Facilities & Administration Rate

• What is F&A? 
• What is the F&A Rate?
• Is there a State F&A Rate?
• What is UM's F&A Distribution?
• May I request UM waive F&A?
• What is MTDC?
• What if the rate changes during the life of the award?
• Does UM have a Disclosure Statement?
• What are three different activities in the rate agreement?
• What is the Off-Campus Rate?
• Why does it matter?

What is F&A? 

Facilities & Administration (F&A) costs - also referred to as indirect or overhead costs - are those that are incurred for common or joint objectives and cannot be readily and specifically identified with a particular sponsored project, instructional activity, or any other institutional activity. Per Montana University System Board of Regent Policy 404 – Indirect Cost Recovery Rate, the University seeks to recover all Facilities & Administrative (F&A) allowed by the sponsor.  As a result, the University may allow direct costing for non-federal funds that may be considered indirect for federal funds per A-21.

 Examples of F&A costs include:

• services by Purchasing, Human Resource Services, Facility Services, Business Services, and the like;
• use of office and/or laboratory space and equipment;
• general use supplies;
• heat, light, power and janitorial services, etc.; and, 
• time spent by academic departments, deans' offices, ORSP, Library Services, etc.

Some sponsored projects require extensive use of the institution's services and facilities, other involve minimal use. The intent and purpose of F&A recovery is to reimburse the institution for costs incurred  to support research.  The effective F&A recovery is considerably lower than the real costs incurred.  The University further subsidizes research when a reduced, non-standard F&A rate is applied to a project.  While there are circumstances where a reduced F&A rate may be appropriate, it is important for everyone to understand this results in a loss of revenue to the University.  

What is the F&A Rate?

UM's Facilities & Administration (F&A) Rate Agreement  is negotiated with a federal cognizant agency every three to four years and is derived through a complex calculation involving space usage and the following cost pools:  

1. building depreciation; 
2. equipment depreciation; 
3. interest; 
4. operations & maintenance; 
5. library services; and 
6. four administrative components that together were capped at 26% per OMB in 1993
   • general administration, 
   • departmental administration, 
   • sponsored projects administration; and 
   • student services administration.  

The specific percentages in UM's F&A Rate Agreement:  

	Organized Research (OR)			Instruction (IN)			Other Sponsored Activity (OS)
		On-Campus	Off-Campus		On-Campus	Off-Campus		On-Campus	Off-Campus
Building Deprec.		1.60%			2.50%			0.20%
Equipment Deprec.		0.70%			0.90%			0.10%
Interest		0.80%			0.90%			0.20%
Op & Maintenance		11.80%			13.20%			2.40%
Library		.90%			12.50%			0.10%
General Admin	8.20%			3.10%			8.20%
Dept Administration	14.70%			16.60%			14.70%
Spon Projects Admin	3.10%			1.20%			3.10%
Student Service Admin				5.20%
Admin Components	26.00%	26.00%	26.00%	26.10%	26.00%	26.00%	26.00%	26.00%	26.00%
Total		41.50%	26.00%		56.00%	26.00%		29.00%	26.00%

It is critical that the appropriate rate be applied to proposals and awards. Per OMB-A21 G.7, UM will apply the appropriate F&A rate at the time of the initial award throughout the life of the sponsored agreement.  

UM's negotiated rate is based on modified total direct cost (MDTC) as detailed in the F&A Rate Agreement. MTDC includes all salaries and wages, fringe benefits, materials, supplies, services, travel, and subawards up to the first $25K of each subaward (regardless of the period covered by the subaward). MDTC exludes equipment, capital expenditures, charges for  tuition remission, rental costs of off-site facilities, scholarships, and fellowships, as well as the portion of each subaward in excess of $25K. UM assesses F&A on participant support costs unless otherwise specified by sponsor.

If any rate other than UM's negotiated rate is used, F&A is based on total direct costs (TDC). 

State F&A Rates

 Per MUS BOR Policy 404 – Indirect Cost Recovery Rate:  

• For State projects that involve federal flow-through funding, UM's federally-negotiated rate will be applied, or the maximum rate allowed under statute for the program or agency;
• For State funded projects, consult with ORSP to determine type of activity:
  • if research, the F&A rate shall be 25% of the total direct costs; 
  • if training, the F&A rate shall be 8% of total direct costs.

What is a Disclosure Statement?

Public Law 100-679 requires a Disclosure Statement (DS-2) of cost accounting practices from any institution of higher education that receives $25 million or more in sponsored agreements/awards. Institutions must demonstrate adherence to Cost Accounting Standards (CAS) per  OMB A- 21, Cost Principles for Institutions of Higher Education. 

The DS-2 is intended to clarify the cost accounting practices that the institution follows or proposes to follow. The DS-2 describes the methodology for distinguishing direct costs from facilities and administrative costs (also known as indirect costs) and identifies the methodology for cumulating and allocating the facilities and administrative costs. 

Definitions of Activities

The rate must correlate with the activity performed as defined by OMB A-21 B. If a sponsored project straddles two activity areas, ORSP will apply the rate that correlates to the bulk of the activity. 

Organized Research - all research and development activities of an institution that are separately budgeted and accounted for. It includes:

Instruction - the teaching and training activities of an institution. Except for research training as provided in subsection b, this term includes all teaching and training activities, whether they are offered for credits toward a degree or certificate or on a non credit basis, and whether they are offered through regular academic departments or separate divisions, such as a summer school division or an extension division. Also considered part of this major function are departmental research, and, where agreed to, university research.

Other Sponsored Activities - programs and projects financed by Federal and non Federal agencies and organizations which involve the performance of work other than instruction and organized research. Examples of such programs and projects are health service projects, and community service programs. However, when any of these activities are undertaken by the institution without outside support, they may be classified as other institutional activities.

Off Campus - a project is considered off-campus if activities are performed in facilities not owned by UM or for which rent/lease is directly allocated to a sponsored project.  If the activity is conducted at two or more physical locations (split between on and off campus facilities), the rate applied will be the one that reflects where the majority of effort occurs.  See UM's F&A Rate Agreement, 

Why is it important?

UM has a legal and ethical obligation to accurately present proposal and award budgets that are allowable, allocable, and reasonable.  If the incorrect rate is used, it may be subject to the False Claims Act with significant consequences for the PI and University.