Indirect Costs (IDC)/Facilities & Admin. (F&A)

General Information

The resources required to undertake a sponsored project are determined by accumulating the associated direct as well as the indirect costs. Direct costs reference those costs that can be specifically identified with a sponsored project. Indirect costs are incurred for common or joint objectives and, therefore, cannot be readily identified with a particular sponsored project. To overlook such costs within the area of sponsored projects would inaccurately attribute applicable indirect costs to other activities of the University. A few years ago, the federal government (the largest payor of IDC) decided to change the name of IDC, or overhead, to better clarify what it was designed to cover.  Hence the term Facilities and Administrative costs (F&A) was born. 

Accordingly, to allocate F&A costs to sponsored projects, the Federal Office of Management and Budget, working with representatives from the Higher Education Community, developed Circular A-21 which establishes accounting principles upon which an F&A Rate can be negotiated. This rate represents the proportion that F&A costs are to direct costs. This rate then becomes the basis for recovering indirect costs. It is negotiated periodically by Contract & Grant Administration and MSU's cognizant federal audit agency, i.e., the US Department of Health and Human Services (DHHS). The negotiation process is subject to a detailed review by federal auditors.

MSU's F&A rates for the period July 1, 2004 through June 30, 2011, were negotiated with DHHS on March 8, 2007, and are as follows:

These rates are applied to all direct costs of a sponsored project except for items of equipment, the amounts in excess of the first $25,000 of each subcontract, and graduate tuition & fees. A general description of the six areas or cost pools from which indirect costs are derived is provided below:

Departmental Administration - These are administrative and support expenses of departments, colleges, and divisions, which benefit common or joint activities. Examples include: salaries for the administrative portion of the unit administrator, AP and CT support staff, office supplies, local phone, postage, and membership costs. Also included are other professorial or professional staff whose appointments or assignments include administrative work. This area currently accounts for approximately 33% of the rate.

Operations and Maintenance of Plant - Included are costs of operating and maintaining the physical plant, i.e. heating, lighting, custodial services, care of grounds, campus security, and routine maintenance of buildings. This area currently accounts for approximately 33% of the rate.

General and Administrative Expenses - Included here are expenses for executive administration, the business office, and most other offices serving the entire university, i.e., President, Provost, Personnel, General Counsel, Controller, etc. Collectively they account for approximately 15% of the rate.

Building and Equipment Costs - The institution is credited for providing buildings and equipment to sponsored projects by applying a use allowance of 2% to the allowable cost of buildings, and 6 2/3% to the allowable cost of equipment. Some classes of equipment are depreciated over a more reasonable useful life. Also, the interest costs associated with new buildings and equipment that is paid to external parties is included here. This area accounts for approximately 11% of the indirect cost rate.

Sponsored Projects Administration - These are expenses of separate units established to administer sponsored projects. Several offices are involved (including CGA and the VP for Research), performing services such as proposal review, contract negotiation, fiscal management, financial report preparation, and billings. This area currently accounts for approximately 6% of the rate.

Library - Included here is a share of all expenses of the library including the cost of books, and library materials, in sum, accounting for approximately 2% of the rate.

Per University policy, each college is allocated 20% of the F&A charged to its grants and contracts to provide for research facilitation funds. Research facilitation funds are calculated on a March to February year, and then included in the college's next, i.e., July, general fund allocation letter. This mechanism provides the college with the opportunity to use research facilitation funds in an effective manner.