Charging Facilities and Administrative (F&A) Costs to Grants and Contracts

Definition

Facilities & Administrative (F&A) costs are incurred for common or joint university objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity (OMB Circular A-21, Cost Principles for Educational Institutions). F&A costs are real costs that the institution incurs in support of extramural activities, but cannot be directly charged to a specific grant or contract. The costs result from shared services such as libraries; physical plant operation and maintenance; utility costs; departmental and sponsored project administrative expenses; and depreciation or use allowance for buildings and equipment. F&A costs are sometimes called indirect costs or institutional overhead.

Standard F&A rates for federal grants and contracts are periodically negotiated with our cognizant federal audit agency, the Department of Health & Human Services. The University’s current F&A rate agreement is posted here.

Basis for F&A Policy

As a recipient of federal awards, the University is obligated to comply with costing rules and regulations promulgated by various federal offices. These offices include sponsoring agencies such as the National Institutes of Health and the National Science Foundation, and regulatory agencies such as the Office of Management and Budget (OMB).  This policy has been established to meet the compliance standards set forth in Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions.  The University's adherence to these cost principles and practices is necessary to prevent cost disallowances by the federal government. It is the responsibility of principal investigators, department heads, and administrators to understand and comply with this policy.

Policy Statement

It is University of Iowa policy to charge the maximum, federally negotiated F&A cost rate on all sponsored projects, regardless of funding source, unless a sponsoring agency's written policy will not allow full recovery of F&A costs. For-profit entities should always be charged full F&A costs, but, in relation to not-for-profit entities, UI will accept a lesser rate if the program solicitation or agency’s written guidelines specify a lower rate. When funding flows from the prime sponsor through an intermediary sponsor, as in the case of federal flow-through awards, budgets should charge the F&A rate applicable to the prime sponsor. All other sponsored projects should charge F&A costs in accordance with the F&A rate table available on the Facilities & Administrative (F&A) Cost site.

UI Waivers of F&A Costs Reimbursement

Approval Authority

The UI President has delegated the authority to grant waivers to the University’s approved F&A cost rates on sponsored agreements to the Vice President for Finance and Operations (VPFO).  The VPFO has, in turn, delegated this authority to the Vice President for Research who has sub-delegated this authority to the Division of Sponsored Programs. These delegations of authority carry with them the responsibility to exercise prudent judgment with regard to the overall benefits that will inure to the University through the approval of F&A cost waivers. 

Procedure for Requesting F&A Cost Waivers

The University expects that faculty proposals to external sponsors will include the maximum allowable F&A cost rate in the proposed project budget. To request an exception -- a reduction or full waiver of the allowable F&A costs -- the project director must initiate an F&A Rate Reduction Request Form, available on the DSP e-Forms site. The F&A RRR Form must be endorsed by the departmental executive officer and dean and submitted to the Division of Sponsored Programs at least two weeks prior to sponsored project proposal submission or, in the case of a contract, the award negotiating procedure. Note that, in fairness to all investigators, all such requests must be duly justified and that, while requests to waive F&A costs reimbursement receive due consideration, the granting of such requests is the exception rather than the rule.

Sponsor-Imposed F&A Cost Rates

Some sponsors, particularly private-sector organizations, restrict F&A reimbursement to less than the standard rate negotiated through the federal government, basing the allowance on statute, codified agency regulations, or sponsor-specific policies as published in the solicitation or funding announcement. The University will generally accept these reduced reimbursement rates, deeming them appropriate when the sponsor restriction is non-negotiable and the proposed activities fit within the University's overall mission. However, the sponsor’s rate must be a bona fide restriction initiated by the sponsor and consistently communicated to all applicants.

A rate reduction requested by a specific program officer, as opposed to an overall agency, does not constitute an approved waiver. Note also that F&A cost waivers cannot generally be granted in relation to for-profit organizations, as rate reductions to such organizations -- whereby the sponsor would not be reimbursing the University for the full cost of the project -- constitute a gift of public funds for private benefit. Under certain circumstances, an exception based on sponsor policy may be considered for a legitimate, general University community service, scholars, or fellowship program sponsored by a for-profit corporation.   

Waivers that will be Accepted: F&A Rate Reduction Request Form is not Required

  • Waivers required by statute. 
  • Waivers stemming from codified agency regulations. 
  • Waivers mandated within the sponsor’s funding announcement/solicitation.  (Applicants should include the excerpt from the funding announcement or solicitation regarding F&A costs with the application materials when routing the proposal through the Division of Sponsored Programs.)
  • Waivers resulting from changes in our federally negotiated rate that results in an increased rate after a project begins.
  • Waivers for projects that are solely for one of the following budget categories:  travel, construction, equipment, or doctoral dissertation support.

