CONTRACT AND GRANT MANUAL
Chapter 8 -- INDIRECT COST
Revised February 14, 2006
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The University of California policy, Special Services to Individuals and Organizations, University Regulation No. 4 (Revised), provides that:
For all tests and investigations made for agencies outside the University, a charge shall be made sufficient to cover all expenses, both direct and indirect. (APM-020)
This policy establishes the principle of full cost recovery for work or services performed for non-University entities. Costs include all direct costs, which are defined as costs that can be readily and specifically identified with benefiting a particular program or project, and all indirect costs, which are defined as costs that are incurred for common or joint objectives, as described below in 8-320.
The Regental policy on full recovery of indirect costs is stated in Regents' Standing Order 100.4(m), Duties of the President of the University, discussed below in 8-210.
Regents' Standing Order 100.4(m), Duties of the President of the University, states:
The President is authorized to negotiate and approve indirect cost rates to be applied to contracts and grants under which the University conducts programs supported by extramural funds, provided that such negotiations shall be directed toward full recovery of indirect costs, except that the fixed payment in lieu of indirect costs under the major United States Department of Energy contracts shall be approved by the Committee on Finance. Newly approved indirect cost rates determined under the provisions of Office of Management and Budget Circular A-21, and any successor publication thereto, shall be reported to the Committee on Finance annually.
This Standing Order calls for the President to negotiate and approve all indirect cost rates which, when applied, would yield full recovery. This authority includes the power to approve exceptions to the approved indirect costs rates determined under the provisions of Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions. University practice accepts the use of indirect cost rates negotiated with the University's cognizant federal audit agency as meeting the requirement to obtain full recovery. A-21 is discussed further in 8-F01.
For the Department of Energy (DOE) contracts administered by the Office of the President for the operation of the three major DOE Laboratories (Lawrence Berkeley National Laboratory, Lawrence Livermore National Laboratory, and Los Alamos National Laboratory), the Regents' Committee on Finance has approval authority for accepting the fixed payment the University receives in lieu of indirect costs. (See 8-220 below.)
8-220 REGENTS' COMMITTEE ON FINANCE
Indirect cost rates negotiated under OMB Circular A-21 are reported to the Committee on Finance annually. (See 8-210 above.)
Regents' Bylaw 12.3(g) Committee on Finance, authorizes The Regents' Committee on Finance to:
Consider and approve the setting or amending of fixed payment in lieu of indirect costs applicable to contracts for management and operation of the major United States Department of Energy Laboratories.
Pursuant to this Bylaw, the fixed amount negotiated with DOE for the University's management and operation of DOE Laboratories must be submitted to The Regents' Committee on Finance for review and approval.
8-230 DELEGATION OF PRESIDENTIAL AUTHORITY
Presidential authority to negotiate and approve indirect cost rates under OMB Circular A-21 and to approve exceptions to approved rates, granted under Regents' Standing Order 100.4(m), has been delegated to the Senior Vice President--Business and Finance. (see 8-999, Related University References). Only the authority to approve exceptions to negotiated indirect cost rates is further delegated to the Executive Director--Research Administration and Technology Transfer and, subsequently, to the Director--Research Administration. (See 8-620.)
The successful negotiation of indirect cost rates involves the calculation of the actual costs of all University activities. Under A-21, universities must support indirect cost rate proposals with cost accounting data. (Note: In A-21, the term "facilities and administration costs" or "F&A costs" has the same meaning as "indirect costs.")
8-310 COLLECTION AND ANALYSIS OF DATA
Campuses play an active role in the negotiation process, preparing indirect cost proposals, and providing data to the Office of Costing Policy and Analysis, Office of the President. Costing Policy and Analysis is jointly responsible along with campuses for determining what information is needed to compute indirect costs. The procedures used to collect this information change over time in response to federal requirements and the degree of sophistication of relevant computer systems. Indirect costs are computed in accordance with the applicable provisions of OMB Circular No. A-21, Sections E, F and G. (See 8-F01.)
8-321 Types of Sponsored Projects
A-21 applies to three types of sponsored projects as defined under Section B of the Circular. They are: instruction; organized research; and other sponsored activities. Instruction includes teaching and training activities and departmental research (that research which is not organized research and, therefore, not separately budgeted and accounted for). Under A-21, instruction activities can be for credit or non-credit courses. Research training may be included in either organized research or instruction as long as this is done on a consistent basis by the campus. Thus, it is very important for the campus Contract and Grant Office, Accounting Office, and preparers of the campus indirect cost rate agreements to consult so that awards have the appropriate campus overhead applied consistent with the accounting function to which the award is assigned.
Another example of this is instructional activities. Instructional activities can include instructional or training workshops for participants not enrolled as University students. If awards for such workshops are assigned to the instructional function, then the instructional overhead rate should apply to them. If campuses treat such workshops as public service, the award should be assigned to an accounting function other than instruction or research, e.g. public service, and use the "other sponsored activities" indirect cost rate.
In another example, campuses may treat sponsored work performed by campus University Extension (UNEX) as other sponsored activities or as instruction. However, again, this must be done on a consistent basis by the campus. (See 8-550.)
Organized research projects are all basic, developmental, and applied research activities that are sponsored by external organizations as well as university-funded research activities that are separately budgeted and accounted for. Other sponsored activities means externally funded programs and projects which are not research or instruction. They could provide non-instructional services to benefit organizations outside of the University.
The July 28, 1993 memo to Accounting and Budget Officers from the University Budget Director and Controller (see 8-U01) provided the following examples of activities which the University conducts under agreements with external sponsors which should not be treated or categorized as sales and services of educational activities:
Such sponsored activities may or may not be administered through the campus Contract and Grant Office. However, in order to achieve full cost recovery, they must include the applicable indirect cost rate for either research, instruction, or other sponsored activities in their cost or pricing calculations, unless there is an indirect cost rate exception for the activity. (See 8-600). Auxiliary and hospital enterprises are also obligated to recover full costs in order to be self-supporting, but not necessarily in accordance with the campus A-21 Rate Agreement. Further information on the distinction between sponsored projects and sales and services of educational activities is presented in 8-520, 8-F01, and the July 28, 1993 memo to Accounting and Budget Officers (8-U01). Also see Accounting Manual Chapter U-751-17, Uniform Accounting Structure.
The federal government may also request the negotiation of a separate rate for distinctive programs. For example, a special rate can be developed for a program located in a building paid for with federal funds or for an organized research unit which is entirely supported with federal funds. Thus, institutions will normally have separate rates for instruction, organized research, and other sponsored activities as well as for any special program for which a unique rate is requested by the federal government.
Projects are also categorized as being conducted on or off campus (see 8-522). These broad categories are used to determine the calculation and application of the individual indirect cost rates.
8-322 Overview of Indirect Cost Components or Pools
Section F of A-21 identifies nine subcategories or pools of indirect costs, grouped as facilities costs and administrative costs. Indirect costs are incurred for common or joint objectives which generally benefit sponsored projects. They cannot be specifically identified with any one particular sponsored project.
The facilities category includes:
Administration is defined as:
Details on how indirect costs in each category are defined are found in 8-F01.
The amount of allowable indirect costs incurred during a given fiscal year in each category is calculated as a percentage of the modified total direct cost base (MTDC) incurred during the same period on all activities having the same function. (See 8-510 for definition of MTDC base.) The sum of these percentages constitutes the actual indirect cost rates for on-campus research, on-campus instruction, and on-campus other sponsored activities. Only the administration components (general administration, departmental administration, sponsored projects administration, and student administration and services) are used in the calculation of off-campus rates, since it is presumed that the facilities pools would not benefit projects performed in off-campus locations. The total reimbursement for administrative costs as a component of the indirect cost rate is limited to 26% of the modified total direct cost base. (See 8-510 for definition of this base.)
