Frequently Requested Information

Location
Science Annex, Building 20, 4th Floor
525 S. Beaver Street
Flagstaff, AZ 86011

Mailing Address
PO Box 4130
Flagstaff, AZ 86011

Facilities & Administrative Cost Rates

(Also called F&A, Overhead, and Indirect Costs)
Cognizant Agency: U.S. Dept. of Health and Human Services (DHHS)
DHHS Representative: Helen Fung, 415-437-7820.
Download the full signed F&A rate agreement.
Effective March 16, 2017:

Important: Use Approved Rates

The university’s policy is to request NAU’s federally approved rates unless a different rate has been stipulated by the sponsor in writing (documentation is required). Exceptions (waivers or reduction of F&A) are VERY RARE and must be approved in writing by the Chair(s), Dean(s)/Director(s), and Vice President for Research. Requests must be submitted at least two weeks prior to the proposal deadline.

Facilities & Administrative Cost Rates for Industry Sponsors

here is the link for the Interim FA Rate for Industry and For-Profit Sponsored Projects.

• Employee coverage
• Pilot insurance
• Student internship coverage
• Volunteer coverage

According to NAU’s rate agreement, “The off- campus rate is applicable to those projects conducted in facilities not owned or leased by the University. However, if the project is conducted in leased space and lease costs are directly charged to the project, then the off-campus rate must be used. A project is considered off-campus if more than 50% of its salaries and wages are incurred at an off-campus facility. If a project is determined to be off-campus, it shall be considered wholly off-campus. Separate on and off-campus rates will not be used for a single project.”

Based on this definition, the following conditions MUST be present to use the off-campus rate:

• The project is conducted in leased space and lease costs are directly charged to the project, OR
• More than 50% of the NAU salaries and wages are incurred at an off-campus facility.

The following conditions cannot be used to justify an off-campus rate:

• Field work that is conducted in and around Flagstaff, with the ability to return to campus each day.
• Use of non-NAU temporary employees hired, e.g., for field work out of country.

Frequently Asked Questions (FAQs) about the Indirect Costs of Federally Sponsored Research

1. Why does the federal government provide support for indirect costs of research?

In order to perform research on behalf of federal agencies, universities incur a variety of costs they would not otherwise have, both leading up to and while conducting a specific research project. Facilities and Administrative (F&A) costs, often referred to as indirect costs, cover a portion of the university’s infrastructure and operational costs related to federally-funded research. Such shared costs encompass the maintenance of sophisticated, high-tech labs for cutting-edge research; utilities such as light and heat; telecommunications; hazardous waste disposal; and the infrastructure necessary to comply with various federal, state, and local rules and regulations.

2. How do universities spend indirect cost payments from the federal government?

Indirect cost payments are actually reimbursements for costs that universities have already paid for expenses incurred in conducting federally-sponsored research. Universities and the federal government both contribute to the cost of supporting the infrastructure and environment necessary to keep labs running and research advances coming. Universities typically pay many of these costs in advance, and the federal government reimburses them for part of that expense. Such shared costs include the portion of construction and upkeep of labs that are devoted to federally-sponsored research projects. These costs also include expenses such as utilities, telecommunications, radiation safety and hazardous waste disposal, security and fire protection, and liability insurance. F&A costs also cover the personnel, paperwork, and other costs involved in complying with various federal, state, and local rules and regulations. This includes, for example, compliance with human or animal subjects protection rules, biosecurity regulations, chemical safety rules, and regulations to guard medical research from conflicts of interest. Research could not be conducted without these necessary expenses.

3. Is it true that some universities spend up to 50 to 75 percent of the funds they receive from the federal government to pay for indirect costs?

No, it is not true. A university’s indirect cost rate does NOT indicate the percentage of the total federal research grant spending for indirect costs. Rather, a second calculation must be done to determine that percentage.

Here’s how it works: In order to determine the level of reimbursement, a university and the federal government periodically assess all of these shared costs and work together to figure out the appropriate federal share. The overall figure is ultimately calculated as a percentage of the amount the federal government awards for direct research costs (not a percentage of the overall funds, the figure most people see, which is a common misperception).

