Costs on sponsored projects are divided into two major categories:
- Direct costs
- Facilities and administrative (F&A) costs—sometimes referred to as “indirect costs” or “overhead.”
Since the federal government uses the term “F&A costs” in all their documentation, we will also use “F&A costs” for the rest of this discussion.
Direct costs are those costs that can be identified specifically with a particular sponsored project relatively easily and with a high degree of accuracy.
F&A costs are project costs that cannot be readily and specifically identified on a particular sponsored project. F&A costs include, for example, the services of the Corporate, Foundation and Government Relations Office and the grant administrator, the services of the purchasing and accounting offices, building depreciation, library facilities, interest expense, utilities, telephone and fax usage, e-mail, general office supplies, copying charges, etc.
A formal and extensive set of guidelines for determining F&A costs are issued by the Office of Management and Budget in Circular A-21. The Circular A-21 guidelines include formal criteria for justifying costs, methods for distributing the costs between instruction and research, and documentation requirements. In addition, certain costs are declared as unallowable.
The faculty member’s proposal addresses the direct cost elements only, and the direct cost commitment to the faculty member must be supplemented to pay for a share of the institutional cost of research. The F&A cost component is distinct from the direct cost award, and in theory it simply reimburses the institution for the real cost to the college of conducting research.
To date, Babson College has used the salaries and wages method for calculating F&A rates. Our current rate is 59% applied to a base of salaries and wages. Federal laws and regulations require that the approved F&A cost rate be applied consistently. When preparing a sponsored project budget to the federal government, the approved F&A cost rate should be used unless the sponsor limits the rate by statute and/or policy. Examples of government agencies which limit rates are USDA and U.S. Department of Education.
When submitting proposals to private foundations, a minimum F&A rate of 15% on Total Direct Costs (TDC) will be proposed. Some foundations have published policies specifying reduced or no F&A cost allowance. There may be instances when a faculty member feels it is in the best interest of the college to submit a proposal to a foundation or other sponsor that does not allow F&A reimbursement or allows less than 15%. For example, a project could have significant intellectual or educational benefits to the college that outweigh the loss of F&A reimbursement. In such instances, the faculty member should discuss the proposal with the Provost and obtain written or electronic approval sent to CFGR from the Provost and the Vice President of Finance before proceeding with the proposal.