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This policy and its procedures establish practices for defining, charging, and coding direct and facilities and administrative (F&A or indirect) costs to University sponsored projects. All costs incurred for the same purpose, in like circumstances, are either direct costs only or F&A/indirect costs only. Individuals involved in applying these practices must understand and comply with this policy in order to:

• ensure that costs are properly charged and
• meet federal costing standards.

It is the University's policy that unless the institution has approved a reduction or waiver in advance of proposal submission, full F&A is required.

In addition, this policy outlines the process to share indirect cost recovery (ICR). A transparent, equitable way to allocate the ICR to all contributing units is critical in promoting interdisciplinary projects. ICR must be shared by the units contributing to the work of a sponsored project, usually in proportion to their contribution. This policy establishes principles and procedure for sharing ICR generated by all externally provided funds carrying indirect costs with substantial contributions from more than one college.

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. It also creates a uniform understanding about how F&A should be shared when there are contributions from more than one college. It is the responsibility of principal investigators, department heads and administrators to understand and comply with this policy.

• Charging Direct Costs to Sponsored Projects
• Charging Facilities and Administrative (Indirect) Costs to Sponsored Projects
• Requesting a Facilities and Administrative (Indirect) Cost Reduction
• Sharing Indirect Cost Recovery Among Collaborating Collegiate Units

• F&A Reduction Request Form

Subject	Contact	Phone	Fax/Email
Primary Contact	Pamela Webb	612-624-1648	pwebb@umn.edu
Direct charging policy questions	Grant Administrator	612-624-5599
ICR sharing questions	Frances Lawrenz	lawrenz@umn.edu
Indirect cost calculation questions	Indirect Cost Unit	612-626-9895

Allocate

Example: An educational institution normally allocates the cost of equipment required to conduct a project directly to the sponsored agreement.

Allocate means 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).

Allowable Costs

Example: A piece of equipment required to conduct the study is an allowable cost to the project but entertainment costs are not.

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).

Direct Costs

Example: Travel is normally charged as a direct cost to a project.

"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).

Facilities and Administration Costs (F&A)

According to OMB Circular A-21, 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 Appendix C - Understanding F&A Costs.

F&A costs are synonymous with indirect costs.

Indirect Costs

See "Facilities and Administration."

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 associated with this policy.

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, and cooperative agreements for research, training, and other public service activities.

 

Unallowable Costs

Example: Entertainment costs (on Federally-sponsored projects).

"Unallowable cost means any cost which, under the provisions of any pertinent law, regulation, or sponsored agreement cannot be included in prices, cost reimbursements, or settlements under a .. sponsored agreement to which it is allocable."
(CAS 9905.505).

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. Write the reduction request and forward for review. Assist with negotiating ICR sharing agreements.

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 send response to principal investigator, department head, collegiate research associate dean, and grant administrator in Sponsored Projects Administration.

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.

 

• Appendix A - Typical Direct and F&A (Indirect) Costs
• Appendix B - Examples of Unallowable Costs
• Appendix C - Understanding F&A Costs
• Appendix D - Scenarios for Allocating Indirect Cost Recovery (ICR) Funds
• Facilities & Administrative /Indirect Cost Rates

There are no FAQ for this policy.

• Federal Office of Management and Budget Circular A-21 - Cost Principles for Educational Institutions
• Federal Office of Management and Budget Circular A-110 - Uniform Administrative Requirements
• Administrative Policy: Cost Sharing, Matching, and In-Kind Contributions on Sponsored Projects
• Administrative Policy: Removing Uncollectible Costs Charged to Sponsored Projects
• Managing Sponsored Projects at the University of Minnesota

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 Procedure 2.1.3.3, removed references to "waiver." Also changed reasons why a reduction might be granted and the process for obtaining a reduction. In procedure 2.1.3.4, 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&A/Indirect Cost Rate Chart from the former policy on obtaining a F&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.