What are Facilities and Administrative Costs?

Facilities and Administrative costs are also known as F&A or overhead or indirect costs.  These costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the organization and the conduct of activities it performs. In theory, costs like heat, light, accounting and personnel might be charged directly if little meters could record minutes in a cross-cutting manner. Practical difficulties preclude such an approach. Therefore, cost allocation plans or indirect cost rates are used to distribute those costs to benefiting revenue sources.  Each university or college is under a cognizant federal agency that negotiates an indirect cost rate that will apply to all federal agencies.  The University of Alaska is under the Office of Naval Research.

Looking at it another way, indirect costs are those costs that are not classified as direct. Direct costs can be identified specifically with particular cost objectives such as a grant, contract, project, function or activity. Direct costs generally include:

  1. Salaries are wages (including vacations, holidays, sick leave, and other excused absences of employees working specifically on objectives of a grant or contract – i.e, direct labor costs).

  2. Other employee fringe benefits allocable on direct labor employees.

  3. Consultant services contracted to accomplish specific grant/contract objectives.

  4. Travel of (direct labor) employees.

  5. Materials, supplies and equipment purchased directly for use on a specific grant or contract.

  6. Communication costs such as long distance telephone calls or video conferencing identifiable with a specific award or activity.

An indirect cost is any cost that cannot be easily identified (or it would not be cost effective to identify) to a specific project, but identified with two or more final cost objectives.  Indirect is, therefore, incurred for a common or joint objective and cannot be readily identified with and specifically charged to a specific project or activity. 

In general, the cost groupings (pools) established within a category should constitute, in each case,  those items of expense that are considered to be of like nature in terms of their relative contribution to (or degree of remoteness from) the particular cost objectives to which distribution is appropriate. Cost groupings should be established considering the general guides provided in subsection c of Section F in 2 CFR 220 (OMB Circular A-21).

An indirect cost rate is simply a mechanism for determining fairly and conveniently within the boundaries of sound administrative principle, what proportions of Departmental/organization administration costs each programs should bear. F&A Rates are developed under the requirements of the U.S. Office of Management and Budget Circular A-21, Cost Principles for Educational Institutions.  An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying unallowable costs, and extraordinary or distorting expenditures. (i.e., capital expenditures and major contracts and subgrants).  The indirect costs in the numerator of the equation should bear a reasonable relationship to the direct costs from the denominator. This will allow for each program or activity represented in the direct costs base to assume their fair share of indirect costs when the rate is applied. 

How to Calculate F&A (Indirect)

1.)  Add all project costs to get your Modified Total Direct Costs (MTDC).

2.)  Subtract: Equipment (defined as having a useful life of more than one year and an acquisition cost of $5,000 or more per unit) Capital expenditures, Patient care costs, tuition remission charges, long-term space rental costs, scholarships and fellowships, sub-grant & subcontract portions in excess of $25,000 regardless of period covered.  For example:  If a subcontract is proposed for three years using the same entity at $35,000 per budget year, the F&A rate is applied only to the first $25,000 of Year 1 from your TDC. These items cannot have F&A charged to them.  The remaining amount is your Modified Total Direct Costs (MTDC).

3.)  Multiply the MTDC and the F&A rate this total will equal your F&A costs.

4.)  F&A Costs + MTDC = Total Project Costs

The University expects the full F&A cost rate to be used on all sponsored projects.  Some sponsors such as Foundations and private industries have written policies that limit or exclude full indirect costs.  The University will accept these rates when the written policy is provided, and attached to the Indirect Cost Waiver which has been approved and signed by the College’s Dean prior to the proposal being submitted to OSP.  The waiver request is to be made when a proposal is submitted to the funding agency: F&A Exemption Form


F&A State of Alaska Memorandum of Agreement (MOA)

The University of Alaska has a fundamental role to play in providing education, basic and applied research and public service programs to support the development of Alaska's economy.The University recognizes that the State is partially funding facilities and administrative costs through the annual general fund appropriation.  The University and State agree to simplify and standardize the award process by adopting an F&A rate of 12% for State-sponsored awards for instruction, training and other sponsored activity funded by the State.  State sponsored research will apply a rate of 25%.  The base for both of these rates will be Modified Total Direct Cost or MTDC as described in 2 CFR 220 (OMB Circular A-21).

FY14 Provisional Federal Rates

The Facilities and Administrative (F&A) rates contained herein are for use on grants, contracts and/or other agreements issued or awarded to the University of Alaska (UA) by all Federal Agencies of the United States of America, in accordance with the cost principles mandated by 2 CFR 220.  These are shall be used for forward pricing and billing purposes for UA's Fiscal Year (FY) 2014.  This rate agreement supersedes all previous rate agreements/determinations.
CESU projects F&A Rates
The Cooperative Ecosystem Studies Units (CESU) Network is a national consortium of federal agencies, academic institutions, tribal, state, and local governments, nongovernmental conservation organizations, and other partners working together to support  informed public trust resource stewardship.  The CESU Network includes nearly 300 partners, including 13 federal agencies, in seventeen CESUs representing biogeographic regions encompassing all 50 states and U.S. territories. 

The objectives of this network are to:

  • provide usable knowledge to support informed decision making;
  • ensure the independence and objectivity of research;
  • create and maintain effective partnerships among the federal agencies and universities to share resources and expertise;
  • take full advantage of university resources while benefiting faculty and students;
  • encourage professional development of current and future federal scientists, resource managers, and environmental leaders;
  • manage federal resources effectively.

On May 1, 2004, the Cooperative Ecosystem Studies Units (CESU)  Network Council raised the F&A (indirect cost) rate to 17.5%. A fact sheet regarding the F&A rate policy is available.