8-330 INDIRECT COST COMPONENTS AND SUPPORTING DOCUMENTATION
Indirect cost amounts in the pools listed above in 8-322 are generally computed on the basis of the sources listed below in 8-331 through 8-338.
8-331 Use Allowances and Depreciation
Use allowances and depreciation for buildings, capital improvements to land and buildings, and equipment are calculated on the basis of acquisition costs of the assets involved and their functional use.
Interest on debt associated with certain buildings, equipment, and capital improvements is based on information provided by the Corporate Accounting Office.
8-333 Operation and Maintenance
Expenses for operation and maintenance of the physical plant are taken from the Financial System.
Expenses for library use (including book purchases) are taken from the Financial System. Only expenses relating to the operation of campus-wide library or libraries and not departmental libraries are used in this computation.
Expenses for general administration are extracted from the institutional support expenditures shown in the Financial System.
8-336 Departmental Administration
Expenses for departmental administration include administrative expenses incurred by Dean's Offices and faculty and staff time spent on departmental administration. Under A-21 section F.6.(2), faculty administrative effort is now a fixed component of departmental administration elements.
8-337 Sponsored Projects Administration
Expenses for sponsored projects administration consist of the expenses of separate departments or organizations whose sole function is the administration of sponsored projects. These are typically units in the central campus administration such as Contracts and Grants and Extramural Funds Offices. With limited exceptions, sponsored project administration in a department is normally viewed as departmental administration.
Expenses for student administration and services are taken from the Corporate Financial System.
8-340 ALLOCATION OF INDIRECT COST COMPONENTS TO MAJOR FUNCTIONS
The amounts in each category of indirect costs incurred by the University for both sponsored and unsponsored activities are allocated to the various functions of research, instruction, other sponsored activities, and other institutional activities. This allocation process is carried out in accordance with the general guidelines found in A-21, Section G.2. (See 8-410). The financial data from a given fiscal year (called the base year) form the basis for an indirect cost rate proposal submitted to DHHS, which will lead to negotiated rates applicable to a stated number of future fiscal years.
8-410 COGNIZANT AGENCY NEGOTIATION
OMB Circular No. A-21, G.11. defines cognizant agency as "the federal agency responsible for negotiating and approving" indirect cost rates for educational institutions on behalf of all federal agencies. Cost negotiation cognizance is generally assigned to either the Department of Health and Human Services (DHHS) or the Department of Defense Office of Naval Research, based on which agency provides the most funding to the educational institution. Thus, DHHS has been assigned responsibility for negotiating indirect cost rates with the University, including all campuses, on behalf of all agencies of the federal government.
Indirect cost rates are negotiated on behalf of a campus by the Office of Costing Policy and Analysis (CP&A), Office of the President, or by the campus with assistance from CP&A. Separate rates are negotiated for each campus. After submission of the indirect cost proposal and negotiation with DHHS for a particular campus, DHHS offers a Rate Agreement signed by an authorized DHHS representative. The Rate Agreement must then be approved and signed by the Senior Vice President--Business and Finance. A copy of the fully-signed Rate Agreement is returned to the campus. A chart of all the campuses' rates is distributed annually via Contract and Grant Memo. DHHS is responsible for informing all Federal agencies which, in turn, are required by OMB Circular No. A-21, G.11.b. to accept the negotiated rates. A federal agency may also request a copy of a campus' Rate Agreement directly from a campus with the submission of a specific proposal.
For the three major DOE laboratories, two different kinds of negotiation take place. The amount to be recovered by the University for the fixed fee in lieu of indirect costs for the Laboratories during a contract year is negotiated with DOE and approved by The Regents' Committee on Finance. (See 8-220 and 8-830.) In addition, indirect cost rates applied by each Laboratory to its own extramural sponsored awards are negotiated between DOE and DHHS. DHHS is responsible for preparing and approving Rate Agreements which set forth the rates for each Laboratory.
8-420 INDIRECT COST RATE TYPES
A-21 provides for the use of different rate types. They are: lump sum, predetermined, fixed with carry-forward, provisional, and post-determined or final.
A fixed amount may be agreed upon in lieu of a special indirect cost rate being applied to a unique contract or grant. This amount is then recovered regardless of the indirect cost expenditures incurred. The contracts between the University and the Department of Energy to operate the major DOE Laboratories have provided for a lump sum payment to the University in lieu of actual indirect costs.
In response to DHHS and OMB preference, the University negotiates predetermined indirect cost rates for all campuses. Recovery of indirect costs is based on the rate agreed upon, regardless of actual indirect costs incurred during the period.
8-423 Fixed Rate with Carry-Forward
A-21 allows for negotiation of a rate which is fixed for a given period. Any actual under- or over-recovery which results from the use of this rate during that period is then made up in the following period. The recovery is adjusted by adding (or subtracting) an appropriate number of percentage points to (or from) the negotiated rate in the succeeding period.
When the parties to an indirect cost negotiation have not agreed upon a mutually acceptable predetermined rate covering a defined period, they may agree on a provisional rate to be used for billing purposes until the negotiated predetermined rate is approved. A provisional rate may be used until the end of an accounting period (usually a fiscal year), at which point the final rate will be determined and any under- or over-recovery will be adjusted. Alternatively, if an agreement can be reached early in the accounting period, a fixed rate may be agreed upon which will apply to the entire accounting period. In this case, indirect cost recoveries during the "provisional" period would normally be adjusted to conform to amounts that would have resulted had the predetermined rate been in effect from the start. Negotiated rates for a fixed period are often used on a provisional basis thereafter until a new Rate Agreement has been reached.
8-425 Post-Determined or Final Rates
The indirect cost rate(s) for a given period may be determined after the fact based on actual expenditures for that period. This also is called a final indirect cost rate. Pending the fixing of the final rate, provisional rates are used during the period expenditures are actually incurred (see 8-424). Indirect cost rates for the major DOE Laboratories are currently derived on a post-determined basis.
8-510 MODIFIED TOTAL DIRECT COST BASE FOR INDIRECT COST CALCULATION
As prescribed by A-21, G.2. http://www.whitehouse.gov/omb/circulars/a021/a21_2004.html, the negotiated indirect cost rates are applied to a base consisting of salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of the initial award period excluding competing renewals or extensions. (See 8-516 for clarification of subgrants and subcontracts.) This base is called the Modified Total Direct Cost, or MTDC base. Equipment or other capital expenditures, charges for patient care and tuition remission, rental costs of space, scholarships and fellowships as well as the portion of each subgrant and subcontract in excess of the first $25,000 are excluded from the MTDC base. Components of the MTDC base are listed in the Rate Agreement for each campus.
Any questions about interpretation of the MTDC base can be directed to CP&A. Clarifications are issued via Contract and Grant Memo. As a general rule, indirect cost rates are applied to those modified total direct cost items which have been used as a basis for a campus' indirect cost rate proposal.
8-511 Equipment and Capital Expenditures
The University defines equipment as an item of nonexpendable, tangible personal property which has an acquisition cost of $5000 or more and has a normal life expectancy of more than one year.
