Indirect Cost Recovery, Distribution and Use (A-51)
Original Implementation: October 26, 1999
Last Revision: January 25, 2010
Indirect costs are those incurred for a common or joint purpose that benefit more than one university unit/activity and which are not readily assignable to a specific unit/activity. They also are known as Facilities and Administrative (F&A) or overhead costs. These rates may be based on modified total costs or salaries and wages. In most instances, grantors and funding entities agree to reimburse the university for the overhead expenses of conducting research, education, and service projects. This policy establishes guidelines for the recovery, distribution, and use of such reimbursements from externally funded grants, contracts, and cooperative agreements.
Indirect Cost Recovery
The principal investigator (PI) or project director (PD) must include indirect costs in the proposed budget for all grants, contracts, and cooperative agreements at the maximum rate allowed by the sponsor. The PI or PD will use the university’s official, federally negotiated indirect cost rate for all grants and contracts (unless specifically limited by a state or federal sponsor), including those from for-profit entities and for fixed-price awards. In extraordinary circumstances, a PI or PD may request a reduction or waiver of full indirect costs from the Office of Research and Sponsored Programs (ORSP), which is then recommended to the president for approval. Only the director of ORSP or the director’s designee may negotiate alternative indirect cost rates with sponsors.
Fixed-Price Agreements
Fixed-price agreements are awards where the university agrees to perform work or deliver a product within a specified period at a price agreed to in advance that is payable in full regardless of actual costs incurred. Therefore, there may be a residual balance.
Internal operating budgets for fixed-price awards are required and award funds must be utilized during the term of the award in support of the statement of work. The PI or PD is responsible for charging all appropriate operating expenses to the award account, including payroll.
After the project end date and all expenses allocable to the project have been recorded, an additional amount may be charged against any residual balance to ensure that the full negotiated indirect cost rate is charged to the account.
Once it is established that the PI or PD has met all required deliverables, unless otherwise specified by the sponsor the remaining balance will be transferred to a fixed-price pool account for the PI or PD, or into a pool account established for a university-recognized center. Fixed-price pool accounts are unrestricted funds that roll over each year that must be used for on-going research activities or to support the goals and objectives of the PI, PD, or center, in accordance with state and university regulations, policies, and procedures.
Indirect Cost Distribution and Use
The Texas Education Code, Section 145.001 provides that recovered indirect costs can be retained by state universities to support and encourage further research. The revenue from indirect cost reimbursements to SFA shall be allocated annually:
- ORSP shall receive an amount sufficient to cover the total actual costs of operations as approved by the provost and vice president for academic affairs (VPAA).
- The academic units that generated the recovered indirect costs shall receive fifty percent of any remaining revenue up to $100,000 and one hundred percent of any remaining revenue in excess of $100,000. Such units shall expend the funds for projects encouraging further research, including:
- conducting pre-grant feasibility studies;
- preparing competitive proposals for sponsored programs;
- providing carryover funding for research to provide continuity between externally funded projects;
- supporting new researchers pending external funding;
- purchasing capital equipment directly related to expanding the research capability of the institution; and
- providing research or project administrative costs not covered by the funding entity.
All funds shall be expended to support research and sponsored programs at SFA according to the provisions of the Texas Education Code, Section 145.001. Additionally, the university shall report the actual amounts of money retained and expended under this policy and the estimated amounts for the next biennium in its report to the Legislative Budget Board as part of the biennial budget reporting process.
ORSP shall calculate distributions of recovered indirect costs to academic units based on a formula recommended by the University Research Council and approved by the provost and VPAA. The distributions shall be made by the controller at the beginning of each fiscal year, based upon the previous year's indirect cost reimbursements. No allocations shall be made to academic units in any year in which the total indirect costs recovered are less than the actual amount expended by ORSP.
Cross Reference: Texas Educ. Code § 145.001
Responsible for Implementation: Provost and Vice President for Academic Affairs
Contact for Revision: Director, Office of Research and Sponsored Programs
Forms: Request for Indirect Cost Reduction or Waiver