes, the new name for these costs is "Facilities and Administrative costs," or "F&A."

F&A costs are those expenses associated with operating and maintaining the infrastructure of universities. F&A recoveries go toward supporting research, instructional, and public service projects that are paid for with external funds (e.g., grants and contracts).

F&A costs are real costs, but are not readily identifiable as belonging to a specific project, as direct costs are. As a result, F&A is generally stated in proposal budgets as a percentage of direct costs.

F&A costs are incurred every time a contract dollar is spent on research, public service, or instructional projects.

F&A costs are built into a project budget as an integral part of the proposal, not "taken off the top" of an award. As direct-cost expenditures are made during the course of a project, an appropriate dollar amount is correspondingly deducted for F&A. If not all the direct costs are expended during the life of a project, not all of the F&A allowed in the budget will be collected.

Why is F&A charged on grants and contracts?

F&A cost recovery recognizes that the work on the contract is being conducted through the University—whether on or off campus—using University resources, such as facilities, utilities, libraries and administration. Using these resources is a real cost which, if not reimbursed, would adversely impact department budgets, student fees, and university resources. Contracting agencies recognize this fact and are willing to pay for indirect costs. Contract Administration is responsible for including these indirect—but real—costs in proposed contract budgets so that all the costs associated with externally-funded projects may be reimbursed to Sacramento State. 

The University is required by the CSU system and the State whenever possible to recover its costs to the full extent of the federally-negotiated rate.  Exceptions are made to the extent that some sponsors such as private foundations have a published maximum rate which they will pay. 

Will adding F&A to my budget hurt the chances of my project being awarded?

F&A costs are only one part of a proposal budget. By itself, the inclusion of F&A in a budget will not affect a proposal’s competitiveness. A well-planned budget includes F&A. As long as all direct-cost items are realistic, F&A is no hindrance. This is true first, because others submitting contract proposals also include F&A costs in their budgets, and second, because agencies recognize that F&A is a necessary part of a budget and do not discriminate against institutions that include F&A. The substance of a proposal is far more important than F&A in determining whether a project is funded or not.

What do F&A costs include?

F&A costs include:

How is the F&A rate determined?

The complicated procedure for calculating F&A costs is prescribed for all universities by the federal Office of Management and Budget (OMB). The U.S. Department of Health and Human Services is the agency that audits this process for Sacramento State, and it is with DHHS that UEI negotiates the F&A rate agreement every three years. Sacramento State and UEI work together to determine what the University’s F&A costs are, and to present Sacramento State’s rate proposal to the federal government.

Who gets the recovered F&A costs?

Recovered F&A costs are used for many purposes throughout the University. Much of the recovered funds are returned to the college deans and principal investigators. Some uses of F&A include:

What are "forgone" or unrecovered F&A costs?

When Sacramento State and UEI accept a grant or contract that does not reimburse F&A costs at the full negotiated rate, the difference is called "forgone" or unrecovered F&A.

Because the University and UEI must still support the infrastructure that enables Sacramento State faculty to attract funding and conduct projects, F&A costs are covered from University and or UEI funds.

Why don’t some sponsors pay F&A costs?

Private foundations, nonprofits, and most charitable organizations that sponsor university projects state that their intention is to help support specific programs, but not to pay all the costs of a project. They can therefore leverage their funding with other sources of support. Such sponsors typically limit the amount they will allow for F&A.

Some federal programs (e.g., educational training grants) establish funding limits in much the same way as charitable organizations. This is more likely to be the case if no deliverables are required from the project director.

Contracts with private corporations should recover Sacramento State’s federally negotiated F&A rate, although some smaller firms will only pay part of the F&A expenses.

What are Sacramento State’s current federally negotiated F&A rates?
Effective through June 30, 2015.
F&A Rate Agreement (PDF)

On Campus:

38% MTDC (Modified Total Direct Costs)
Off Campus:

22% MTDC  (A project is considered off campus if the activity is conducted at locations other than in University or UEI-owned or operated facilities and indirect costs associated with physical plant and library are not considered applicable to the project.)

Modified Total Direct Costs (MTDC) consist of all salaries and wages, fringe benefits, materials, supplies, services, travel and subgrants and subcontracts up to the first $25,000 (regardless of the period covered by the subgrant or subcontract). Modified total direct costs excludes equipment, capital expenditures, charges for patient care, tuition remission, rental costs of off-site facilities, scholarships, and fellowships, as well as the portion of each subgrant and subcontract in excess of $25,000.

How do Sacramento State’s F&A costs compare to other major universities’ rates?

Sacramento States´s F&A rates are below average when compared to similar institutions across the nation.  Variations in F&A rates from university to university are common. Some institutions have rates above 70 percent; others charge as little as 30 percent. There are dozens of factors that account for differences in F&A rates, including costs of heating and cooling, age of buildings, amount of administrative activity devoted to research management, need for replacement of research equipment, and the balance between research and instruction on campus. In addition, some state institutions choose to bear a greater share of research costs than others.