Facilities and Administration

What is F&A? 

Facilities & Administration (F&A) costs - also referred to as indirect or overhead costs - are costs for general use items routinely purchased/provided by the University, such as those incurred for common or joint objectives that cannot be readily and specifically identified with a particular sponsored project, instructional activity, or any other institutional activity.  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;
  • fixed phone and data port/Internet charges;
  • heat, light, power and janitorial services, etc.; and, 
  • time spent by academic departments, deans' offices, ORSP, Library Services, etc. 
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What is the F&A Rate?

When the federal government increased its research activity following World War II, the need for additional facilities and accompanying  administrative infrastructure became readily apparent.  Recognizing that universities and other entities across the nation already had laboratories and administrative components (accounts payable, human resources, etc.) in place, the federal government outsourced its projects and reimbursed for expenses. Because some activities require extensive use of an institution's services and facilities while others involved minimal use, an equitable mechanism was needed to be able to reimburse an institution for the indirect costs associated with a sponsored project. The result was federally-negotiated Facilities & Administration Rate Agreements which have provided a mechanism for reimbursement since 1947.  

An institution's F&A Rate Agreement provides a mechanism to recover and reimburse the institution for these services/facilities. Therefore, on projects recovering full F&A, budgeting or charging for indirect cost items as direct costs is seldom allowable as the sponsor already "pays" for those items via the F&A Rate Agreement.  

UM's Facilities & Administration (F&A) Rate Agreement is negotiated with Health and Human Services 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.  

An institution’s Facilities & Administration (F&A) Rate is negotiated for multiple years and is determined when the institution’s cognizant agency reviews and analyzes information collected from an extensive gathering of campus-wide costs that support the research endeavor (examples below).  These costs are gathered from a prior year, known as the “base year.” 

While the collection, preparation, and review is onerous, the F&A Rate is the result of a simple calculation:   

F&A Costs (allocable to organized research) / Direct Costs (related to organized research) =  F&A Rate

Elementary math skills demonstrate that the larger the bottom number, the smaller the percentage: 

100 (F&A Costs) / 25 (Direct Costs) = 4   OR   100 (F&A Costs) / 50(Direct Costs) = 2

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

Fully Burdened Rates
 

Organized Research (OR)

Instruction (IN)

Other Sponsored Activity (OS)

   

On-Campus

Off-Campus

 

On-Campus

Off-Campus

 

On-Campus

Off-Campus

Building Deprec.

 

3.70%

   

4.50%

   

2.50%

 

Equipment Deprec.

 

2.20%

   

2.60%

   

1.50%

 

Interest

 

1.00%

   

1.10%

   

0.90%

 

Op & Maintenance

 

13.50%

   

15.30%

   

7.20%

 

Library

 

1.10%

   

9.50%

   

0.90%

 

General Admin

6.50%

   

4.10%

   

6.20%

   

Dept Administration

15.70%

   

14.00%

   

16.00%

   

Spon Projects Admin

3.80%

   

1.90%

   

3.80%

   

Student Service Admin

0.00%    

6.00%

    0.00%    

    Admin Components

26.00%

26.00%

26.00%

26.00%

26.00%

26.00%

26.00%

14.00%

26.00%

Total

 

47.00%

26.00%

 

59.00%

26.00%

 

39.00%

26.00%

If a sponsor directs the application of a rate other than UM's negotiated rate, F&A is typically based on total direct costs (TDC) for non-federal and MTDC for federal, unless otherwise specified by the sponsor or where other extenuating circumstances exist.  Meeting match requirements with all or part of unrecovered F&A will be calculated per UM's negotiated rate. 

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. Project budgets should apply the maximum F&A rate allowed in each period to reflect UM’s federally negotiated rate agreement.

In instances where sponsors do not allow UM's full negotiated F&A rate, partial recovery will be allowed with adequate documentation.

UM's negotiated recovery rate is based on modified total direct cost (MTDC) 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). MTDC excludes equipment, capital expenditures, participant support costs, tuition remission, rental costs of off-site facilities, scholarships, fellowships, and subsistence allowances, as well as the portion of each subaward in excess of $25K. 

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.

VPR Whittenburg details where F&A recovery was invested in FY13 in his Feb 11 2014 email announcing the new F&A Rate Agreement

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State F&A Rates

 Per MUS BOR Policy 404 – Indirect Cost Recovery Rate:  

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What is a Disclosure Statement?

Public Law 100-679 requires a Disclosure Statement (DS-2) (2 CFR 200.419 | OMB A-21 C.14) of cost accounting practices from any institution of higher education that receives in aggregate $50 million or more in sponsored agreements/awards. Institutions must demonstrate adherence to Cost Accounting Standards (CAS) per 2 CFR 200 Subpart EOMB A- 21 Cost Principles. 

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. 

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Definitions of Activities

The rate must correlate with the activity performed as defined by 2 CFR 200 Appendix III and 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 and apply an institutional program code as appropriate. 

Organized Research (OR)

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

It includes:

  1. Sponsored research means all research and development activities that are sponsored by Federal and non Federal agencies and organizations. This term includes activities involving the training of individuals in research techniques (commonly called research training) where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function.
  2. University research means all research and development activities that are separately budgeted and accounted for by the institution under an internal application of institutional funds. University research, for purposes of this document, shall be combined with sponsored research under the function of organized research.

 Examples include awards 1) to support research activities, 2) to maintain facilities, equipment and/or operation of a facility to be used for research, 3) for the writing of books, when the purpose is to publish research results, and 4) for data collection, evaluation, analysis and/or reporting.

Instruction (IN)

Instruction includes the teaching and training activities of an institution. Except for research training as provided under Organized Research, 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.

  1. Sponsored teaching and training means specific instructional or training activity established by grant, contract, or cooperative agreement. For purposes of the cost principles, this activity may be considered a major function even though an institution's accounting treatment may include it in the instruction function.
  2. Departmental research means research, development and scholarly activities that are not organized research and, consequently, are not separately budgeted and accounted for. Departmental research, for purposes of this document, is not considered as a major function, but as a part of the instruction function of the institution.

Examples include curriculum development projects, including projects which involve evaluation of curriculum or teaching methods. Note that such evaluation may be considered “Research” when the preponderance of activity is data collection, evaluation and reporting. 

Other Sponsored Activities (OS) 

Programs and projects financed by Federal and non Federal agencies and organizations which involve the performance of work other than instruction and organized research are considered Other Sponsored Activities.

Examples of such programs and projects are health service projects, travel grants, support for conferences, 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

For activities performed in facilities (e.g., brick and mortar) not owned by the institution and to which rent is directly allocated to the project(s), the off campus rate will apply. Thus, a field component does not qualify a project for the off campus rate.  Actual costs will be apportioned between on-campus and off-campus components. Each portion will bear the appropriate rate. The Off Campus rate reflects only the administrative component, which was capped at 26% per OMB in 1993.  See UM's F&A Rate Agreement

Fully Burdened

When working with industry or international sponsors, UM seeks to recover its fully burdened F&A, as determined during the most recent federal F&A Rate negotiation:

Breakout of Percentages
Organized Research 53.5%
    OR Off campus 28.4%
Instruction 95.1%
     IN Off campus 58.5%
Other Sponsored Activity 49.5%
    OS Off Campus 27%

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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. 

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