Indirect Cost Recovery Policy
Indirect costs are real costs that are not allocable to a particular project, but are necessary to the core functions of the institution and sponsored activities. Also known as Facilities & Administrative (F&A) or “overhead”, indirect costs typically include operation and maintenance expenses; administrative and general expenses; sponsored projects administration; depreciation and use of equipment; library expenses; IT services; and departmental administrative expenses. Federal regulations require that organizations treat direct and indirect costs consistently.
The Uniform Guidance, specifically Section 200.56 of 2 CFR Part 200 (“Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards”), provides direction on whether a cost can be directly charged to a sponsored project or should be included as an indirect cost. Based on these cost principles, institutional indirect cost rates are negotiated with and determined by a designated cognizant federal agency and are typically valid for four years. Lewis & Clark’s current negotiated indirect cost rates for on-campus and off-campus activities are based on Modified Total Direct Costs (MTDC); the rate agreement is available HERE. Though this indirect cost rate is negotiated with the federal government, Lewis & Clark applies the same rate to projects funded by non-governmental organizations, including but not limited to private foundations and corporations.
This institutional policy outlines 1) the inclusion of indirect costs in proposal budgets to external sponsors and 2) the distribution of recovered indirect costs. It applies to all requests for external support on behalf of programs and departments in the College of Arts & Sciences, the Graduate School of Education and Counseling, the Law School and its clinics, and Common Services. This policy applies to all external grants, including grants that may be recorded as gift income.
II. Inclusion of Indirect Costs in External Grant Proposals
In order to offset the actual costs of sponsored projects and programs, proposal budgets should reflect all direct and indirect costs. The direct costs of each project will depend on the activities proposed and what the sponsor allows. The indirect costs are reflected in Lewis & Clark’s negotiated indirect cost rate. It is the policy of Lewis & Clark College to seek the full indirect cost rate whenever it is allowed by a sponsor.
When funding flows from a federal sponsor through an intermediary (e.g., federal flow-through funds) and the intermediary sponsor does not have a written policy to cap indirect costs (e.g., state statue or funding announcement), the indirect cost rate policy of the federal sponsor applies.
If indirect costs are restricted or limited by regulations or written sponsor guidelines, this information must be included on the Proposal Internal Approval Form (PIAF), with proof of the sponsor’s policy attached. In the case of non-governmental organizations, this evidence may include correspondence with foundation officers or leadership. This applies to both federal and non-federal sponsors.
- Applying On-campus vs. Off-campus Indirect Cost Rates in Proposal Budgets Lewis & Clark has different indirect cost rates for sponsored projects taking place on and off-campus. The on-campus rate will apply in most cases, including research projects that include fieldwork at remote locations. As specified in Lewis & Clark’s negotiated rate agreement, “For all activities performed in facilities not owned by the institution and to which rent is directly allocated to the project(s), the off-campus rate will apply.” Working from home or another remote location normally does not qualify as off-campus work. Final determination of when the off-campus rate is appropriate will be made by the submitting grants office (SPARC or CFR).
- Requesting a Waiver If a PI or PD would like to request an indirect cost rate that is lower than what is allowed by the sponsor, they must submit an Indirect Cost Waiver Request Form for review and approval. Waiving a portion of indirect costs is an institutional decision and will be considered on a case-by-case basis. An indirect cost waiver must be 1) approved by the appropriate Dean or VP sponsoring the program and the CFO prior to proposal submission, and 2) documented early in the budget development process. The PI or PD should complete a Waiver Request Form with assistance from SPARC or CFR, and attach two versions of the budget for comparison: one with the full/allowed indirect costs and the second with the requested/reduced indirect costs. A written explanation of why reducing indirect costs is in the best interests of the project and/or Lewis & Clark must be included. An approved Waiver Request Form must be attached to the PIAF when it is routed for internal approvals prior to proposal submission. Because of the extra review required, indirect cost waiver requests should be submitted for consideration as early as possible.
III. Distribution of Recovered Indirect Costs
Indirect costs must be recovered in accordance with applicable rules and regulations. The federal government does not specify how recovered indirect costs can be spent; this is left to the discretion of the institution. Once recovered by Lewis & Clark, 100% of the indirect costs will be distributed to a discretionary restricted account to be managed by the Dean or VP of the school/program. The account numbers for distribution of indirect costs will be included on the PIAF as part of the review process prior to proposal submission, and confirmed at the time of award.
On a case-by-case basis, an alternative distribution of recovered indirect costs may be warranted (e.g. proposal involves more than one school or unit). The agreed upon distribution must be documented on an Indirect Cost Split Agreement, which should be done at the time of proposal submission. A completed, signed form should be submitted to the appropriate grants office; the grants office will work with the Business Office (BO) to ensure proper allocation of recovered indirect costs to designed budgets. If an alternative agreement is not reached, the above standard distribution applies. The account numbers for distribution of indirect costs will be included on the PIAF as part of the review process prior to proposal submission, and confirmed at the time of award.
IV: Indirect Cost Rate Related Responsibilities
Business Office (BO): The BO is responsible for preparing the indirect cost rate proposal; negotiating the indirect cost rates with the cognizant federal agency; distributing the approved rate agreement to the campus; and acting as liaison with federal and non-federal auditors. The BO reviews and approves the proposal budget prior to submission, documented on the PIAF. The BO calculates, documents, and charges indirect costs on sponsored projects, then distributes the recovered funds according to standard method outlined above or based on the Indirect Cost Split Agreement.
Principal Investigator (PI) or Project Director (PD): Each PI/PD is responsible for including indirect costs in proposal budgets in accordance with sponsor and Lewis & Clark policy. PIs/PDs should make requests for an indirect cost waiver at least two weeks prior to submission deadline. All exceptions must be approved in writing in advance of proposal submission.
Grants Office (Pre-award): Identified as either Sponsored Projects and Research Compliance Office (SPARC) or Corporate and Foundation Relations (CFR) Office, the grants office is the administrative office that helps the PI/PD prepare and submit the external request for funding. The pre-award grants offices are responsible for advising PIs/PDs on indirect cost rates and policies, determining when/if the off-campus rate applies, and preparing and reviewing proposal budgets to ensure inclusion of approved indirect cost rates. SPARC and CFR may not submit proposals that do not adhere to these policies.
Grants Manager (Post-award): The designated office or individual responsible for managing the award. The grants manager reviews all approved budgets to ensure inclusion of indirect costs, reviews expenditures to ensure indirect costs are properly charged to sponsored projects by the BO, and monitors distribution of recovered indirect costs to departmental accounts.
CFO and VP of Operations: Approve exceptions to full indirect cost recovery and PIAF prior to proposal submission.
School Dean or VP: Approve exceptions to full indirect cost recovery and PIAF prior to proposal submission. Monitor and oversee the budget for the school’s account for indirect cost recovery.