Costs for equipment leases or rental of equipment are included in the MTDC base unless the equipment lease includes an option to purchase. Equipment leases with option to purchase , since they are considered capital expenditures, are excluded from the MTDC base. For fabricated equipment, all materials, supplies, and services from outside vendors or authorized internal recharge activities used in the fabrication process are exempt from indirect costs if title is retained by the University and the item has a life expectancy of more than one year. Department labor, travel or other operating expenses associated with the fabrication such as salaries of Principal Investigators, graduate student researchers, or other comparable personnel who participate in the fabrication process are not included in the acquisition cost of the item and are subject to indirect costs. For more information on the treatment of fabricated equipment, see Accounting Manual Chapter P-415-32 (http://www.ucop.edu/ucophome/policies/acctman/p-415-32.pdf) and Contract and Grant Manual sections 2-526, 7-205, and 15-240.
Capital expenditures include building alterations or renovations or new building costs.
Patient care costs are defined as the costs of routine and ancillary medical services to patients provided by a hospital or clinic, including University and affiliated hospitals and clinics, but not laboratories of academic departments or organized research units. Costs for such services should be based on a currently effective DHHS-negotiated patient care rate agreement or equivalent. Patient care allowable items do not include consulting physician fees, personal expense reimbursement (such as human subject fees and patient travel) or any other direct payments to patients, including inpatients, outpatients, subjects, volunteers or donors. A project which does not have an Institutional Review Board (IRB)-approved human subjects protocol may not incur patient care costs.
Tuition remission includes direct-costed expenses for tuition and fee remissions, including graduate student health insurance for University students.
Rental costs include any direct-costed rent of non-University owned space and the cost of maintenance, if it is included in the rental agreement. This category does not include other kinds of rental or lease costs such as hotel rooms, equipment or automobiles. These other kinds of costs are direct costs subject to overhead.
8-515 Scholarships and Fellowships
Scholarships and fellowships are defined as financial aid paid directly to University students as scholarships, fellowships, stipends, or dependent allowances. This category does not include any disbursement of salaries and wages or honoraria.
8-516 Subawards under Grants, Cooperative Agreements, and Contracts
When a contract, grant or cooperative agreement includes the transfer of a portion of the substantive work of a sponsored agreement to a third party, such work may be obtained by a contract, subgrant, subcooperative agreement, or subcontract. These instruments used to obtain performance of substantive work by third party entities are all referred to as subawards. A-21 permits the application of the indirect cost rate to the first $25,000 of each subaward by including this amount in the MTDC base. . The portion of each subaward in excess of $25,000 is excluded from the MTDC base. This limit applies to the duration of the subaward. However, when campuses have the option to issue a new subaward pursuant to a renewal, extension or supplemental award from the prime sponsor based on a competing proposal subsequent to the initial award and that renewal provides for additional work and increased funding for the subawardee, indirect costs are assessed on the first $25,000 of the new subaward. Purchases of standard commercial goods or services such as routine testing, administrative support, or consultant agreements are not considered subawards for this purpose, are not included in the subcontract line item of a proposal budget, and are not subject to the $25,000 limit for application of overhead.
8-520 APPLICATION OF RATES BASED ON PROJECT TYPE, LOCATION, AND EFFECTIVE PERIOD
The indirect cost rates in the Rate Agreements between the University and the University's cognizant federal agency are applicable to:
Sales and services of educational activities are primarily sales of products or services to multiple individuals or organizations outside the University. When sales are made to non-University customers, the University must not assume any obligation beyond delivery of a standardized University product or service at a pre-established, per unit, uniform price, such as fee schedules approved for use by hospitals and clinics, University Extension catalog courses, and the like. Indirect costs are included in the calculation of the fee or price for the product. If nonstandard needs or requirements are involved, the transaction is not appropriately classified as a sales or service.
Currently, all campuses have at least six basic indirect cost rates, as shown in the following matrix:
| Applicable to Project Type |
Location |
|
| On-Campus | Off-Campus | |
| Research | ______% | ______% |
| Instruction | ______% | ______% |
| Other Sponsored Activities | ______% | ______% |
There are also other special rates as described above in 8-321.
Campus Contracts and Grants Officers are responsible for determining which of their approved campus indirect cost rates is applicable to each sponsored project. This determination is dependent on a clear understanding of the distinctions between "research," "instruction," and "other sponsored activities." (See 8-321.) The differentiation among these functions is discussed in more detail in 8-F01. Appropriate function codes are assigned to each account by campus Accounting Officers consistent with the determination of project type made by the campus Contracts and Grants Office, and in accordance with Accounting Manual Chapter U-751-17, Uniform Accounting Structure.
For some projects it may not be readily apparent whether the research, instruction, or other sponsored activities rate should apply. In those instances where more than one type of activity is involved in a single project, the activity which comprises the largest portion of the project should determine the appropriate indirect cost rate for the entire project. In unusual situations, where the nature of the project changes over time, it may be appropriate to apply one type of rate to an earlier segment of the project and another type of rate to a later segment. However, sponsors generally require one overhead rate for the entire award.
8-522 Project Location: On Campus or Off Campus
Off-campus projects generally are those conducted in leased facilities not owned by the University where the space rental costs are directly charged to the sponsor, or in facilities not owned or leased by the University. If a sponsored project is located in a facility leased by the University for which rental costs are paid by the campus and not charged to the sponsored project, the on-campus rate is applicable. When a project is located in leased space for which the lease costs are not paid by the campus but are directly charged to the project, the off-campus rate is applicable. The following criteria for determining on- or off-campus rates are incorporated into the indirect cost Rate Agreement for each campus:
Projects conducted entirely on-campus or entirely off-campus will be applied the on-campus or off-campus rate, respectively.
If the project involves work at both on-campus and off-campus sites, either the on-campus or off-campus rate generally should be applied, consistent with where the majority of the work is to be performed. Salary cost is generally accepted as a measure of work performed in terms of the total project.
The use of both on- and off-campus rates for a given project may be justified if both rates can be clearly identified with a significant portion of salaries and wages of the project. For purposes of this provision, significant is defined as approximately 25% or more of total costs, with a project's total salary and wage costs exceeding $250,000.
Negotiated indirect cost rates will be applied to each award, consistent with the terms and conditions of the award, during the period that the Rate Agreement is in effect. Rate Agreements are usually for a period of one to five years and may contain different rates during that period. See 8-730 for further information on recovery of indirect costs when new Rate Agreements result in rate changes. See 8-710 for coverage on forecasting indirect cost rates beyond the expiration of the Rate Agreement.
8-530 APPLICABLE RATES FOR MULTI-CAMPUS AWARDS
Campuses frequently engage in extramurally funded sponsored projects which involve more than one University of California campus. Each such campus is entitled to recovery of indirect costs based upon the indirect cost rate applicable to that campus, as negotiated with the University's cognizant agency, DHHS. However, the prime campus does not recover indirect costs on the expenses of participating campuses, i.e., the first $25,000 of subawards to another University campus. For further coverage of multiple University campus projects, see 10-240 through 10-248.
8-540 APPLICABLE RATES FOR CAMPUS-LAB AGREEMENTS
For work performed by DOE Laboratory personnel at a DOE Laboratory managed by the University under a subaward from a campus, the applicable indirect cost rate is the rate negotiated for that Laboratory with DOE and incorporated in the DHHS Rate Agreement for the Lab. Campuses include the first $25,000 of a subagreement to a Laboratory in the campus' MTDC base. For work performed by a campus for a University-managed DOE Laboratory under an intra-University transaction agreement (IUT), the applicable indirect cost rates are the federally negotiated rates for that campus. Awards to campuses from Laboratory funding located at and transferred by the Office of the President directly to the campus (such as the UC Directed Research and Development Program - UCDRD) do not use IUTs and indirect costs do not apply. Additional information on campus-Laboratory agreements may be found in 10-251 and 10-252.
