Facilities & Administrative Costs
Facilities and administrative costs (F&A) are infrastructure and administration costs associated with the conduct of research and other sponsored projects. Formerly known as “overhead” or “indirect costs,” F&A costs are incurred by institutions for expenses such as utilities; buildings and grounds; operation and maintenance; library-related expenditures; various types of university services, such as telephones, computer infrastructure, postage services; department, college, and service unit administrative costs; and federally-mandated research compliance. Since some of these types of expenses are incurred through the performance of sponsored projects, a percentage of these expenses is charged back to the agency or organization that provides funding for the sponsored project. Thus, F&A funding seeks to reimburse universities (and other organizations that conduct sponsored projects) for part of their cost of doing business during the course of sponsored projects.
It should be noted, however, that precise F&A costs typically cannot be applied directly to sponsored project accounts because it is not possible to allocate these types of costs in direct proportion to their use on each individual project. Thus, an “F&A rate” is set by the federal government for each institution, and that rate is used to reimburse that institution for infrastructure and administrative expenses.
How are F&A rates developed?
Most research institutions have a federally negotiated F&A rate agreement. The federal government, through the Office of Management and Budget (OMB), developed a process through which institutions prepare and submit an F&A rate proposal. The regulation that provides guidelines on the development of an F&A rate proposal for universities is located in 2 CFR Part 220 entitled “Principles for Determining Costs Applicable to Grants, Contracts, and Other Agreements with Educational Institutions.” The government’s rationale for negotiating rate agreements rather than individual rates for each award centers on the fact that negotiation of an individual rate for each award would not be cost effective for the federal agency or for the awardees.
2 CFR Part 220 provides a method for determining appropriate F&A rates for sponsored instruction/training, other sponsored activities and organized research.
The circular defines facilities and administrative costs as:
“…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.”
The costs fall into categories outlined in 2 CFR Part 220, which states:
“Facilities” is defined as depreciation and use allowances, interest on debt associated with certain buildings, equipment and capital improvements, operation and maintenance expenses, and library expenses. “Administration” is defined as general administration and general expenses, departmental administration, sponsored projects administration, student administration and services, and all other types of expenditures not listed specifically under one of the subcategories of facilities (including cross allocations from other pools).
The Department of Health and Human Services (DHHS) and the Office of Naval Research (ONR) negotiate most F&A rate agreements on behalf of the U.S. government. UNLV negotiates its agreement with DHHS. DHHS rate agreements are typically in effect from three to five years at a time. Rate agreements are renewed by preparing a new proposal in the last year of an active rate agreement
What is UNLV’s F&A rate?
The typical F&A rate agreement authorizes a series of rates that can be charged, depending on the type of project. UNLV’s current rate agreement authorizes the following types and rates:
|07/01/08-06/30/09||Organized Research - On Campus:||43.5|
|07/01/09-06/30/11||Organized Research - On Campus:||44.0|
|07/01/07-06/30/11||Organized Research - Off Campus||26.0|
|07/01/07-06/30/11||Instruction – On Campus||56.5|
|07/01/07-06/30/11||Instruction - On Campus||26.0|
|07/01/07-06/30/11||Other Sponsored Activities - On Campus||31.6|
|07/01/07-06/30/11||Other Sponsored Activities - Off Campus||23.6|
The definitions for “instruction,” “organized research,” and “other sponsored activities” are below:
Instruction means the teaching and training activities of an institution. This term includes all teaching and training activities, whether they are offered for credit toward a degree or certificate or on a non-credit basis, and whether they are offered through regular academic departments or separate divisions, such as a summer school division or an extension division. Also considered part of this major function is departmental research. Departmental research, as defined in 2 CFR 220, includes research, development, and scholarly activities that are not organized research and, consequently, are not separately budgeted and accounted for by the institution.
Organized research means all research and development activities of an institution that are separately budgeted and accounted for. It includes:
(1) Sponsored research means all research and development activities that are sponsored by federal and non-federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.
(2) University research means all research and development activities that are separately budgeted and accounted for by the institution under an internal application of institutional funds. University research, for the purposes of this document, shall be combined with sponsored research under the function of organized research.
