Situation: A Principal Investigator's lab space is used for a specific research project, however, he simultaneously conducts multiple research projects using the same lab space and resources.
Question: We know the project is benefiting from the lab space, but how do we calculate the overall lab costs associated with that benefit?
Answer: Use a formula that spreads the costs of the whole lab across all the projects conducted there.
This is the basic process used with Facilities & Administrative (F&A) costs across all projects. Similar to overhead costs of a business, F&A costs are the basic expenses involved in running research programs at the institution. They include the services of the accounting staff and research administrators, the cost of utilities for a building that houses several research projects, office supplies, postage, local telephone services and communication infrastructure, or salaries of personnel engaged in providing a broad range of departmental support activities.
By federal definition, F&A costs (also referred to as overhead or "indirect" costs) are costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, instructional activity, or any other institutional activity. In contrast, direct costs can be identified specifically with a particular project or activity. They can be directly assigned to an activity with relative ease and a high degree of accuracy.
Examples of common or joint F&A costs are:
- Office space
- Laboratory space
- Telecommunication services
- Departmental Administration
- Sponsored Projects Administration
- Research accounting activity
- Purchasing Department
- Custodial Services
- Building maintenance
- Office supplies
- Security services
- Animal and human subjects protection
- Human Resources
These are real costs and have to be paid. These expenses are not directly paid by sponsored project budgets, therefore the institution is dependent upon the recovery of F&A costs to maintain the infrastructure necessary to support sponsored projects.
The F&A rates that can be charged to federally sponsored projects are compiled and presented to the Department of Health and Human Services (DHHS) in a proposal submitted by the institution. The proposal is audited by DHHS.
The institution categorizes all F&A costs as facilities or administrative based on the nature of the cost.
Examples of facilities costs
Examples of administrative costs
building depreciation, equipment depreciation, libraries, and operations and maintenance
general, departmental and sponsored project administration
Once the portion of these costs that are research-related is calculated, it is converted to a F&A Rate by dividing it by the modified total direct costs (MTDC) credited to research. MTDC are total direct costs (salaries and wages, fringe benefits, materials and supplies, services, travel, etc) minus graduate assistant tuition remission, equipment, plant construction, the portion of each contract in excess of $25,000, and patient care costs.
The F&A Rate is usually reviewed and updated annually.
The purpose of the F&A cost component is to reimburse the institution for the costs it incurs to support research, and the institution makes every effort to be fully reimbursed for these costs. Unfortunately, even when an F&A rate is applied, the institution does not recover all of the actual costs due to limitations of the federal cost principles.
The institution further finances the actual costs of research when non-standard F&A rates are applied. In fact, some sponsoring agencies do not allow F&A and some often limit the allowable F&A costs. Consequently, the institution collects a little less than 30 cents on every indirect dollar spent for sponsored projects.
To apply the standard F&A rate, the costs of graduate student tuition remission, equipment, plant construction, the portion of each subcontract in excess of $25,000, and patient care costs are subtracted from the total direct costs to establish the MTDC base for the project. The F&A rate is then multiplied by the MTDC base for the project and the resulting F&A costs are added to the direct costs to reach the total cost of the project.
Current institutional rates can be found on the Budget Planning Rate Guide for Sponsored Projects.
We all experience the benefits of the F&A cost recovery every day when:
- Turning on the lights;
- A graduate student gets paid;
- A piece of equipment gets ordered;
- Asking for a time extension on a project;
- Filing an intention disclosure;
- Requesting a cost transfer;
- Picking up the telephone;
- Using the library;
- Asking a staff assistant to type up a report;
- Using the internet;
- And much more...
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Explanation of LLU Budget Categories