Facilities and Administrative (F&A) Costs
Faculty researchers when preparing a proposal for the support of a research project, or for another sponsored activity, include an amount for indirect costs in the total cost of the project's budget. For many, the concept of indirect costs associated with their proposals is somewhat abstract because there seems to be no direct relationship between these costs and the activities for which support is requested. Others believe the necessity for a sponsor to provide funding for these "indirect" costs reduces the amount available to them to pay salaries and buy the necessary supplies and equipment to carry out their proposed project. While there is an acknowledgment that such costs are necessary, how these costs are determined and reimbursed through individual sponsored agreements is not always readily understood.
It is important to note the term "Facilities and Administrative" costs or "F&A" costs has recently been adopted by the Federal Government to replace the term "indirect" cots. The reason the government renamed this term was to help clarify the nature of these costs in terms that more appropriately described their purpose in support of research and other sponsored activities at colleges and universities.
We address here the more common questions that are posed often by faculty PIs about why F&A cost rates vary between universities, how our F&A cost rates compare with those of other universities, and how our F&A cost recoveries are utilized.
What are F&A Costs?
The costs associated with providing facilities and administrative support for the conduct of research and other sponsored activities are necessary if faculty and staff are to be successful in their efforts. These real costs of a university are not readily identifiable with a particular project or activity but, nonetheless, are necessary to the general operation of a university and the conduct of its activities. They include the costs of operating and maintaining buildings and grounds, equipment, and of providing administration at the university, college and department levels as well as at the ODU Research Foundation.
Direct costs, on the other hand, are those costs which can be identified with a sponsored project with relative ease and a high degree of accuracy. They might include costs such as salaries and benefits, equipment, supplies and services, and travel.
What are the components of F&A rates?
F&A costs are divided into seven components. They are:
- Building Depreciation (in terms of sq. ft.)
- Equipment Depreciation (in terms of sq. ft.)
- Operations & Maintenance (in terms of sq. ft.)
- Interest Expense (in terms of sq. ft.)
- General/Departmental Administration ( in terms of MTDC)
- Sponsored Project Administration (in terms of MTDC)
How are F&A rates calculated?
A rate is calculated for each of these components based on methods prescribed in OMB Circular A-21, and the total of these individual rate components results in a rate that is subject to negotiation with and approval by federal officials. There is also a rate calculated for off-campus projects and there may be separate rates calculated for research, instruction and other sponsored activities. The off-campus rate includes only the administrative components capped at 26% and is applied to those projects that are conducted predominantly in facilities not owned, leased or rented by a university. Each rate is applied to sponsored program costs on a Modified Total Direct Cost (MTDC), which includes all direct costs except equipment, capital expenditures, patient care, tuition and fees, facilities rental and the portion of subcontracts in excess of $25,000.
The F&A components mentioned previously are also referred to as F&A "cost pools". Each university must identify its F&A costs (i.e., expenditures already incurred) with the various F&A cost pools. Once all F&A costs have been accumulated in the various F&A cost pools, they must be allocated to the functions of the university (research, instruction, other university activities) according to methods prescribed in OMB Circular A-21, or by using alternative methods approved by federal negotiators.
How are F&A rates negotiated?
Each university must submit a formal F&A cost rate proposal to its cognizant federal agency, which for Old Dominion University (ODU) and its fiscal agent the ODU Research Foundation (ODURF) is the Office of Naval Research (ONR). The proposal, which is based on the most recent year for which complete cost data is available, is evaluated by ONR (or other cognizant federal agency) negotiators who represent all federal agencies in negotiations with the university submitting the proposal. The negotiators' role is to determine if a university has accurately identified its F&A costs and allocated these costs in accordance with the prescribed methods. There are usually some differences in the interpretation of the rate proposal processes that lead to compromises between federal negotiators and ODURF officials in arriving at a final rate agreement. Once this negotiation is concluded, the F&A rate agreement is signed by both the cognizant agency negotiators and ODURF for a specified duration. Our negotiated on-campus rate (of 53%), as of May 2, 2011, is attributed to cost components as follows:
- Building Depreciation = 3.81%
- Equipment Depreciation = 5.83%
- Operations & Maintenance = 17.51%
- Interest Expense = 0%
- General/Departmental Administration (G/DA) = 21.1%
- Sponsored Project Administration (SPA) = 10.97%
- Library = 1.17%
Although ODU G/DA and SPA percentage total is estimated to be 32.07%, it is capped at 26%.
What are the current F&A rates for ODU?
- On-campus Research = 53%
- Off-campus Research = 26%
- Interpersonal Personnel Act (IPA) program = 10%
- On-campus Instruction = 46%
Why do F&A cost rates vary so much from one university to another?
