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Indirect (F&A) Costs Explained

Indirect cost - also known as Facilities and Administrative (F&A) cost or IDC – are real costs of university operations that are not readily assignable to a particular project.  Regarding federal awards, the Office of Management and Budget’s Uniform Guidance defines Indirect cost (F&A) as “those costs incurred for a common or joint purpose benefiting more than one cost objective, and not readily assignable to the cost objectives specifically benefited.  Costs such as the operation and maintenance of buildings, capital depreciation, departmental and central administration which cannot be readily and specifically attributed to any single sponsored project, but which represent the University’s cost for carrying out the activities of the project, are indirect costs.”

The Relevance of F&A Costs in Today’s Research Environment

Despite its importance and significance in growing the research enterprise at the University, the collection and use of IDC is a controversial topic among principal investigators, university administrators, funding agencies and the current administration. Faculty members would prefer to have the IDC returned directly to them for direct use in their research activities. Sponsoring agencies express concern that grant money used for indirect expenses could have more impact if used to directly fund research projects. The current administration has expressed the desire to scale back University overhead reimbursements to help reduce the budget. University administrators argue that the income from IDC is vital for expenses that the university incurs in its support of sponsored projects. The COGR 2017 Talking Points and One-Page Summary examine these concerns in some detail, while the 2017 Primer[BM1] provides context and background about F&A and the full nature of research operating costs.

To collect indirect costs from sponsors for using the university’s facilities and administrative support, the University charges each sponsored project an IDC rate not to exceed the approved negotiated rate. The funds recovered are retained by the university and used for the overall university administration of grants and research facilities. Additionally, UH has a policy of returning a portion of the earned IDC recovery on a pro-rata basis to the college that generated this income. The IDC distribution and calculation instructions can be found here.

Indirect Cost Rates on Sponsored Proposals at UH

The current approved negotiated rate at UH outlines indirect cost (F&A) rates for on-campus research, off-campus research, and other sponsored activities. These rates must be applied to all externally-sponsored projects. For exceptions see the IDC Policy. The rates  are charged on a modified total direct cost base which excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each sub-award in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect cost.

Current UH Negotiated F&A Rates

Effective Period Type of Activity On Campus Off Campus
09/01/2020–08/31/2023 Organized Research 55% 26%
Other Sponsored Activities 33% 26%

In addition to the negotiated rates, UH uses a Clinical Trial IDC rate for some projects. More information can be found here.

IDC Types and Determination:

Off Campus: The off-campus IDC rate applies to projects which meet all three criteria:

  1. Project activities must occur in a non-university owned or operated space
  2. More than 50% of the project direct costs must be for the off-campus activities
  3. Rent for the off-campus location must be directly allocated from the grant

Other sponsored activities: This IDC rate is limited in scope and should only apply to projects which disseminate known knowledge or processes. This is for programs which involve the performance of work other than instruction or organized research. This can be for service performed for the benefit of the public. Examples of such programs and projects are health service projects, community service programs, non-credit community education, and conferences.

IDC rate