Waivers that will be Considered: F&A Rate Reduction Request Form is Required

  • Waivers for awards that would promote a vital campus interest to the extent that funding the proposed project at a loss is more important to the campus than recovering full F&A costs. 
  • Waivers for awards supporting pilot projects that could lead to significantly greater support.
  • Waivers for awards that support shared instrumentation or major equipment acquisitions.
  • Waivers for awards that support conferences.
  • Waivers for new investigators transferring grants to the University from other institutions, at the prior institution’s rate for a limited transition period.
  • Waivers for awards that supplement a student services activity which the campus must provide or waivers that supplement funding for an established campus program such as for library holdings, performances, or exhibits.
  • Waivers for awards in support of a sponsored project in which the University provides a routine service for the sponsor.

 F&A Waivers that Normally will be Denied

  • Waivers to cover expenses not paid for by the award sponsor, such as overdrafts, disallowed costs, sponsor default on payment or withholding of payment due to non-performance or disputes.
  • Waivers requested solely because an award does not provide adequate direct costs for completion of the full scope of the project.
  • Waivers that will not provide equitable treatment to all University researchers applying to the same sponsor.
  • Waivers for awards under which intellectual property rights do not remain with the University.
  • Waivers based solely on precedent.
  • Waivers for the purpose of meeting cost share requirements without a corresponding commitment from Department and College for a proportional direct cost commitment.

Applicability and Duration of Approved Exceptions

An exception granted for an individual award will apply to the proposed period and the proposed amount of the award stated in the reduction request for a maximum period of five years, provided there is no material change in the project that affects the basis on which the waiver was approved.  A waiver granted on a class basis will be limited to awards which are within the parameters of the class, that is, the specific named sponsor program, and will apply until the basis for granting the waiver changes.  Long-standing waivers are periodically reviewed by the Assistant Vice President for Research to determine whether sponsor policy or practices have changed.

Responsibilities

Principal Investigator

Ensure the appropriateness of all charges on sponsored projects. Ensure the consistent application of direct costing practices to their federally sponsored projects with the assistance of the departmental administrator and the Division of Sponsored Programs. Determine whether it is appropriate to request an F&A reduction. If applicable, complete the F&A Reduction Request and route it through the department, college and the Division of Sponsored Programs.

Departmental Administrator
(See also DEO responsibilities in the subsequent section if signing as DEO Designee.)

Ensure consistency of charging practices within the department review sponsored project proposals for justification of direct costs requested, especially when costs normally charged as F&A costs are proposed as direct costs.  In conjunction with principal investigators, maintain financial records for review by internal or external auditors.

Department Executive Officer (DEO) or Designee

Establish effective processes and controls that will ensure compliance with this policy. Communicate these practices to all responsible employees within the college and department. Evaluate F&A Reduction Requests taking into consideration the DEO’s fiduciary responsibilities to the University.  If concurring with a request, sign and forward to dean. Approval implies that the department has sufficient funds to cover its share of the local F&A costs related to the project.  Otherwise, deny request and return it to the principal investigator.

Dean or Designee

Establish effective processes and controls that will ensure compliance with this policy. Communicate these practices to all responsible employees within the college and departments.  Evaluate F&A Reduction Requests taking into consideration the Dean’s fiduciary responsibilities to the University.  If concurring with the request, sign and forward to assistant vice president for research. Approval implies that the college has sufficient funds to cover its share of the local F&A costs related to the project.  Otherwise, deny request and return it to the DEO and principal investigator.

Executive Director, Division of Sponsored Programs

Evaluate F&A Rate Reduction Requests and approve or deny the request.  Send form to appropriate grant administrator in the Division of Sponsored Programs for distribution to the principal investigator and DEO.

Division of Sponsored Programs

Assist in interpretation of federal regulations, such as OMB Circular A-21. Develop and maintain policies and procedures in accordance with the regulations. Maintain F&A rate charts. Forward approved F&A Reduction Requests to the Grant Accounting Office with funded awards when applicable.

Grant Accounting Office

Verify that charging practices are consistent with federal regulations. Review budget information to ensure the proper F&A rate has been charged. When budgets stray from standard guidelines, verify that an F&A Rate Reduction Request has been approved. Ensure that approved reductions are applied appropriately.

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