There is no single answer to this question. Instead, the principal differences result from the following factors:
- The size and intensity of use of a university's research facilities and buildings is the primary cause for variability of F&A costs. For example, if two universities have the same direct cost research base and one has twice as many net square feet of space assigned to research, the facilities rate component for the university with twice the net square footage will be approximately twice that of the other university.
- A university's ability to secure funds to construct, upgrade and maintain research facilities. Universities that are able to spend money to renovate existing research facilities and construct new research facilities experience a higher level of costs than universities that are unable to do so. These higher costs are reflected in their recovery rates for building use.
- The location of a university has a significant effect on the costs of facility operations. The universities that have the best combination of climactic conditions and utility rates will generally have a lower rate for facility operations.
- The "mix" of research among universities contributes to the variances in facilities rates. The cost per square foot of constructing or renovating biomedical research space is more costly than the cost per square foot of space for mathematicians, for example.
- Differences in cost recovery strategies also contribute significantly to rate variations. Many public universities are not permitted to retain recovered F&A funds within the university to further support research programs. Where these universities recover F&A costs as a budget offset, they have less incentive to fully recover their costs from sponsors and thereby less capability to fund special initiatives that support or enhance research.
- Some universities may elect to recover a given cost directly rather than as a F&A cost or vice versa. A common example of this would be employee fringe benefits.
Administrative costs are the most difficult to quantify and, consequently, they are the most criticized and questioned F&A costs. In the case of ODU, it is much easier to estimate since most of grant administration, procurement, hiring, inventory control, and federal compliance is performed by a single organization (ODURF in this case). In universities that do not have a research foundation, the administrative cost is often distributed and more difficult to quantify. They are not, however, a major contributing factor to differences in F&A rates between universities. The Federal Government has capped the amount of administrative cost recovery by revising OMB Circular A-21 language several times in recent years, even though the regulatory burden on universities continues to increase.
How does ODU's F&A rate compare with that of other universities?
The current on-campus research rate (53%) is equal to the national average of public institutions.
Table 1 shows the F&A percent rate for all Virginia universities as well as for Lehigh University (a private university in rural Pennsylvania).
Does ODU receive full reimbursement for its F&A costs?
No. Most universities incur a F&A cost greater than the recovered F&A.
Many federal programs either do not provide F&A funds or limit the F&A reimbursement to a prescribed rate such as 8% in the case of the US Department of Education. A good example of the former would be conference grants, while a good example of the latter would be training grants. In federal grant-making, F&A is usually expressed as some percentage of the direct costs, excepting a few categories of project cost such as equipment, tuition and others. Universities have a negotiated "federal rate agreement" that determines the upper limit of rates that can be used in submissions to federal agencies. It is not uncommon for private foundations to disallow F&A costs in project budgets. Our effective F&A rate, as shown in Table 2, is about ~20% for traditional PIs and over 25% for the PI's within Enterprise Centers such as VMASC and Bioelectrics.
Universities are also asked to cost share both direct and F&A costs under many sponsored agreements as a way to show their commitment to a project. Some of the equipment grant requires one-third match.
Aren't F&A costs taking up an increasing portion of the total federal research budget?
No. F&A costs expressed as a percentage of total research costs have not changed appreciably in the last two decades. Some federal agencies (e.g. the National Institutes of Health) commonly report the upper limits of budget amounts for grants as direct costs. F&A costs are added to that amount when the budget is developed.
How are ODU's F&A fund recoveries utilized?
It is important to note the term "recoveries" in this context refers to recapturing F&A costs that have already been incurred, not those to be incurred in the future. Nonetheless, universities such as ODU which is still at its prime in conducting sponsored research, have been returning recovered F&A costs to the PI's, their departments and their colleges to make up for lack of start-up and travel funds and the need to build laboratories and procure equipment that hasn't been provided for by either the funding agency or the university. Other universities (primarily matured state-supported research universities) must apply recovered F&A costs as a budget offset (i.e., reduction) in accordance with their states' policies.
A portion of the allocated budget is reserved for the support of various research initiatives under the auspices of the Vice President for Research. In addition, there are some significant annual allocations of funds as well as a number of special funding requests for new initiatives, bridging funds and emergencies to support and enhance the research enterprise. Examples of support provided by Vice President for Research in FY 2011 included faculty start-ups ($839,649), matching costs ($206,074), and faculty intramurals (over $669,540).
Table 3 shows the F&A percentage distribution between administrative and academic sectors. Administrative fraction accounts for what is recovered centrally by ODURF, ODU central administration, and ODU Office of Research and academic fraction refers to that which is passed on to the academic units. The table compares both components of ours with those of other Virginia universities as well as two non-Virginia institutions.
The corresponding recovered F&A percentage that is assigned to administrative units is shown in Table 4. The entry under "Central" accounts for the actual cost of ODURF and patent related costs.
Likewise Table 5 shows the corresponding recovered F&A percentage that is disbursed to academic units in these same institutions.
See Old Dominion University's policy on Indirect Cost Recovery