For example, after reviewing all of the expected costs and looking at past research projects, a university and the federal government may determine that an amount equal to 50 percent of direct research costs is appropriate for the federal government to contribute toward F&A costs. In that case, if the federal government awards a university $300,000 for the direct research portion of a grant then it also awards $150,000 for F&A costs, for a total of $450,000. These overall institutional indirect cost rates are then applied uniformly to each grant at the university to avoid the very tedious and expensive process of computing the additional costs for individual awards. (Note: In practice, the total F&A reimbursement would likely be slightly less since certain elements of direct costs are excluded from the F&A calculation.)

4. Do universities contribute any of their own funds towards research or do they only use federal and state dollars to support research?

Yes, universities use their own funds for research. Universities are the second leading sponsor of research conducted on their campuses. They fund nearly 20 percent of university research expenditures – significantly exceeding the combined total of state, industry, foundation, and other non-federal support which equals only about 10 percent of total support for academic research. Over the past 20 years, according to National Science Foundation (NSF) data, the university share of support for university-based research has grown faster than any other sector. Included in this amount are the costs of compliance and administration which are above the cap for which the federal government reimburses costs; universities subsidize these costs from their own financial resources.ⁱ

5. How does what the federal government pays to universities for indirect costs on research compare to what the government pays for other performers of government research, such as the national laboratories or industrial contractors?

Total F&A costs for research performed by universities are, on average, comparable to if not slightly less than other research performers, such as federal laboratories and private contractors. Moreover, since 1991, the Office of Management and Budget (OMB) has had in place a cap of 26 percent on the percentage of government funds that can be provided to universities to cover administrative expenses (including costs incurred by the university to comply with federally mandated regulations). Universities are the only sector with such a cap. They are always mindful of their responsibility to be good stewards of federal resources and to contain costs to get the most out of federal research project grants.

6. Is the federal government actually subsidizing the work being sponsored by foundations and industry?

No, this is prohibited by current OMB rules. Rules outlined in the OMB’s Circular A-21 (which governs federally sponsored research at universities) specifically requires universities to ensure the federal government does not subsidize other non-federal activity in the reimbursements it provides for indirect costs associated with the performance of federal research. Under these rules, universities must demonstrate and explain exactly how they do that and thus are held accountable. In fact, all the funds received from any source go into the F&A base, from which the rate is calculated. What this means is that additional dollars from foundations or industry go into the denominator of the rate calculation. This has the effect of lowering the final F&A rate, actually reducing the total reimbursement from the federal government.

7. Why do federal grants need high indirect costs when universities accept grants from non-profit foundations with zero to low indirect costs?

Historically, most foundations view their grants as supporting an activity or a scientist currently doing research in an area of science that falls within the mission of the foundation, therefore supplementing existing support the researcher or university has from other sources. Until recently, the amounts of funding provided by foundations have been relatively small, compared to what federal agencies provide, for example. This is still the case for many foundations, although fairly new foundations such as the Gates Foundations have provided much larger grants, with specific project goals and expectations. While these larger organizations acknowledge the reality and necessity of F&A costs, they continue to only pay 10 or 20 percent. So most universities decide to accept such grants, knowing that the university (not the federal government) will be subsidizing the research conducted under such grants, and possibly end up with a somewhat lower F&A rate in its next rate negotiation. This is one of the key ways universities leverage their own funds to support research.

8. Are federal indirect cost payments being used to subsidize other campus accounts, such as athletics or construction? How does the government ensure accountability for these payments?

No, this is prohibited by current OMB rules which require that indirect cost reimbursements be based ONLY on research space, not on education or other university facilities. Research costs are accounted for with a great deal of care. In recent years, federal agencies have increased audits and oversight of university accounts. The government requires yearly independent audits of university accounts in accordance with government prescribed guidelines in OMB Circular A-133. OMB has tightened the rules governing accountability several times over the past 15 years. In addition, historically, most research facilities have been planned and funded by universities. In committing to a major new research facility, a university assumes all of the risk. It plans the building, raises the capital, and then constructs the facility. Only after that process is completed – and then only if the faculty can successfully compete for research dollars – does the university recover some portion of the costs already incurred through its negotiated facilities and administrative cost rate. Again, indirect cost payments are actually reimbursements for allowable research expenses already paid for by universities.

