Grants, contracts, cooperative agreements, and other funding vehicles generally consist of two parts: Direct Costs and Indirect Costs. Indirect Costs cover expenses related to facilities and administrative support to sponsored projects. Facilities & Administrative (F&A) and Indirect Costs (IDC) are exchangeable terms.
Direct costs can be identified as particular elements, such as the following:
Indirect costs represent the expenses of performing activities that are not readily identified with a particular grant, contract, cooperative agreement, or other funding vehicle, but are necessary for the general operation of the institution in support of these activities. This includes items such as utilities, human resources, payroll, janitorial, accounting, research services, and purchasing. Although in theory these costs might be charged directly to a given project, such a strategy is impractical. Therefore, the federal government established indirect cost rates to distribute such generalized project support costs across all associated grants, contracts, and other related activities.
In the case of federally-sponsored research grants at the university, for example, the funding agency derives benefit for the nation (e.g., basic research funded by the National Science Foundation promotes the progress of science, advances national health, prosperity, and welfare, and helps secure the national defense), as does the university (via its educational and research mission and role of promoting economic development through technology and knowledge transfer). This “mutuality of interest” principle leads to a sharing of costs by OU (e.g., faculty time, space, equipment) and the sponsoring agency (direct plus indirect costs). In the case of federal contracts, however, which represent the procurement of a good or service by the agency, the agency pays the full cost as it derives the full benefit of the activity.
An indirect cost rate is simply a mechanism for determining fairly and conveniently, within the boundaries of sound administrative principles, the proportions of costs each supporting program at OU should bear. The indirect cost rate equals the total indirect cost needed to support all sponsored research and other projects at OU divided by the direct cost of those same projects, excluding unallowable costs such as tuition and equipment. The indirect costs in the numerator of the equation should bear a reasonable relationship to the direct costs from the denominator.
At the University of Oklahoma, our rate negotiation is done with our cognizant authority, the Department of Health and Human Services, and is applicable to all sponsored project work done at the university with few exceptions.
The total cost of all externally funded projects consists of expenses incurred for both direct and indirect (facilities and administrative) activities. The constitution of the State of Oklahoma in Article 10 Section 15 prohibits the extension of state resources by loan or credit to any individual, company, corporation, or association, municipality, or political subdivision. Indirect costs represent real costs that the university incurs for every program, regardless of whether these costs are reimbursed by the sponsor or not.
Federal regulations provide for recovery of these costs and require that costs be treated consistently. It is the policy of the Vice President for Research and Partnerships (VPRP) of the University of Oklahoma-Norman campus to recover the full cost reimbursement of indirect costs at the federally-approved applicable rate on all externally funded projects, including research, public service, training and instruction grants, and contracts.
The university will honor an F&A rate lower than our federally negotiated rate if the sponsoring agency publishes the cap within their guidelines. In these instances, F&A will be calculated based upon Total Direct Costs (TDC) with no exclusions unless specifically prohibited in the sponsor guidelines.
Negotiation of F&A/IDC recovery is the responsibility of the VPRP, Financial Services (FS), and Provost (and those to whom they have specifically delegated this responsibility via appointment or job parameters, such as the offices that negotiate with the cognizant agency on behalf of the university). Persons who have not been appointed to do these discussions should not initiate or respond to any requests related to indirect costs but should refer to the Office of Research Services (ORS) so appropriate actions can be accomplished.
For projects funded directly by federal agencies or with pass-through federal funds from federal agencies, the applicable rate based upon the university's federally negotiated and approved indirect cost rate agreement in effect at the time of proposal submission shall apply. Exceptions are granted for federal programs that impose a reduced rate as statutorily required and specified and published in the sponsored program announcement. The difference in the university's negotiated rate and rate assessed will be tracked as a cost sharing commitment by the Office of the Vice President for Research and Partnerships (OVPRP).
For projects funded by not-for-profit organizations and foundations, indirect costs will be recovered at the allowable rate. The university will accept the sponsor's published policy regarding allowable indirect costs. The difference in the applicable negotiated rate and rate allowed and assessed will be tracked as a cost sharing commitment by the OVPRP.
For projects funded by state and local agencies with federal pass-through funds, the applicable rate based upon the university's federally negotiated indirect cost rate agreement in effect at the time of proposal submission shall apply. For projects funded by state agencies with funds that are state appropriated or funded using federally appropriated dollars that are budgeted as a part of the state agency budget, the off-campus rate will apply (also internally known as the state courtesy rate). The state agency must provide written certification to the Office of Research Services (ORS) of any statutorily required prohibitions on indirect costs recovery. In the case of local agencies and municipalities funded primarily through taxes paid by citizens of the State of Oklahoma, the off-campus rate will apply. The difference between the appropriate negotiated on campus rate and the off-campus rate will not be tracked internally in these instances.
For projects funded by private industry, full recovery at the applicable negotiated rate is required. If the proposal involves submission to a primary Federal or non-profit source with a published rate restriction, OU will honor that restriction. Off-Campus rate is rarely approved for private industry projects to prevent the appearance of OU (as a state agency) providing support to a for-profit enterprise.
The university expects the federally Negotiated Indirect Cost Agreement (NICRA) to be used on all sponsored projects work within the framework of the procedures above. Exceptions to this policy are subject to approval by the Vice President for Research and Partnerships (VPRP) and/or the Provost (and their officially designated appointees). Requests for other than full indirect costs recovery (at the Research rate) are expected to be processed through ORS so the correct activity code or approvals for the rate used are obtained. The process of requesting non-research activity codes or reduced indirect costs is initiated through the Proposal Development Specialist (PDS). Recovery at less than an approved rate represents a cost sharing commitment by the university; depending on the involved parameters, ORS may also need the primary investigator to complete an official VPRP cost share request.
Additional information about indirect costs from the Association of American Universities (AAU) and Association of Public and Land Grant Universities (APLU) can be found at the documents linked below.