Facilities & Administrative (F&A) Costs

Indirect Costs

When federal agencies award grants, the majority of funds (nationally, around 70 cents of every dollar) are “direct costs” that pay for researcher salaries, graduate students, and equipment and supplies used specifically for the grant. The remaining amount, 30 cents of every dollar, goes toward indirect costs.

Indirect costs, also known as Facilities & Administrative (F&A) costs, are a vital aspect of every research discovery.

• Indirect costs are costs for common or joint objectives that benefit more than one activity and are hard to allocate directly to specific grants.

• Indirect costs support the primary functions of university research and include services like facilities maintenance, libraries, plant operations, supply management, grant/contract accounting, and internet.

• Indirect costs may appear less visible to researchers because of how they are budgeted and delivered.

How We Calculate Indirect Costs

Federal agencies calculate indirect costs using the Facilities & Administrative (F&A) rate.

• The “Facilities” component includes the cost of maintaining research buildings and spaces where research occurs.

  • This includes shared facilities and equipment that researchers can use without a direct cost to the sponsor.

• The “Administrative” component helps defray the cost of the staff and services supporting research functions.

  • This includes staff that ensure compliance with federal regulatory requirements.

The F&A rate is not the same as the indirect cost amount. The F&A rate is used to calculate the sponsor’s share of reimbursing Cornell for the indirect costs by multiplying the F&A rate by only a federally allowed portion (excluding tuition, equipment, subawards, etc.) of the total direct costs of that grant.

• For example, if the F&A rate is 64%, this does not mean $64 of every $100 dollars awarded by a grant goes to covering indirect costs.

  • For a $100,000 grant where half of the costs are excluded, the rate of 64% will be applied to $50,000, giving 0.64 x 50,000 = $32,000 in indirect costs.

  • The indirect costs are $32,000 out of $132,000, or 24.2%.

  • Only 26 percentage points of the total cost minus exclusions ($100,000 – $50,000 = $50,000) are legally allowed to support administration, giving 0.26 x 50,000 = $13,000 for administration. This is 9.8% of the total grant amount.

• Cornell still incurs the rest of the true cost of research and is thus incentivized to keep indirect costs as low as is reasonable.

• Federal funding of university indirect costs as a proportion of the total costs of research have held steady over many years and have not grown more than the total costs of sponsored research.

  Note: For more Direct Cost and Indirect Cost examples, see Appendix A: Normally Direct and Normally Facilities and Administrative (F&A) Costs (from University Policy 3.18, Charging Directly to Sponsored Projects Costs).

F&A Rate Usage Guidelines

Note: F&A rates used are determined by the award date rather than the project period of the award. (See Uniform Guidance Appendix III Section C.7 below)

Proposals for new and competing renewal awards should use the latest set of rates in effect, while proposals for non-competing continuations (e.g., annual NIH continuations) should use the fixed rates that were in effect and frozen at the time of the initial award (per UG below). In this context, "competing" refers to the amount of time originally proposed. For example, a five-year award will be subject to the rate schedule in effect at the time of the award, even when the funds are released annually. However, an award that has additional time added (excluding No Cost Extensions) will be subject to the then-current rates on the extended period. 

For both Endowed and Contract Colleges, F&A costs are calculated on modified total direct costs (MTDC), which equals the total direct costs less the following exclusions:

1. Capital equipment items with a unit cost of $5,000 or more and a useful life of more than one year. ($500,000 threshold for computer software)
2. Cost in excess of $25,000 on each subcontract (F&A costs are charged on the first $25,000 of each subcontract).
3. GRA exclusion (amount of GRA support equivalent to tuition and fees including Graduate Health Insurance).
4. Leases of real property.
5. Participant support costs for conferences, seminars and certain training programs.

Provisional F&A Rates: Provisional rates may be in effect at the time of an award. Provisional rates are not negotiated rates and are used for interim budgeting and billing purposes in order to allow adequate time for F&A rate negotiations. The provisional rate is used in proposals and sponsor billings until such time as rates (fixed or predetermined) are negotiated. Once rates are negotiated individual awards are adjusted to reflect the negotiated rate.

Uniform Guidance Appendix III Section C.7 states the following:

"Except as provided in paragraph (c)(1) of § 200.414, Federal agencies must use the negotiated rates in effect at the time of the initial award throughout the life of the Federal award. Award levels for Federal awards may not be adjusted in future years as a result of changes in negotiated rates. “Negotiated rates” per the rate agreement include final, fixed, and predetermined rates and exclude provisional rates. “Life” for the purpose of this subsection means each competitive segment of a project. A competitive segment is a period of years approved by the Federal awarding agency at the time of the Federal award. If negotiated rate agreements do not extend through the life of the Federal award at the time of the initial award, then the negotiated rate for the last year of the Federal award must be extended through the end of the life of the Federal award.adjusted in future years as a result of changes in negotiated rates. “Negotiated rates” per the rate agreement include final, fixed, and predetermined rates and exclude provisional rates. “Life” for the purpose of this subsection means each competitive segment of a project. A competitive segment is a period of years approved by the Federal awarding agency at the time of the Federal award. If negotiated rate agreements do not extend through the life of the Federal award at the time of the initial award, then the negotiated rate for the last year of the Federal award must be extended through the end of the life of the Federal award.”