8-550 APPLICABLE RATES FOR UNIVERSITY EXTENSION AWARDS
For sponsored work performed by campus University Extension (UNEX) personnel, the applicable indirect cost rate is determined by the base in which UNEX costs are included in the campus' most recent indirect cost rate proposal. UNEX activities which require the application of the overhead rate are those customized educational services, paid for under sponsored agreements for specific sponsors, and not standard published catalogue courses. For published catalog courses, indirect costs included as part of the standard pricing should take into account the indirect costs identified in the campus A-21 indirect cost rate agreement.
As discussed in 8-210 above, Regents' Standing Order 100.4(m) which authorizes the President to negotiate and approve all indirect cost rates incorporates the authority to approve exceptions to the approved rates. Thus, University policy allows for indirect cost rate exceptions to be granted under certain circumstances.
8-620 DELEGATION OF AUTHORITY TO APPROVE EXCEPTIONS TO APPROVED INDIRECT COST RATES
The Presidential authority to negotiate indirect cost rates, delegated to the Senior Vice President--Business and Finance, carries with it the authority to approve exceptions to those rates. This authority has not been redelegated to Chancellors or Laboratory Directors. Authority to approve exceptions to negotiated indirect cost rates has been redelegated from the Senior Vice President--Business and Finance to the Executive Director--Research Administration and Technology Transfer and, subsequently, to the Director--Research Administration. However, indirect cost rate exceptions involving unusual policy concerns or other institutional issues may be reviewed with the Executive Director--Research Administration and Technology Transfer prior to the exercise of this authority by the Director--Research Administration.
8-630 GENERAL REQUIREMENTS FOR EXCEPTIONS
The Regents' policy on full cost recovery imposes a duty on all University administrators and Principal Investigators to perform sponsored projects on a full cost recovery basis. Administrators and Principal Investigators are obligated to ask for and recover indirect costs from all sponsors. In fairness to all faculty and researchers, the full cost burden should be shared equally. Full cost recovery is necessary to support the University's physical and administrative capacity to perform extramural projects. Each approved exception reduces revenue to the University and to each campus. Requests for exceptions to indirect cost recovery must balance local campus interests with University-wide institutional interests.
Principal Investigators are not authorized to negotiate reduced indirect cost rates with a sponsor or to submit proposals that do not include the applicable indirect cost rate as part of the budget.
8-632 Class and Individual Exceptions
A request for an exception to a negotiated indirect cost rate may be either for an individual award or a class of awards from a particular sponsor. Individual exceptions are valid only for a named single award. A class exception applies to all awards under the particular sponsor's program identified in the exception approval. A class waiver eliminates the need for submission of individual requests for awards from one sponsor for the identified program.
Exception requests are considered under one of two criteria, either sponsor policy or campus vital interest as described in 8-633 and 8-634 below. A class exception may be approved only on the basis of sponsor policy. Exceptions based on campus vital interest are individual exceptions.
A class exception may be approved on the basis of a sponsor's policy when the sponsor's policy is published or documented as described below in 8-633, or when the sponsor's policy is stated in a letter and if the stated limit operates as the sponsor’s policy and is not an ad hoc or grant-by-grant decision. When the sponsor's policy does not indicate that there are any exemptions to the base against which the reduced rate should be applied, the exception rate should always be applied to a total direct cost base.
Each exception is identified by a number, the first two digits of which are the fiscal year in which the waiver was approved. For historical reasons, a class exception can be distinguished from an individual exception by the capital letter "R" in the number after the two digits identifying the fiscal year.
Sponsors sometimes restrict reimbursement of indirect cost to less than the full rate. Sponsor restrictions may be by statute, codified agency regulations, or program terms published in the sponsor's solicitation or announcement. However, a sponsor's policy restricting indirect cost recovery is sometimes imposed individually by program managers and provided in a letter from an organization official or program manager. An individual exception may be approved if the sponsor's policy appears to apply only to a specific award.
A class exception to approved indirect cost rates may be requested for a non-profit sponsor, including domestic governmental agencies, international organizations, and foreign charitable foundations, when the sponsor limits its payment of indirect costs by statute, published agency regulation or policy, and when such a restriction is a non-negotiable condition for receiving the award. The sponsor's indirect cost rate must be a bona fide restriction initiated by the sponsor and not an ad hoc restriction based on discussion with the campus. Sponsor policy is not a reasonable basis for an exception when a proposal is submitted directly to the sponsor, without going through the campus Contracts and Grants Office, and without including the applicable indirect costs. (See 8-631 above.)
The sponsor policy criterion also does not generally apply to for-profit organizations or foreign government organizations. The State Auditor has ruled that reductions of indirect cost rates to such organizations are a gift of public funds for private benefit as the sponsor is not reimbursing the University for the full cost of the project. Without full indirect cost recovery, the University is subsidizing the cost of the project for the sponsor. 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. The criteria for considering a sponsor policy exception for such a program would include: 1) the corporation has published an announcement calling for proposals under which grants would be awarded; 2) exceptions to University policies for the subject program, such as intellectual property language, are carefully considered and justified, specifically in light of the indirect cost rate exception, and approved by the appropriate University authority; and 3) the announcement does not require a specific deliverable to the corporation other than technical/final and financial reports. Such a program would have to be clearly distinguishable from research contracts which state anticipated outcomes in specific areas of corporate interest solicited by the corporation.
When funding flows from the prime sponsor through an intermediary sponsor, as in the case of federal flow-through awards, then the indirect cost rate applicable to the prime sponsor should apply.
When an indirect cost rate exception request meets the above criteria, it may be signed by a campus Contract and Grant Officer with appropriate documentation from the sponsor. In cases where a sponsor has published its policy in a new request for proposals and several campuses notify the Office of the President Research Administration Office (OP RAO) that they intend to forward an exception request, OP RAO may also initiate an exception request based on appropriate documentation from the sponsor.
At times, the development of campus research, training or public service programs or infrastructure may best be served by accepting a sponsored award at less than the indirect cost rate normally paid by the sponsor. These situations may include, but are not limited to: small seed grants which may attract future larger awards; cases of hardship for a new investigator; awards which include contributions of equipment or building renovation funds; awards for a community relations interest vital to the campus; supplements for a student services activity which the campus must provide; or other types of supplemental funding for an established campus program such as for library holdings, performances, or exhibits. Such interests must be viewed as vital to a campus to the extent that funding the proposed project at a loss is more important to the campus than recovering the full indirect costs. In the case of equipment contributions in lieu of indirect costs, the value of the equipment must be equal to or greater than the indirect costs lost. The equipment must not be required for performance of the proposed work as it would be required as part of the direct cost funding in such a case. Title to the equipment must be retained by the University so that the value from the use of the equipment continues beyond the period of the award.
An exception request based on campus vital interest must be signed by the Chancellor or designee as an indication of the campus' support of this recommendation. If the Chancellor decides to designate this responsibility, the designee must be at least at the level of the Vice Chancellor for Research or a person who can act for the Vice Chancellor for Research and is in a position to judge what is in the vital interest of the campus and the institution. If a Chancellor assigns the campus responsibility for making this determination to another campus official, OP RAO needs a copy of the campus memo stating who may sign these requests. This exception criterion is applicable only to an individual project. The campus rationale for an exception must accompany the request.
Campus vital interest may also support a request to further reduce the indirect cost rates on an individual award from that already approved by a class waiver. As noted above in 8-633, when a proposal is submitted directly to the sponsor without including the applicable indirect costs or the sponsor has developed an ad hoc restriction on indirect cost reimbursement after discussions with the campus, an exception may not reasonably be made on the basis of sponsor policy. The basis for an indirect cost rate exception request in such cases is campus vital interest.