Other sponsored activities are defined under 2 CFR 220 as programs and projects financed by federal and non-federal agencies and organizations which involve the performance of work other than instruction or organized research.
How does the university determine the appropriate F&A rate for a project?
When a sponsor will pay the university’s federally negotiated rates, two criteria are typically reviewed to assist with determination of the appropriate rate – the type of project and whether a project is on or off campus.
Type of Project
First, the project statement of work is reviewed at the time a proposal is submitted to the Office of Sponsored Programs. The type of project is determined by OSP staff utilizing the definitions from 2 CFR 220 as applicable.
On or Off Campus
When the type of project has been determined (organized research, instruction, or other sponsored activity), the next determination is whether the project is on or off campus.
OSP typically applies the definition of off-campus activity from the university’s F&A rate agreement to determine whether a project is off-campus. The agreement states:
“Off-campus activities are those activities that operate entirely off University property (either owned, leased or rented) and do not increase, nor decrease the costs of those activities (i.e., operations and maintenance) that would be affected had the activities been operated on property maintained and/or depreciated by the University.”
Aside from the F&A rate agreement definition, two additional tests may be used to determine whether a project is on campus or off campus, although other criteria may occasionally be utilized to make the determination.
The first test is related to salaries and wages; when 50% or more of the project staff salaries will be paid to individuals performing work off campus, then the off campus rate may apply.
The second test is that such off campus work must be continuous and occur over at least 50% of the project period of performance. For example, if a researcher needs to travel to an off-campus location to perform field work and will be at that location continuously for more than half of the project period of performance, the project would incur the off- campus rate. The key to this test is that the project staff must be at the location continuously and do not travel back and forth to the university.
An example of a project that would not be eligible for the off campus rate is a project for which researchers and their team travel back and forth from the university regularly between the site of a research project and their university offices. Projects for which researchers conduct focus groups, evaluations or other similar activities at locations other than the university are not eligible for the off-campus rate because the faculty member is not continuously at the site for more than half of the project period of performance
What happens when the sponsor will not accept the university’s federally negotiated rates?
Generally F&A should be applied to all sponsored projects. Nevertheless, an F&A rate lower than the federally negotiated rate may occasionally be authorized when the sponsor has a written policy that restricts the rate to a lower percentage than the university’s negotiated rate. OSP will review the sponsor’s policy and will make a determination on the use of the sponsor’s rate. In most cases, as long as the sponsor has a written policy that it applies to all awardees, the university will accept the F&A restriction. However, if the sponsor is a corporation, the university requires full payment of F&A costs.
F&A waivers are not guaranteed (e.g., when award renewals are submitted) and will be reviewed by the AVPR based on the merits of the request.
How is F&A recovered and what is it used for?
F&A is automatically charged through the university accounting system to sponsored project accounts as researchers incur costs for salaries, fringe benefits, travel, supplies, and other direct costs. The F&A funds recovered from each sponsored project are then applied to various institutional costs. Although F&A rate agreements are based on an institution’s overhead costs (utilities, maintenance and operations, administrative support, library, university services such as postage, telecommunication, computer services, etc.), the federal government does not require recovered F&A to be used to reimburse those costs. Institutions have already covered those costs from internal funds. The federal government understands that reversing accounting entries and updating general ledgers to actually reimburse these indirect costs in the institution’s accounting system would be a huge and costly administrative burden.
Instead, recovered F&A is generally used to support an institution’s research infrastructure. At UNLV, F&A is used to fund many activities including departmental and college research; research supported by the Office of the President and the Division of Research and Economic Development; laboratory start-up costs through the Office of the Executive Vice President & Provost and the Division of Research and Economic Development; administrative costs related to research (department administrative support, compliance, and sponsored programs staff); and in some units, direct seed funding to faculty researchers who generate F&A costs.
What is the distribution formula?
The university cabinet determines the distribution of F&A at UNLV. The current distribution of recovered F&A is:
|College (including department and faculty accounts)||
|Executive Vice President & Provost||
|Vice President for Research||