Finance

Questions About Facility And Administrative F&A Costs

What are indirect costs, Facilities and Administrative costs, and overhead?

These terms, indirect, F&A and overhead, are synonyms. They are costs (e.g., heat, lights, support personnel) shared among the university community (i.e., grants, academic departments, research and service centers), in contrast with Direct costs that can be identified specifically with a particular sponsored project or other institutional activity (e.g., reagents for use on a specific grant). Even costs that are incurred for common or joint objectives can be Direct costs if they can be divided among each participating cost center relatively easily with high accuracy (e.g., phone line charges). In an effort to make terms like "indirect" and "overhead" more concrete, the Federal Office of Management and Budget has recently directed the term "Facilities and Administrative" to be used for these costs. Facilities costs include depreciation and use allowances, interest on debt, equipment and capital improvements, operation and maintenance costs and library expenses. Administrative costs include general administration, departmental administration, sponsored projects administration and a faculty administrative allowance. The F&A costs borne by grants and contracts are specific to sponsored research; other university indirect costs (associated with instruction, departmental administration, etc.) are excluded in the process of proposing an NJIT research F&A rate for federal government approval.

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What is Modified Total Direct Cost (MTDC)?

NJIT and other research institutions are allowed, by most Federal sponsors, to recover F&A (indirect) costs for grants and sponsored projects in the same proportion as such costs are incurred throughout the campus. F&A costs are assumed by the government to be in proportion to the general direct-cost level at the institution. At NJIT the F&A rate, {F&A costs}/{Direct costs}, is 50% as of July 1, 2003. The F&A rate will increase to 51% for new awards after July 1, 2004 and to 52% after July 1,2006. In order to promote uniformity of practice within and among institutions, the Federal Office of Management and Budget has defined how to represent Direct Costs in the denominator of the rate. The denominator is named Modified Total Direct Cost (MTDC). It includes salaries and wages, fringe benefits, materials, supplies, non-capital equipment, services, travel, and the first $25,000 of each subcontract. Excluded from MTDC are capital equipment, capital expenditure, tuition remission, scholarships and fellowships, rental costs, and any subcontract amount over $25,000. The cost threshold for capitalization of equipment at NJIT increased from $500 to $2500 on 7/1/2001. (See OMB Circular A-21, section G.2.)

Definition of MTDC (based on NJIT expense object code definitions)

MTDC includes:

  • All 1000 except 1008,1306
  • All 2000

The following 3000-series oject codes

  • 3111-3115
  • All 4000 except 4098
  • All 5000 except 5198

The following 6000-series object codes

  • 6101, 6102, 6108, 6110
  • 6203, 6205, 6206, 6207
  • 6215, 6216, 6231-36
  • 6302, 6903-6906, 6908, 6909
  • 6916, 6920, 6922, 6999

Of course, unallowable costs are excluded from MTDC.

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What happens to the indirect (F&A) costs recovered from my grant?

Indirect costs are calculated at the end of every month. These costs are recorded in the line for the 9001 (Indirect Cost Recovery) object code on the FRS screen 19. Once per Fiscal Year, the funds are distributed to departments, research centers and principal investigators who have generated them, based upon a formula provided by the Associate Provost for R&D. The F&A funds recovered from grants are to be used to pay indirect costs, e.g., for facilities and administration. In addition, the F&A costs recovered are used with other Foundation revenues to pay for grant matching, sponsored programs administration and other purposes.

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What if my grant requires direct costs that are normally considered indirect (i.e.,F&A) costs?

Some grants have "special circumstances and purposes" (as discussed in OMB Circular A-21) that require a direct charge for items that would ordinarily be considered an indirect charge. For example, one NJIT grant operates a telephone hot line. Telephone equipment and staff to answer the telephone are usually indirect costs, because they usually benefit multiple cost centers. The special purpose and circumstances of this grant have permitted these direct expenses to be charged to the grant. Another NJIT grant supports disadvantaged students with school supplies. Office supplies are ordinarily an indirect cost. Again, the special purpose and circumstances allow these as direct expenses. The best way to ensure that "normally-indirect" costs may be charged as direct costs of your grant (because of some special purpose or circumstance) is to have the required costs put in the Proposal Budget, and to seek approval by the funding agency.

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