9. Why is there so much variation in indirect cost rates between institutions?

The percentage resulting from the F&A calculation varies from university to university because actual costs vary based on a variety of factors that include energy costs for heating and cooling, which depends upon geographic location, the age and condition of facilities and buildings, and the amount of renovation and construction needed to house certain types of research projects.

10. How often does a university’s indirect cost rate from the federal government change?

A university’s specific percentage rate is applied to all federal grants moving forward for a three or four-year period. During that time, the federal government requires a rigorous review and audit of a university’s facilities and administration expenses to ensure that the school is using the funds appropriately. The rate is reexamined at the end of that period, and upward or downward adjustments are made as warranted.

11. If the government cut back on the amount it was willing to pay for indirect costs, how would universities cover these costs?

Universities have a limited number of funding sources. The primary funding sources for research universities to perform their research and educational missions are tuition, research grants and contracts, philanthropy, endowment income, and, in the case of public institutions, state appropriations. When universities are unable to recover the full allowable costs of research, they must rely on other primary funding sources to make up the difference. A cap on F&A costs might result in:

• institutions refusing to accept research awards that require significant institutional subsidy;
• the deterioration of research facilities as the risk becomes too great to invest institutional funds;
• a substandard compliance environment because institutions cannot afford to pay for mandated compliance costs; and,
• increases in tuition rates to cover costs that have been shifted to the institution.

Each of these would result in harm to not only the institutions conducting research, but the nation which would lose its competitive edge in science and innovation.

12. Has the percentage of federal funding going towards indirect costs changed over time?

Indirect costs recovered by both public and private institutions across the nation have remained, as a fraction of total costs, flat for decades. For example, according to NIH’s FY2014 Congressional Justification, the agency’s percent of total funding going towards indirect costs has remained unchanged, at approximately 27-28% of total funding, for more than a decade.

— Prepared by the Association of American Universities and the Association of Public and Land-grant Universities – Update March 2017

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ⁱ NSF is working to improve the data on university R&D expenditures, which currently relies on a faulty system of institutional self-reporting. In some instances where institutions have, for various reasons, not reported this information to the NSF, they have inaccurately represented it in their data tables that the institution has not contributed any money to support research. In addition, many other institutions have been significantly underreporting the contribution they make to research.

Breaking Down the Costs of Federal Research at
Universities

The historic partnership between the federal government and research universities has produced tremendous return on investment through improvements in human health, transformative technologies, and the development of the world’s best research workforce. The federal government has long sponsored research at universities because innovations and new technologies help our country prosper and enhance our national security. The Internet, GPS technology, touchscreen phones, and treatments for cancer and heart disease are just a few examples of the countless innovations that have resulted from federally sponsored university research. University-based research is an investment that benefits all Americans: it serves the dual functions of 1) making the discoveries that are the foundation for technological and medical progress, and 2) training the next generation of scientists, engineers, and entrepreneurs.

Typically, universities are awarded federal research funds through a competitive grant process that helps ensure the best projects receive support. Federal research grants awarded to a university comprise two essential parts: 1) Direct Costs, and 2) Facilities and Administrative (F&A) Costs, often referred to as Indirect Costs.

1. Direct Costs – These solely support research and include costs for:

• laboratory supplies, such as test tubes and beakers;
• research equipment, such as microscopes;
• salary support for the scientists and engineers conducting the research;
• stipends for graduate students working on the research; and
• travel that may be necessary for conducting research or for sharing research results.

The bulk of federal investment is spent on direct costs and the government provides funds at the start of the research project.

2. F&A Costs (Indirect Costs) – Universities incur significant costs leading up to and while conducting federal research projects. F&A costs cover a portion of the university’s infrastructure and operational costs necessary to conduct federally-funded research. These shared costs cover a portion of:

• construction and maintenance of sophisticated, high-tech labs;
• utilities such as lighting, water, air conditioning, and heat;
• telecommunications, internet, and data storage;
• radiation safety and hazardous waste disposal;
• security for sensitive and dangerous chemicals; and
• the personnel, paperwork, and other costs needed to comply with federal, state, and local regulations.

Universities pay these expenses as they conduct federally sponsored research, and the government then partially reimburses universities for a portion of these necessary research expenses.