An exception based on campus vital interest is an individual exception and applies only to the campus requesting the exception for the specifically named campus project. Any other campus receiving a subagreement from primary campus must determine separately whether it also wants to forego overhead on a vital interest basis.
8-635 Indirect Cost Reductions and Cost Sharing
Volunteering indirect costs for cost sharing is not appropriate. (See 5-220, Contribution of Indirect Costs.) When the sponsor does not restrict reimbursement of indirect costs, indirect costs may not be offered to a sponsor to meet cost sharing requirements. When a governmental or nonprofit sponsor does have a published policy which restricts reimbursement of indirect costs, the difference between the full indirect cost amount and the restricted amount may be applied to meet mandatory cost sharing, unless the sponsor specifically prohibits this. Under the federal Cost Accounting Standards, any cost sharing offered, whether for direct or indirect costs, must be documented and is subject to external audit.
8-636 Administrative Fee or Institutional Allowance in Lieu of Indirect Costs
When a sponsor does not allow for a campus' approved indirect cost rate to be charged to an award, but does provide an administrative fee or institutional allowance in lieu of indirect costs, this amount is remitted as indirect costs unless the sponsor has restricted it for another purpose such as for paying the fringe benefits on a fellowship. If the allowance is greater than the amount recoverable as indirect costs using the approved campus rates, as could happen in budgets where the majority of the direct costs would be excluded form the MTDC base, the excess amount may be retained by the campus and rebudgeted at the Chancellor's discretion. Indirect cost rate exceptions must be requested in such cases when the amount of the administrative fee or institutional allowance is less than what the campus would have recovered if the applicable campus indirect cost rate were used.
8-637 Intellectual Property Provisions and Indirect Cost Exceptions
A request for an exception to applicable indirect cost rates requires consideration of the intellectual property rights to be provided to the sponsor under the terms of the subject agreement. The campus must consider what intellectual property rights, a potentially valuable consideration, to provide to a sponsor that does not pay full applicable indirect costs to the University. (See Chapter 11.) If intellectual property rights arrangements requiring exceptions to University policy are desired, approvals must be secured from the appropriate University authority prior to approval of the related indirect cost rate exception.
8-638 Indirect Cost Rate Exceptions and University Administered Programs
When a competitive grants program funded as part of the University's State budget is administered by the University, a decision as to whether campuses may charge indirect costs on awards from the program is made by the Senior Vice Presidents--Business and Finance and Academic Affairs and the Vice President -- Budget. This determination will be stated in the program's announcement. No indirect cost rate exception is required for such internally administered programs.
8-639 Retroactive Indirect Cost Exceptions for Overdrafts, Sponsor Default, or Disallowed Costs
Indirect cost rate exceptions are not approved retroactively after work under an award has started or after termination to cover expenses not paid for by the award sponsor. Such situations can include: overdrafts of the award amount; disallowed costs; sponsor default where the sponsor does not provide full payment; and withholding of payments due to non-performance or disputes. Campus sources including overhead recovery returned to Chancellors should be used for such costs.
8-640 RESPONSIBILITY FOR INDIRECT COST RATE EXCEPTIONS
RAO is responsible for formulating University policy regarding indirect cost rate exceptions, developing the administrative procedures for submitting and reviewing exception requests, and reviewing and coordinating requests for indirect cost rate exceptions.
The Director--Research Administration has been delegated authority to approve or disapprove exception requests, subject to the need for review by the Executive Director--Research Administration and Technology Transfer described in 8-620 above. RAO may contact sponsors directly to clarify their policies on paying indirect costs. RAO notifies the requesting campus of the action taken on the exception request and maintains a current database of all approved indirect cost rate exceptions, providing access to this database via the RAO homepage. Campuses also receive an annual printed list of exceptions provided on a class basis. (See 8-630.)
Procedures and the form for submitting indirect cost rate exception requests to RAO are issued by RAO via Contract and Grant Memo. An exception request should be approved before a proposal is submitted. In some situations, campuses may find it necessary to submit proposal budgets with a note stating that an indirect cost exception has been requested but has not yet been approved. In all cases, an exception request must be approved before an award may be accepted. Disapproval of any exception may be appealed to the Senior Vice President--Business and Finance.
8-660 APPLICABILITY AND DURATION OF APPROVED EXCEPTIONS
An exception granted for an individual award based on sponsor policy will apply to the period and the amount of the award stated in the exception request, provided there is no material change in the project that affects the basis on which the exception was approved. If there is a continuation or renewal of an award with an individual waiver based on the same sponsor policy, the additional amount and period may be reported to RAO and added to the original waiver.
For continuation or renewal of an award with an exception based on campus vital interest, a new exception must be requested as the original exception stated an amount of funding the campus was originally willing to forego in overhead recovery. A new assessment of that campus vital interest on the basis of additional funding must be considered by the campus and submitted to RAO.
An exception 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 exception changes. Long-standing exceptions are periodically reviewed by the Research Administration Office to determine whether sponsor's policy or practices have changed. Campuses also inform RAO when a sponsor changes its indirect cost payment policy. In such cases, an existing waiver is updated and no new exception request needs to be submitted.
8-710 INDIRECT COST RATES IN PROPOSALS
Campus administrators and Principal Investigators are responsible for submitting proposals which provide for full indirect cost recovery unless an exception is granted. Proposals submitted after a new Rate Agreement is signed should contain the new indirect cost rates applicable to the period of the Agreement, unless an exception is granted. When the Rate Agreement contains approved increases in the indirect cost rates within the period of the Rate Agreement, such increases must be included in the proposed budget. Section G.7. of OMB Circular A-21 specifically states that negotiated rates in effect at the time of an award shall be used for the "life of agreement." "Life of agreement" is defined as the competitive segment or specified period of years approved by the federal funding agency at the time of the award of that segment of the project. As the University uses predetermined rates, the campus negotiated rates, including increases in the campus Rate Agreement, shall apply. If the campus negotiated rates change, the new rates are applied to future competitive segments of the project. (See 8-F01 on OMB Circular A-21.)
OMB has clarified its intent of applying a fixed rate throughout the life of the award for institutions with predetermined rates. A-21 requires that the federal funding agencies use rates in effect at the time of the award throughout the life of the award, using the negotiated rates, e.g., predetermined, at the time of the award. For example, if an educational institution has predetermined rates of 40 percent (first year), 42 percent (second year), and 45 percent (third year), then a five-year project would have rates of 40 percent (first year), 42 percent (second year), and 45 percent (third, fourth, and fifth years). Even when the institution negotiates a new rate applicable for years four and five, it may not be applied to a federal award in place.
For non-federal awards, for periods beyond the Rate Agreement, campuses may use the latest negotiated rates or develop forecasted rates. Campus-developed forecasts of indirect cost rates must be reasonable and consistent campus-wide, and should consider such factors as the history of rate changes for that campus and probable future trends. Advice on the quantitative aspects of rate forecasting should be obtained from OP Costing Policy and Analysis.
Because of the agreement with the State regarding disposition of indirect cost recovery, (i.e., that federal overhead recovery has a different disposition than State recovery,) proposals to State agencies should include a statement that the University needs to be advised of the primary source of the funds awarded. (See 8-810.)
8-720 INDIRECT COST RATES IN AWARDS
Contracts and Grants Offices are responsible for ensuring the use of the appropriate indirect cost rate in each sponsored project. For non-federal awards, unless an exception has been granted, the appropriate indirect cost rate for an award is generally the applicable approved rate that is in effect at the time of performance as well as any approved new rate increases in any new Rate Agreement which is approved during the period of performance. For federal awards, the appropriate rate(s) is (are) the rates in effect at the time of the award as required by A-21, G. 7. The campus Extramural Funds Office should not set up an account for an award at less than the applicable full indirect cost rate without an approved exception.
