Indirect Cost Rates

MSU, M Indirect Cost Rates

Federal grants & contracts (rate negotiated with DHHS Central States Office and dated May 14, 2001; the current rate is classified as "provisional until amended." Indirect costs reflect Facilities and Administrative (F&A) expenses; the off-campus rate is lower because it does not include facilities):

• on campus 46.0% of MSU personnel cost, excluding fringe benefits*
• off campus 15.0% of MSU personnel cost, excluding fringe benefits*

State, Local, Foundation or Corporate contracts:

• 8.0% of Total Direct Costs or the maximum allowed by the agency

Some agencies limit indirect cost recovery (e.g., 15% of total direct costs). In this case, the agency’s rate must be documented and is used for calculation. Where appropriate (consult the RASP office), the difference between MSU’s standard IDC rate and the amount allowed by the agency should be described as institutional contribution.

Everything you ever needed to know about Indirect Cost Recovery

Rationale

Indirect cost recovery is vital to the health of MSU sponsored programs activity.

Federal funding cannot be administered under institutional policies that differ from other funding sources. Federal auditors look for evidence that MSU consistently recovers indirect costs. If indirect costs can be recovered, they must be recovered consistently from all funding agency types (not just federal programs). At MSU, Mankato, research and sponsored programs activity is encouraged by a generous allocation policy based on the amount of indirect cost recovery achieved by each externally funded administrative unit.

• 50% is allocated to the division or college generating the activity in the previous year
• 30% is allocated to the Office of Research and Sponsored Programs to provide administrative support to faculty and staff for research, grants and other outside funding
• 10% is allocated to the Library for research support and resources
• 10% is allocated to Student Affairs (if the grant activity was generated by Student Affairs) or to post-award support

The bottom line: IDC recovery is good for you and good for MSU.

Definitions

What are indirect costs?

Indirect costs are real costs incurred by the University as a result of administering sponsored projects. They are indirect because they cannot be readily identified or associated with a single sponsored project or institutional function. Examples are utilities, public safety, building and equipment use and maintenance, libraries, student administrative services, personnel, payroll, academic and sponsored administration, and purchasing. Other terms for IDC are overhead and facilities and administrative expense (F&A).

How is the rate determined?

The U.S. Office of Management and Budget establishes procedures to determine universities’ indirect costs using ratios that relate these costs to the direct costs of the “normal” primary functions of the institution, such as instruction, organized research, and other activities. The resulting rates are then reviewed by the cognizant federal agency, which is Health and Human Services for MSU,M. Final rates are negotiated with the Division of Finance and Administration and a formal rate agreement is signed. The agreed rates apply to all federal agreements with MSU unless other mandatory stipulations apply. Indirect costs on corporate, foundation, and state grants, agreements, contracts, and subcontracts are charged a minimum 8% (or the amount allowed by the funding agency) of total direct costs. (See “rationale,” above.) The only exception is for awards from agencies that specifically disallow indirect cost recovery and for which this condition of award was documented on the CAEFP.

But... what about a waiver?

Any grant or contract involving MSU resources that specifically waived indirect costs as part of the initial budget approval process (i.e., signed by the Dean, RASP Director, Academic Affairs Vice President, and Finance and Administration Vice President) will still have indirect costs charged at the rate of 8% on all costs for a non-federal grant or the current negotiated indirect rate for a federal grant. This cost must be covered by an institutional cost center specified on the CAEFP.

Scenarios

1. The funding agency clearly refuses to pay indirect costs. In this case, the PI/PD is required to attach to the CAEFP form the documentation of this agency policy. If the application information is not clear on this point, the PI/PD must obtain official e-mail or written confirmation from a program officer that indirect cost recovery is disallowed. When indirect cost recovery is disallowed, these costs should be described as MSU contribution to the costs of carrying out the project. Even though indirect costs are by definition unallocable, they are real costs. RASP staff can suggest language to describe this contribution.
2. Indirect costs are a line item permitted by the funding agency.

• The agency is not Federal State and local government, foundations, and corporate contracts are charged: 8.0% of Total Direct Costs or the maximum allowed by the agency.
• The agency is Federal and there are no indirect cost limitations: MSU’s current rate agreement is dated May 14, 2001. The cognizant agency is Health and Human Services (DHHS). The rates approved in the agreement are provisional from July 1, 2003, until amended (by the process described above). These rates are: on campus projects – 46% off campus projects – 15%. The base is: Direct salaries and wages including vacation, holiday, sick pay and other paid absences but excluding all other fringe benefits.
• Equipment Definition: As defined in the federally negotiated rate agreement, equipment means an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost of $1,500 or more per unit.