Indirect Cost Recovery, Distribution and Use, and Fixed-Price Agreements (A-51)
Original Implementation: October 26, 1999
Last Revision: July 17, 2012
Indirect costs (IDC) are those incurred for a common or joint purpose that benefit more than one university unit/activity and that are not readily assignable to a specific unit/activity. They also are known as Facilities and Administrative (F&A) or overhead costs. 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 a proposed budget for all grants, contracts, and other sponsored agreements at the maximum rate allowed by the sponsor. The PI or PD shall use the university’s official, federally negotiated indirect cost rate for all grants, contracts, and other sponsored agreements unless specifically limited by a sponsor for all awardees. In extraordinary circumstances, a PI or PD may request a reduction or waiver of full indirect costs. IDC waiver/reduction requests must be recommended by the director of the Office of Research and Sponsored Programs (ORSP) and the provost and vice president for academic affairs and approved by the president before a budget with the reduced IDC rate is submitted to a sponsor for consideration. This applies to grants, contracts, and all other forms of sponsored agreements. Failure to comply may require a budget revision and/or renegotiation of a contract and may jeopardize or delay receipt of an award. Only the director of ORSP or the director’s designee may negotiate alternative indirect cost rates with sponsors.
Indirect Cost Distribution and Use
All recovered indirect costs shall be expended to support and encourage further research and sponsored projects at SFA according to the provisions of the Texas Education Code, Section 145.001. Authorized activities include:
- 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;
- engaging in research programs of critical interest to the general welfare of the citizens of the state;
- 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.
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.
The academic units that generated the recovered indirect costs shall receive fifty percent of the total IDC revenue from a fiscal year, based on a formula recommended by the University Research Council and approved by the provost and vice president for academic affairs. If an IDC reduction was granted for a project, the amount recovered from that project will be excluded from the distribution formula. The distributions shall be calculated by ORSP and approved by the controller after the close of each fiscal year, based on indirect costs recovered the previous fiscal year. The administrative cost allowance generated by financial aid programs is not considered in the distribution formula.
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. In determining the price of a contract, the PI or PD must consider actual costs, the university’s indirect cost rate, and anticipate potential cost overruns. Internal operating budgets for fixed-price awards are required, and award funds must be used 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 salary at a level commensurate with the effort committed to the project.
If an IDC waiver or reduction has been granted, after the project end date and all expenses allocable to the project have been recorded, the full federally-negotiated indirect cost rate will be charged against any residual balance. A residual balance should be no more than 30% of the original balance after all expenditures and indirect costs have posted. If the percentage exceeds 30%, the remaining balance may be returned to the sponsor. Once it is established that the PI or PD has submitted all required deliverables and reports and they have been accepted by the sponsor up to $10,000 or 25% of any remaining balance, whichever is less, will be transferred to a fixed-price residual (FPR) fund for the PI or PD, or into an FPR fund established for a university-recognized center. Fixed-price residual funds 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. Any remaining balance in excess of 25% or $10,000 will be transferred to a designated fund pool to be used in support of research and development.
Cross Reference: Tex. Educ. Code § 145.001; ORSP Grants and Contracts Procedure Manual
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
Board Committee Assignment: Finance and Audit