How are F&A Costs Calculated?
In theory, the federal government could seek to determine the exact share of F&A costs required for each individual research grant. However, given that federal agencies issue tens of thousands of grants annually, such a system would be a costly and bureaucratic nightmare. Instead, the government has developed a system that eliminates the need for repeated complex calculations.

Whether it’s the cost to maintain a lab, connect to high-speed internet, or light laboratories, what a university pays for items that fall under F&A costs tend to cover a variety of projects, not just one federal research project and not even solely federal research. For example, a university may pay a $5,000 quarterly fee for hazardous waste disposal. Since only a portion of that waste is the byproduct of federal research, the government only pays for the share of the waste produced in the conduct of federally sponsored research per strict rules and limits established by the Office of Management and Budget. It would be more costly, time consuming, and inefficient to have two separate hazardous waste disposal contracts – one for all federal research and another for everything else.

To determine the level of F&A costs reimbursement, a university and the government periodically assess these shared costs and determine the appropriate federal portion. The overall figure is ultimately calculated as a percentage of the amount the government awards for direct research costs (not a percentage of the overall funds, which is a common misperception). For example, after reviewing all the expected costs and looking at past research projects, both parties may determine that an amount equal to 50 percent of direct research costs is appropriate for the government to contribute toward F&A costs. In that case, if the government awards a university $300,000 for the direct costs portion of a research grant, then it also awards $150,000 for F&A costs, for a total of $450,000. (Note: In practice, the total F&A reimbursement would likely be slightly less since some elements of direct costs are excluded from the F&A calculation.)

How is accountability built into the F&A reimbursement system?
Universities are mindful of the need to appropriately use federal resources and contain costs while getting the most out of research projects. In fact, it is worth noting that the total F&A costs for research performed by universities are, on average, comparable to if not slightly less than other research performers, such as federal laboratories and private contractors (RAND, 2000). Moreover, since 1991, the Office of Management and Budget has had in place a 26-percent cap on the percentage of government funds that can be provided to universities to cover administrative expenses (including costs incurred by the university to comply with federally mandated regulations).

The percentage resulting from the F&A calculation varies from university to university because costs vary based on factors such as: geographic location, the condition of the research facilities, and the amount of renovation and construction needed to house certain types of research. A university’s specific percentage rate is applied to all federal grants moving forward for a three or four-year period. During that time, the government requires a rigorous review and audit of a university’s F&A expenses to ensure that the school is using the funds appropriately. The rate is reexamined at the end of this period, and adjustments are made as warranted.

The Partnership: Universities and the federal government share the total cost of research
Performing research to benefit humankind is a fundamental mission of U.S. research universities. The federal government sponsors university-based research because it seeks discoveries that lead to innovations and new technologies that will advance human health, fuel economic prosperity and enhance national security. Without the federal government’s reimbursement of F&A costs, universities would scale back research that may help develop the next vaccine or cure, or the next technological innovation that will create new businesses or help secure our country. Groundbreaking science at universities simply could not happen if they could not recover the costs of electricity, laboratory space, and other F&A costs necessary to do research.

Universities share a commitment to transparency, to careful stewardship of taxpayer dollars, and to conducting quality research and training. While the current system of F&A costs is complex, it is integral to the successful university-government partnership. Universities continue to work with the federal government to identify ways to make this process even clearer and more effective.

— Association of Public and Land-grant Universities & Association of American Universities, March 2017

Excellence in Research: The Funding Model, F&A Reimbursement, and Why the System Works

This paper, Excellence in Research: The Funding Model, F&A Reimbursement, and Why the System Works, describes how a reliable “Facilities and Administrative” (F&A) cost reimbursement policy is critical to the continued success of the U.S. research enterprise. The paper also provides a strong educational foundation for understanding how the current system works and explores potential improvements.

How Sponsored Projects are Transferred to NAU

Definition: “Transfer of Sponsored Project(s)”

When faculty at another institution accepts a position at NAU, they often want to bring grants/contracts along with them. The process of getting approval from the sponsor, the former institution and NAU is commonly known as the “Transfer of Sponsored Project(s)”.

Incoming faculty notification 

NAU Office of Sponsored Projects (OSP) staff may be notified directly by their unit or the incoming faculty member and/or will be notified by the Office of the Vice President for Research of the new faculty member to NAU.