8-721 Changes in Direct Cost Expenditures (Cost-Reimbursement Type Awards)
Approved budgetary changes may result in a change in the ratio of base to non-base items in the direct cost budget, or they may result in a change in the base with respect to the applicable on- or off-campus rate. When such changes are made, appropriate transfers should also be made to cover any resulting additional indirect cost expenditures in accordance with any sponsor restrictions on the transfer of funds from direct to indirect costs.
8-730 INDIRECT COST RATE CHANGES AFFECTING IN-PLACE AWARDS
When indirect cost deficits are caused solely by an increase in approved rates with a new Rate Agreement, additional funds to cover the increases should be requested from the sponsor as allowed by the sponsor's policy. Generally, uncommitted or unused direct cost funds will be used to cover indirect cost deficits at the end of the funded budget period, if permitted by the terms of the award. No indirect cost rate exception request is required when the indirect cost rate increases for an in-place award and the sponsor will not pay for the increase.
When a decrease in indirect cost rates results in an anticipated indirect cost surplus at the end of a project, available funds may be transferred to direct cost categories, if permitted by the terms of the award.
8-731 Awards Transferred from Other Institutions
A transferred award is treated in the same manner as an in-place award. The campus should request the additional indirect costs from the sponsor for the active budget period. However, an indirect cost rate exception request is not necessary when an award transferred from another institution bears an indirect cost rate which is lower than the recipient campus rate and the sponsor refuses to provide additional funds to meet the campus rate. For any renewals of that award or continuations for which a new budget is submitted, the current campus rate shall apply.
8-732 Moves from Off-Campus to On-Campus
When a project which was located off-campus and awarded at an off-campus indirect cost rate moves on-campus during the period of performance, the campus is responsible for requesting either more funds from the sponsor to pay for the difference in indirect costs or rebudgeting from direct costs to indirect costs. In particular, any funds budgeted for direct cost of leased space should be rebudgeted as indirect costs. If the sponsor’s policy does not allow either of these actions, an indirect cost rate exception is not required. Such awards are treated as in-place awards.
8-740 REPORTING INDIRECT COST RATES
Campus Contracts and Grants Offices report the indirect cost rate actually accepted under an award to the Office of the President Research Administration Office in the Corporate Contract and Grant Information System (CGX). Extramural Funds Officers report the indirect cost rate charged and the MTDC base for every award in the Corporate Financial System.
The chart in section 8-860 summarizes the disposition of overhead (indirect cost) recovery at the University. Sections 8-810 through 8-840 explain this chart in more detail.
8-810 RECOVERY FROM FEDERAL AWARDS
Information and guidelines concerning the allocation and use of indirect cost reimbursements from the federal government are found in Accounting Manual Chapter C-557-23 (Contracts and Grants: Federal Contract and Grant Administration Funds--Allocations for Administrative and Disallowed Costs). Chapter C-557-23, Appendix I, contains the full text of the agreement between the University and the State of California entitled Memorandum of Understanding for Disposition of Receipts from Overhead (Indirect Cost Recovery) on Federal Government Contracts and Grants, which was executed on October 24, 1979 (see 8-S02).
The Memorandum of Understanding applies to all indirect costs recovered from all federal contracts and grants awarded directly to the University. Specific language regarding the disposition of receipts from overhead funds under this Memorandum is found in 8-S02.
8-811 Garamendi Projects Funding
Under State Government Code Section 15820.21, the University may seek authorization to pay debt service and maintenance costs for specifically-approved research buildings using federal indirect cost recovery from research dollars awarded as a result of those approved new research facilities. This overhead recovery is retained at a "gross" level (that is, prior to the Off-the-Top allocation) to a maximum amount that may not exceed the costs of debt service and related maintenance costs that are attributable to the particular approved research facility. Such facilities are also referred to as "Garamendi projects" after the State Senator who sponsored Senate Bill 1308 under which this section of the Government Code was enacted. (See 8-S03.)
8-812 "Off-the-Top" Overhead Fund
"Off-the-Top" overhead funds currently make up about 20% of the total indirect costs recovered under federal awards after the set-aside for Garamendi projects funding. The fund is allocated by the President to the campuses based on the net indirect cost recovery of the individual campus. In accordance with the Memorandum of Understanding for Disposition of Receipts from Overhead on Federal Government Contracts and Grants, federal indirect cost recovery must be used for costs related to the University Federal Governmental Relations Office, cost and financial analysis, campus and Office of the President Contract and Grant and Extramural Funds Offices, costs resulting from federal cost disallowances, and "any additional costs directly related to federal contract and grant activity as mutually agreed to by the University and the State." (See 8-S02.)
8-813 University Opportunity Fund
The University Opportunity Fund was established by The Regents in 1970 by combining two funds, the University Fund and the Opportunity Fund. It is made up principally of 45% of the indirect cost recovery from federal contracts and grants after deducting the "Off-the-Top" Overhead and Garamendi Projects Funds. Other sources for this fund include income from certain investments and loans. The University Opportunity Fund is used primarily for high priority research and instructional needs. The total available for allocation is approved annually by The Regents. A status report on the University Opportunity Fund is submitted semi-annually to The Regents by the Corporate Accounting Office, Office of the President.
The University Opportunity Fund, with the exception of some line-item allocations, is allocated to the campuses based on the net indirect cost recovery of each campus. Chancellors have discretion in the allocation of these funds for high priority campus needs.
The remaining 55% of the indirect cost recovery amount from federal awards is used to help fund the University's General Fund budget. These funds are retained by the University as part of the University's State General Fund budget. The University's General Fund expenditure plan is based on a combination of the State General Fund appropriations and the University's General Fund income from federal indirect cost recovery.
8-820 RECOVERY FROM STATE AWARDS
When an award is received from a State agency, the primary source of funding must be determined, i.e., State, federal, or both. This information should be provided to the campus Extramural Funds Accounting Office when the initial account is set up so that recovered indirect costs may be distributed as described in 8-821 through 8-823. Further coverage on indirect cost recovery from State awards is given in Accounting Manual Chapter C-557-38, Contracts and Grants: Indirect Costs Recovered from State Agencies.
8-821 Contracts and Grants Funded 100% from State Funds
All indirect costs recovered on extramural funds derived solely from the State are allocated to the University’s General Fund budget. As with federal indirect cost recovery described above in 8-814, these funds are retained by the University as part of the University's State General Fund allocation.
8-822 State Contracts and Grants Funded 100% from Federal Funds
All indirect costs on federal funds passed through a State agency are distributed in accordance with 8-813 and 8-814 above, with 45% going to the University Opportunity Fund and 55% to the University’s State General Fund allocation. This indirect cost recovery is not allocated to "Off-the-Top" funds (8-812).
8-823 Contracts and Grants Funded Partially by Federal and Partially by State Funds
When only part of an award is made up of federal pass-through funds, the amount of the federal component which can be accurately determined is handled as in 8-822 and the remainder is handled as in 8-821. If the amount of the federal component cannot be accurately determined, the entire award should be handled as in 8-821.
8-830 DOE LABORATORIES FIXED FEE
The University receives a fixed payment in lieu of indirect costs from the Department of Energy for administration of the Lawrence Berkeley, Lawrence Livermore, and Los Alamos National Laboratories. This payment is allocated to the University’s State General Fund budget.
