Indirect Cost Rates/Recovery FAQ


  • What are Indirect Costs?

    Indirect costs are the cost of conducting business that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with specific projects (such as individual grants or contracts) or with a specific activities (such as instruction, research, public service).

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  • Are Indirect Costs "Real" Costs?

    Indirect costs are real costs incurred by the institution to acquire and maintain its buildings and equipment, and to provide operational support. These support services include maintenance and operations (utilities, janitorial services, police services, etc.), library operations and administrative services. All of these costs are real, and without them, the institution could not exist. For example, accounting and payroll services are administrative functions that are not directly identifiable to specific projects or activities; however these services are necessary for the University to exist.

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  • How are Indirect Costs applied to contracts and grants?

    When the University performs work for others such as the federal government through contracts, grants and other agreements, Regents' policy requires it to recover the "full cost" associated with such projects, including all direct and indirect costs. Direct costs are the costs directly identifiable to individual projects. Indirect costs are assigned to projects as a percentage of direct costs. Thus if a campus uses an indirect cost rate of 50 percent, and if $1,000 of direct cost is incurred on a project, the campus would assign an indirect cost of $500 (50 percent of $1,000) and invoice the project sponsor for $1,500.

    The indirect costs paid to the University by project sponsors in this fashion are referred to as "indirect cost or overhead recovery", and represent the recovery of costs incurred by the University to provide the facilities and operational support for the project.

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  • Why are indirect cost recoveries not available to the principal investigator of the project?

    Sponsored projects are budgeted for direct and indirect costs. Indirect cost recovery is the "recovery" of institutional costs incurred by the University to support the project. The recovery is reallocated to centrally funded functions to ensure the continued support of future projects. In certain cases, a portion of the recovery may be reallocated to principal investigators through local campus budgeting procedures.

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  • If indirect cost recoveries are associated with the recovery or reimbursement of institutional support costs including the cost of facilities, why must principal investigators of projects pay for reconstruction or renovations to their laboratories from the direct cost portion of their project budgets?

    Reconstruction and renovation of laboratories that are necessitated by the requirements of a particular project must be paid for by that project. Thus such reconstruction and renovation costs must be charged as a project direct cost. General renewal, reconstruction and renovation not necessitated by specific projects are funded by the institution and are not charged directly to projects.

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  • How is an Indirect Cost Rate Determined?

    Periodically, each campus prepares and presents a cost proposal to the University's cognizant federal agency for the purpose of negotiating indirect cost rates applicable to federally funded contracts and grants. The cost proposals are prepared according to the requirements specified in OBM Circular A-21, Cost Principles for Educational Institutions, using actual cost data from prior year operations. The proposals are reviewed by the federal negotiators and rates are negotiated.

    The indirect cost rates for UC campuses are currently in the range of 47.0 - 54.5 percent (On-Campus Research Rates, as of March 2006) and are comparable to other public institutions.

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Additional question about indirect costs should be directed to your local campus Research Administration or Extramural Funds Accounting offices.