Introduction to NAU OSP Team

It is strongly recommended that each unit develop a process for how they wish to welcome new faculty members. At a minimum, it is recommended that the OSP staff contact the new faculty member to introduce themselves and their team, to provide an overview of services provided, to set up user accounts (FastLane, eRA Commons, Pivot, Cayuse SP, PeopleSoft etc.) and to offer to answer any questions the incoming faculty member may have.

Transfer Process 

Actions to be taken by PI at former institution 

1. Discuss the request to transfer project(s) with their chair and/or dean
2. Contact their sponsor(s) for guidance on transferring award(s)
3. Contact the former institution’s Sponsored Projects Office to
3a. Advise the intent to transfer project(s)
3b. Relay the guidance provided by the sponsor
3c. Seek guidance from the former institution on internal process
related to transfers
3d. Develop a plan for the transfer:

• Will it transfer at the beginning of a new funding year?
• Will it move during a funding year?
• Will any money be subcontracted back to the former institution?

Granting agencies make awards to the institution, not to the individual PI. It is the former institution’s prerogative to allow transfer or to name a replacement PI at that institution. The PI must contact his/her former institution and granting agency directly to discuss options. If the institution will not relinquish the award, the PI may request the former institution subcontract a portion of the funds to NAU. The former institution may or may not be agreeable.

Transferring a grant can take a significant amount of lead-time to implement. Factor this into consideration when determining the start date for the funds transferring to NAU. For guidance, speak with the former institution’s sponsored projects office.

Subcontracting a portion of funds from the former institution to NAU is not considered a transfer of project. It is a new award which follows the standard NAU polices and proposal development process.

Actions to be taken by PI in conjunction with NAU OSP 

Transfer projects will follow the process outlined in the Sponsored Project Lifecycle, Proposal Development section on the OSP website. Listed below are some helpful hints to get the process started:

1. Confirm that the PI has notified the sponsor and the former institution’s unit and sponsored projects office of their departure. If not, provide the PI the information discussed in “Actions to be Taken by PI at Former Institution.”
2. Confirm with the PI that approval from the sponsor and the former institution to relinquish the project to NAU has been granted. If not, direct the PI to the former institution’s sponsored project’s office.
3. Obtain the program officer/contact information for the sponsor and the former institution’s sponsored projects administrator.
4. Contact the former institution’s sponsored projects administrator for (a) any sponsor instructions they have received for transfer of the project, (b) copies of the award notices and the formal relinquishing statement, and (c) the balance of funds being transferred to NAU.
5. Request that the PI provide
   a. Any submitted technical reports.
   b. A copy of the proposal(s) submitted related to the project.
   c. A list of the project objectives that have been completed.
   d. A list of the project objectives that will be completed at NAU.
   e. Any other technical/scientific/programmatic items the sponsor requires NAU submit to effect the transfer.
6. Determine whether the project involves any special review processes, such as humans, animals, biosafety, etc. If so, it is important to provide the incoming faculty member with the Research Safety & Compliance website. In order to avoid disruption to the project, special review processes should be started as soon as possible.
7. If the project involves the transfer of equipment, advise the PI to:
   a. Discuss the transfer and any needed space required to house it with the unit chair and/or dean.
   b. Provide the sponsor’s guidance related to use of the transferred equipment, after the project ends.
   c. Advise PI that all transferred equipment must be notified to Property Control.
8. If the PI will sub-award a portion of funds back to the former institution to allow specific objectives to be completed there, include the former institution’s budget.

Proposal review and approval 

1. As with all proposals, transfer proposals must follow the standard routing and approval process.
2. The transfer proposal must be forwarded to OSP for review and approval prior to submission.
3. OSP must advise PI of any communications with the transfer institution that impacts the preparation and submission of the transfer proposal.
4. OSP will submit the proposal to the sponsor for review.

Submission of the transfer proposal does not constitute an award. Accounts are only set up upon receipt of an award to NAU from the sponsoring agency

Pre-award advance account request (if needed)

PI: A Sponsored Project Action Request (SPAR) form should be completed and submitted.

Arizona General Accounting Office website: https://gao.az.gov/financials/single-audit