8-840 RECOVERY FROM PRIVATE AND LOCAL GOVERNMENT AWARDS
All funds recovered as indirect cost receipts from private and local government contracts and grants, except for recovered indirect costs from private clinical trial agreements, are placed in the President's Education Fund. Allocations from the Education Fund are made at the discretion of the President according to policy set by the President. Currently, the following formula is used to determine the indirect costs returned to campuses from private and local government recovery: 25% of the 1991-92 private recovery; 50% of all incremental income to the campus received between 1991-92 and 1994-95; and 100% of the 1995-96 and subsequent years' incremental receipts after deducting 50% of the inflationary adjustment (usually 3%) applied to the 1994-95. The Education Fund is used primarily for the support of high priority educational programs.
All indirect costs recovered from privately-funded clinical trial agreements are reported to OP and retained by the campus which generates them.
8-850 REPORTS ON CAMPUS INDIRECT COST RECOVERY
The Vice President-- Financial Management provides an annual report to the Chancellors of each campus' recovery of indirect costs and the return to the campuses from this recovery. This report shows the allocations for each campus to each of the funds or pools described above for federal and private and local government awards.
8-851 Report on Vital Interest Exceptions
The Research Administration Office produces an annual, by-campus, report of exceptions approved on a campus vital interest basis. A summary report of the dollar amount stated in all approved campus requests based on vital interest is distributed annually to all campus Vice Chancellors for Research and Contracts and Grants Offices. Each campus also receives an individual report of the specifically-approved vital interest exceptions for that campus.
8-860 DISPOSITION OF INDIRECT COST RECOVERY -- SUMMARY CHART
| STATE | FEDERAL GRANTS AND CONTRACTS |
DOE LABORATORIES | PRIVATE AND LOCAL GOVERNMENT |
|
Pool of total overhead recovered |
Pool of total overhead recovered |
Fixed payment in lieu of indirect costs |
Pool of total overhead recovered |
| All monies received solely from State funds are allocated to UC's General Fund budget from the State. | Specified amt.of indirect costs generated from Garamendi projects funding retained by campuses for Garamendi facilities' costs. | 100% of the fixed payment in lieu of indirect costs from DOE is allocated to the UC General Fund budget. | All recovery from privately funded clinical trial agreements retained by campus. |
| "Off-the-top" overhead fund is approximately 20% of the total recovered from federal awards after Garamendi funding. | Remainder becomes President's Educational Fund allocated to campuses at the discretion of the President. Distribution formula issued by the President. (See 8-840.) | ||
| If federal flow -through, disposition of proceeds is 45/55 split from federal column. If split funded, federal column is applicable to amount of federal component that can be accurately determined. Remainder goes to UC's State General Fund allocation. |
"Off-the-top" allocation to each campus is based on net indirect cost recovery for the particular campus. Used to cover costs related to contract and grant administration.
Remainder in pool after above deductions is allocated to: Univ. Opp. Fund (45%) allocated to campuses by President & remainder (55%) to UC General Fund. |
Used for support of high priority educational programs. |
8-F01 Office of Management and Budget Circular No. A-21, Cost Principles for Educational Institutions
PURPOSE
A-21 establishes principles for determining allowable, allocable and reasonable direct and indirect costs.
APPLICABILITYA-21 cost principles apply to all federal awards to educational institutions for research and development, training, and other sponsored work under grants, contracts, and other agreements with the federal government except capitation awards, loans, fellowships, and other awards under which the recipient institution is not required to account to the government for actual costs incurred. The principles also apply to awards made to educational institutions under subgrants or cost-reimbursement subcontracts where the ultimate source of funding is the Federal government.
SUMMARY OF PROVISIONS APPLICABLE TO INDIRECT COSTS
See 6-F01 for a general discussion of the provisions of Circular No. A-21.
A. Major Functions of an Institution (A-21 - Section B.1.)
All allowable direct costs incurred by an institution (whether sponsored or unsponsored) are related to a particular function. The four major functions of an institution are:
B. Allocation of Indirect Costs (A-21 - Section F.)
Indirect costs are those facilities and administration (F&A) costs that are incurred for common or joint activities and, therefore, cannot be identified readily and specifically with a particular sponsored project, instructional activity, or any other institutional activity. All indirect costs incurred as under the broad categories of either facilities or administration are allocable first to one of nine indirect cost components and then to one of the major functions of the institution (instruction, organized research, other sponsored activities, and other institutional activities). A-21, Section G. provides detailed guidelines on how this two-step allocation is calculated.	
Within the two major categories of facilities and administration, indirect cost components are identified and allocated to the following subcategories:
C. Indirect Cost Pools
In general, the separate components of indirect costs which have been reallocated to each major function of the institution are then combined into a common pool for that function.
D. Modified Total Direct Cost Base
For a given fiscal year, indirect cost amounts in each pool are divided by a base consisting of total institutional expenditures for each function in the following categories: salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 each.
E. Indirect Cost Rates
The ratio of indirect costs in each pool to the relevant modified total direct cost base constitutes the actual on-campus indirect cost rate for the respective major functions. The rate for each function is used to distribute indirect costs to individual sponsored agreements of that function. No formal indirect cost rate is developed for the other institutional activities function.
Off-campus rates at the University are determined by using only the general administration, departmental administration, and sponsored projects administration components in making up the rate (see 8-522). Special indirect cost rates for unique programs may also be calculated.
F. Indirect Cost Rate Types
A-21 outlines various indirect cost rate types. These are discussed in 8-420 through 8-425.
G. Fixed Rates for the Life of the Sponsored Agreement
Section G. 7. states that indirect cost rates in effect at the time of an initial award shall be used throughout the life of the agreement. "Life of agreement" is defined as each new competitive segment of a project. A competitive segment is the period of years approved by the funding agency at the time of the award. An institution with approved predetermined rates would apply the rates in effect at the award including all increases in the approved Rate Agreement.
PRIMARY UNIVERSITY RESPONSIBILITY
It is the responsibility of the Associate Vice President--Business and Finance to implement the provisions of A-21. This has been undertaken by the Director--Corporate Accounting, who develops cost accounting policy and implementing instructions. The Manager--Costing Policy & Analysis is responsible for calculating and negotiating indirect cost rates. Campus Contracts and Grants Officers are responsible for approving proposals to and awards from federal agencies which incorporate and are in accordance with the cost principles of A-21. Campus Extramural Funds Managers are responsible for budgeting and billing sponsored projects in accordance with the approved budget and applicable indirect cost rate.
UNIVERSITY POLICY IMPLEMENTATION
Costing Policy & Analysis has developed procedures to ensure that the negotiation of indirect cost rates proceeds in accordance with the applicable provisions of A-21 and that costs allocated to the various indirect cost components are allowable under the Circular. Overall policy guidance for implementing the provisions of this Circular is contained in this chapter.
8-F02 Federal Acquisition Regulation (FAR) Subpart 42.7, Indirect Cost Rates and Related Clauses
PURPOSE
The Federal Acquisition Regulation (FAR) is the primary regulation for use by all Federal agencies in their acquisition of supplies and services with appropriated funds.
APPLICABILITY
The FAR applies to all contracts for the acquisition of supplies and services awarded by any Federal agency, including University research contracts. The FAR does not apply to grants.
SUMMARY OF PROVISIONS
Subpart 42.7, Indirect Cost Rates, of the FAR prescribes policies and procedures for establishing provisional and final indirect cost rates applicable to federal contracts. In contracts with educational institutions which have indirect cost rates negotiated under A-21, contracting agencies are to use the applicable negotiated rates. If predetermined rates are used in cost-reimbursement contracts, then Subpart 42.7 makes reference to other FAR subparts (16.307)(i) and (52.216-15) which call for and delineate a specific contract clause to be inserted in such contracts, entitled Predetermined Indirect Cost Rates (APR 1998).
