F&A costs are the costs that cannot be tied specifically to a project such as libraries, janitorial services, utilities, maintenance and depreciation of facilities, and general administrative costs such as accounting services, human resource functions, compliance functions, etc. F&A rates are developed on common cost pools for expenses normally included in a project's budget.
The appropriate F&A percentage rate is assessed against the total of the allowable direct costs. F&A rates are applied on a category of project activity (instruction, research, or other sponsored activity). For each category, a location code is established as on-campus (at least 51% of activities--including administration--is performed in facilities owned or provided by the institution) or off-campus (at least 51% of activities performed in facilities not owned or supplied by the institution and to which rent is directly allocated to the project).
It is expected that the full Department of Health and Human Services (DHHS) approved F&A rate for the category and location of the project will be applied to all proposals to federal sponsors, unless the agency guidelines specifically limits the maximum allowed rate in written policy or guidelines. Documentation of a limitation on the applicable rate must be submitted with the Internal Routing Form (IRF) (Word). Similar proposals to state and local government entities or corporate/foundation sponsors will include the maximum allowed rate. Any voluntary deviation from this rate will require a Request for Waiver or Reduced F&A (Indirect) Rate (Word). Requests must be submitted and approved by the authorized university officers BEFORE being offered or quoted to the potential sponsor or the offer/quotation may not be honored as part of the final proposal. If a reduction is approved, it is conditional on the agreement that no distributions of F&A collected from the reward will be made to seed funds as part of the standard distribution process.
The university's approved percentage for each project is applied against a standard base for calculation called Modified Total Direct Costs (MTDC = Total Direct Costs excluding certain items such as equipment, subcontracts over $25,000, tuition, scholarships, participant costs, construction, rent). If the agency is a state, local government or private sponsor and a reduced rate is approved, the base should be the total direct costs unless prohibited by sponsor's written policy.
State agencies usually limit the percentage rate of indirect costs which are allowed on contracts with other state entities. Most have policy language restricting such costs to a particular rate or to "reasonable costs." In the absence of a specific limitation in the proposal guidelines, it is expected that indirect costs of 10-15% be recovered on the total direct costs of a project funded by another state entity. Federally funded projects flowed through a state agency are expected to recover either the University's approved F&A rate or the percentage approved by the federal awarding agency. For purposes of this provision, local government and non-profit agencies flowing through state appropriated funds are considered to be eligible for the state rate. Water management districts are not considered state agencies, however, and the SUS institutions have agreed to a 25% indirect rate for these sponsors.