Indirect Cost Waivers on Sponsored Projects

As a policy of Utah State University (USU), Indirect Costs (IDC), sometimes referred to as Facilities and Administrative (F&A) costs or overhead, should be recovered on all sponsored projects. USU recognizes that some sponsors require a restricted indirect cost rate. Therefore, a reduction or waiver of USU indirect costs may be allowed under certain circumstances.

Background

The practice of reimbursing indirect cost to recipients of research, training, and other sponsored activity grants originated with the U.S. government, which recognized that it is extremely difficult for grantees to accurately proportion an organization’s overhead costs among its various, and often numerous, activities and funded projects. Indirect costs are those costs incurred by an organization that are not readily identifiable with a specific project, program, or activity but are necessary to the general operation of the organization. These are costs of operating the facilities and may include the costs of maintenance, depreciation, general and departmental administration, utilities, janitorial services, purchasing services, research and grants administration, accounting services, library operations, etc. 

In recognition that such indirect costs are real costs of doing business, the process of negotiating indirect cost rates was developed as a means to provide reimbursement to grantees for these supportive services. Grantee organizational expenditures are grouped into indirect cost pools and then distributed to appropriate organizational activities in a cost allocation process. This information is presented by the grantee organization to one of several agencies empowered to negotiate a federal indirect cost rate.  Utah State University’s indirect cost rate is in the process of being negotiated with The Department of Health & Human Services. USU is operating under a provisional rate until the negotiation is completed.

The grantee’s fiscal information is analyzed by federal officials to determine the allowable indirect cost rates, which are expressed as percentages. They are usually applied to either "modified total direct costs" (MTDC) base, which excludes certain expenditure categories such as subaward expenses and capital outlay (equipment); to salaries and wages (S+W) only; or to salaries, wages and fringe benefits (S+W+F) only. The base upon which the rate is applied is determined during the rate negotiation with the cognizant federal agency. USU’s rate is the MTDC base. 

The indirect cost rate is re-negotiated periodically to allow for inflation, changes in the operations of the grantee organization, and/or changes in the level of sponsored activity. 

Indirect Cost Reduction VS Indirect Cost Waiver

USU allows a reduction in indirect costs when either of the following criteria are met:

  • The request for proposals (RFP) restricts or prohibits reimbursement of USU’s full indirect cost rate.
  • The sponsor has a publicly published policy or statute that restricts or prohibits reimbursement of USU’s full indirect cost rate.

If the previous criteria do not apply and the full indirect cost rate will not be used, this is considered a waiver of indirect costs.

Procedure for Requesting Indirect Cost Reduction or Waiver

If there is a reduction in F&A due to the RFP or a sponsor’s publicly published policy, documentation should be attached to the proposal in Kuali. Sponsored Programs will verify that the policy or statute meets this requirement as part of the proposal review process.  

If there will be a waiver of F&A (in full or in part), the Internal Waiver of F&A Form should be attached to the Kuali proposal with a justification for why a waiver of indirect costs is necessary. This form requires approval by the lead unit’s Dean/VP and the Vice President for Research (VPR). Approval of the proposal in Kuali by the Dean/VP, or their appointed representative, constitutes approval of the request to waive indirect costs. Sponsored Programs will add the VPR into the approval queue for Kuali proposals where a waiver of F&A is being requested. Indirect Cost waivers for the following reasons can be approved by the Sponsored Programs Office Proposal Analysts, rather than the VPR:

  • State of Utah proposal where F&A is limited to 10%
  • Proposals that fall under a defined Cooperative Ecosystem Studies Unit (CESU)
  • Proposals that fall under another agreement where USU has agreed to a reduced F&A rate

Principal Investigators are not authorized to negotiate a reduction or waiver of indirect costs with the sponsor. Should the need for negotiation be anticipated, the PI/PD should contact Sponsored Programs well in advance of budget development and proposal submission.

If a reduced rate is used, the reduced rate will be used on a Total Direct Cost (TDC) basis unless restricted by the RFP or the sponsor’s publicly published policy.

 Administrative Fees

In instances where the indirect costs will be waived and/or restricted, an administrative fee should be considered if it is allowed by the sponsor. An administrative fee can be a flat amount, or a flat rate applied to the proposal. If an administrative fee is approved by the sponsor, the fee will be split 70% to cover general administrative costs (20% to Pre Award, 20% to Post Award and 30% to Central administration) and 30% to the generating units.