PRIMARY UNIVERSITY RESPONSIBILITY
Responsibilities related to FAR Subpart 42.7 are the same as those discussed in 8-F01.
UNIVERSITY POLICY IMPLEMENTATION
Policy implementation related to FAR Subpart 42.7 is the same as that described in Section 8-F01.
Guidance on acceptance of specific FAR clauses is issued by Contract and Grant Memo.
8-S01 State Administrative Manual, Sections 8752 and 8758
PURPOSE
The State Administrative Manual (SAM) sets forth the State policies and procedures to be used by State agencies in the management of their fiscal and business affairs.
APPLICABILITY
The SAM applies to all State agencies and entities which must conduct their business under State fiscal, procurement, and contract rules. It does not apply to the University of California in its business and fiscal management except as the University is a recipient of State funds via State contracts or interagency agreements.
SUMMARY OF PROVISIONS
The State of California does not have a specific set of cost principles comparable to OMB Circular A-21 for federal awards which outlines procedures for the calculation and payment of indirect costs on State awards to the University.
SAM Section 8752 - Full Cost Recovery Policy, 8752.1 - Cost Elements Included, 8758 - Charges for Interagency Services, and 8758.1 - Agreement Provision Required set forth the State policy for State departments to recover full costs whenever goods or services are provided for other departments via interagency agreements. Thus, in principle, the State recognizes its obligation to pay indirect costs on projects it supports, if they are via interagency agreement. As such, the University should receive full applicable indirect costs on interagency agreements from State agencies. In practice, however, few State agencies honor these requirements with the University.
In addition, these sections do not apply to contracts from State agencies which are entered into on a State Standard Form 2. The result is individual State programs either establish indirect cost rates based on a program or agency policy decisions or use a rate found in the legislation relating to the funds involved, the source of the funds, or the indirect cost rate of the agency itself. When the source of the State funds is federal, campuses must request the full applicable federal indirect cost rate. However, again, a State agency may not have requested or anticipated the University's federal rates in its federal grant budget and refuse to pay the full rate.
PRIMARY UNIVERSITY RESPONSIBILITY
Principal Investigators are obligated to request the applicable campus indirect cost rate in proposals to State agencies unless there is a University indirect cost rate exception for the particular program. Contract and Grant Officers should assure that the applicable indirect cost rate is used in proposal budgets or request an indirect cost rate exception if necessary. The OP Research Administration Office is responsible for reviewing and approving indirect cost rate exception requests for State agencies and discussing indirect cost rates and issues with agencies as necessary.
UNIVERSITY POLICY IMPLEMENTATION
Policy guidance for application of indirect cost rates to awards from State agencies is found in this chapter.
8-S02 Memorandum of Understanding for Disposition of Receipts from Overhead (Indirect Cost Recovery) on Federal Government Contracts and Grants
PURPOSE
This agreement between the University and the State Department of Finance provides for the disposition of indirect cost recovery from federal awards received by the University.
APPLICABILITY
The Memorandum of Understanding applies to all indirect cost receipts from federal awards to the University.
SUMMARY OF PROVISIONS
The following is the full text of the pertinent sections of the Memorandum of Understanding:
Formula for Disposition
Overhead received by the University in 1979-80 and in succeeding years, together with interest earned on such overhead, shall be subject to disposition on the following basis:
Overhead receipts from the Federal Government covered by this understanding shall be applied first to continue the annual workload and price increase related support currently provided from this source for the University's Washington, D.C. office, Cost and Financial Analysis, Campus and Systemwide Contract and Grant Offices, and Federal contract and grant costs disallowed by the Government, and to support any additional costs directly related to Federal contract and grant activity as mutually agreed to by the University and the State. The balance shall be divided 45 percent to the University and 55 percent to the State.
Estimates of Overhead Receipts
That portion of overhead receipts to be divided between the State and the University in any one fiscal year shall be estimated in advance. The difference between actual net receipts and estimates for any particular year shall be assigned in the next proposed budget year. The disposition of such difference shall be allocated in accordance with the formula specified above. The State will augment the operating budget in the event that overhead receipts are less than amounts estimated. Any adjustments of overhead receipts related to prior fiscal years shall be applied to current receipts before division between the University and the State. (Note: Budgeting is now done on a current-year basis.)
Allocation and Reporting
The University's share of Federal overhead receipts is available to fund high priority programs established by The Regents such as Extension of Research Opportunities, Instructional Innovation and Improvement, Administrative Planning, Mandated and Other Recognized University Responsibilities, and Capital Outlay Projects. These programs shall be outside the University's budget request to the State, but shall be reported annually to the Department of Finance.
The State's share of overhead shall be applied to the University's operating budget as a source of income.
PRIMARY UNIVERSITY RESPONSIBILITY
The Vice President and Director of Budget is responsible for allocating indirect cost funds, subject to Regental review and approval.
UNIVERSITY POLICY IMPLEMENTATION
The provisions of the Memorandum of Understanding are implemented in Accounting Manual Chapter C-557-23, Contracts and Grants: Federal Contract and Grant Administration Funds--Allocations for Administrative and Disallowed Costs.
8-S03 State Government Code Section 15820.21 (Garamendi Projects Financing)
PURPOSE
This State Government Code section, sometimes referred to as the Garamendi legislation, allows the University to pay for research facilities from a share of the increase in indirect cost revenues received by the University that are derived from increases in research funding as a result of the new research facility.
APPLICABILITY
This section is applicable to approved building financing identified by this statute after July 11, 1990.
SUMMARY OF PROVISIONS
Under State Government Code Section 15820.21, the University may seek authorization to pay debt service and maintenance costs for specifically approved research buildings using federal indirect cost recovery from research dollars awarded as a result of those approved new research facilities. This overhead recovery is retained at a "gross" level (that is, prior to the Off-the-Top allocation) to a maximum amount that may not exceed the costs of debt service and related maintenance costs that are attributable to the particular approved research facility.
PRIMARY UNIVERSITY RESPONSIBILITY
The Vice President and Director of Budget is responsible for implementation of this statute.
UNIVERSITY POLICY IMPLEMENTATION
A letter to all Chancellors entitled "Guidelines for Tracking and Reporting of Income and Expenditures Related to "Garamendi Projects" was issued on December 5, 1994 by the Senior Vice President-- Academic Affairs.
8-U01 July 28, 1993 Memo to Accounting and Budget Officers
PURPOSE
This memo to Accounting and Budget Officers from (then) Associate Vice President and Director of the Budget, Lawrence C. Hershman, and University Controller Joseph A. Pastrone provides guidance on the "proper identification and accounting treatment of private grants and contracts."
APPLICABILITY
The memo applies to all University contracts and grants from private sponsors.
SUMMARY OF PROVISIONS
The memo lists the type of written agreement from external sponsors which should not be classified as sales and services. (See 8-321). In addition, the memo defines "sales and services of educational activities" (see 8-520) and discusses the definition of gifts.
PRIMARY UNIVERSITY RESPONSIBILITY
Contract and Grant Officers, Business Services Officers, Extramural Funds Managers, and Accounting Officers are responsible for assuring that agreements which are administered by their offices are correctly budgeted and accounted for. Development Officers are responsible for appropriate acceptance of gifts.
UNIVERSITY POLICY IMPLEMENTATION
Accounting Manual Chapter U-751-17, Uniform Accounting Structure, BUS A-59, Costing and Working Capital for Auxiliary and Service Enterprises, and the Presidential Policy on Review of Gifts/Grants for Research, July 8, 1970.