University of California

Office of the President


Senior Vice President—

Business and Finance





Costing Policy & Analysis

Research Administration Office

No. 03-02

May 9, 2003





Subject:   Cancellation of Two Indirect Cost Rate Exceptions


The Office of the President Research Administration Office (RAO) maintains a database of all approved individual and

class indirect cost rate exceptions. On an annual basis, after the final fiscal year report of systemwide contract and grant

activity is distributed, we review all the class exceptions and delete those for sponsors from which the University

has not received any awards in 4 to 5 years. We then distribute a revised list of class waivers to your office. 


We do not usually inform campuses of deleted class exceptions which are based on the fact that the University

has not received awards from the sponsor in the past 4 to 5 years. However, we are informing you in this Operating

Guidance Memo of two newly deleted class exceptions, 93R-058, Federal Agencies – Intergovernmental Personnel

Agreements, and 85R-086, State Resources Agencies, because the University is continuing to receive

awards from these sponsors, but these indirect cost rate exceptions are no longer applicable to them.


Implementation Date:


The change in indirect cost rates for proposals and awards which should be implemented in any new proposals being

prepared under these sponsors’ programs within 10 working days of your office’s receipt of this memo. Any

proposals which were submitted before this date that reflect the rates on the canceled waivers can be accepted

with those rates.


Intergovernmental Personnel Agreements:


Indirect cost rate exception no. 93R-058, Federal Agencies – Intergovernmental Personnel Agreements, was

deleted last month, based on a new directive from the Department of Defense.  (Copy attached.)

The Intergovernmental Personnel Act (IPA) Mobility Program allows university faculty and staff to have

temporary assignments with federal agencies.  The federal Office of Personnel Management has

overall authority for setting the rules for IPAs, which had included language that prohibited or greatly

restrict payment of indirect costs on IPAs.

The attached January 28, 2003 memo from the Department of Defense, Director of Defense

Procurement and Acquisition Policy, instructs DOD agencies to provide reimbursement of indirect

costs in IPAs. Contracting Officers are instructed to pay indirect costs on future IPAs and to consider

modifying existing IPA agreements to allow for indirect cost payment.  The memo also indicates the

Office of Personnel Management is revising its guidance for all agencies to clarify that indirect costs

are reimbursable on IPAs and that “reimbursement of such costs should be determined by the agency

the enters into the agreement.”  To date, OPM has not made this clarification in its guidance to all agencies.

However, while we have no “track record” yet of what rate any agency will determine is reimbursable,

campuses should now include the off-campus, other sponsored activity rate in IPA budgets. 


State Resources Agencies:


In 1985, the Division of Agriculture and Natural Resources (DANR) requested that all awards to the

University from the State Department of Food and Agriculture (CDFA) and the State Resources Agencies

be accepted with a 10% indirect cost rate. (No. 85R-086)  The rate was approved only for non-federal funds.

At the time, the DANR Vice President cited the State’s direct funding of that Division as providing

additional support that could justify the lower rate for these State agencies only. Federal indirect cost rates

for research were under 40%.  Since this exception was approved, most campus federal indirect cost

rates for research have risen to over 50%.  What was defined as “State Resources Agencies”changed

significantly with the establishment of the State Environmental Protection Agency (EPA),

causing continued confusion and conflict between campuses and State agencies over whether

this exception applied to them.  The additional State support for DANR does not reach to campuses

which now have the vast majority of agreements with State Resources Agencies and EPA.

As an added complication, agencies did not limit their application of this rate to only State funds,

which caused on-going delays and misunderstandings in budget negotiations.


Section 8752 of the State Administrative Manual reminds State agencies that State policy obligates

them “to recover full costs whenever goods or services are provided for others.”  “Full costs” includes

“a fair share of indirect costs.”  As such, the University needs to recover “a fair share” of its

indirect costs while working with State agencies to reduce these costs and the administrative

burden incurred under State agreements.


As a result of these factors, RAO, in consultation with the Vice President – DANR, has determined

that the exception for State Resources Agencies should be ended. The continuation of a 10% rate for

CDFA only is linked to the University’s support as a land grant institution and the additional funding

received for this role.  However, the continuation of this rate for CDFA, as reiterated by the Vice

President – DANR, is based on CDFA “practices that minimize administrative costs to the University,

that is, contractual terms and conditions which are standard, consistent with University policies and

include no extraordinary reporting or documentation.  We also understand

(and want CDFA to be so informed) that this blanket exception applies only to non-federally funded

awards from CDFA.” 


Many State programs apply unsubstantiated rates which have no basis in statute or formal regulations

to their University agreements.  At the same time, State contracts with private institutions,

commercial companies, and federal laboratories accept their approved federal rates which

are several times higher than the University’s rates.  With the growing complexity of issues

in contract negotiations and invoicing with State agencies, the University can no longer afford this

across- the-board reduced overhead rate.  At the same time, the University recognizes its unique

role as the research entity for the State and its support from the State.  Thus, the University has begun

applying a minimum rate of 25% of modified total direct costs (MTDC) on State agreements, a rate

which is about half of the University’s federally approved research rates.


RAO has already arrived at agreement with several State agencies for this more equitable indirect cost

reimbursement rate, closer to 25%.  The University has also made this 25% MTDC rate applicable to

federal flow-through funds as well in order to simplify the application of indirect costs on State agreements.

Unless a State agency program has a published indirect cost policy stated in a funding announcement or

federal regulation applicable to federal flow-through funds, campuses may use a 25% MTDC

rate in State proposal budgets and not have to continue to request multiple individual indirect cost rate

exceptions for State agencies.


In conjunction with these changes, RAO will continue to work with DANR and CDFA on the continued

use of standard terms and conditions in our agreements. In addition, RAO will continue to communicate with

the State Resources Agencies and State EPA about what has necessitated this change in policy.



Refer: Samuela A. Evans

    Subject: 08  
(510) 987-9849     Organization: S-001, S-097, S-105, S-210        
      David F. Mears  
      Director, Research Administration




DOD IPA Memorandum (pdf)


Cc:  Vice President Gomes, DANR

        Director Nation, DANR