The U’s Sponsored Projects Administration recently negotiated a new, four-year indirect cost rate agreement with the federal government. The new rates, which affect all on-campus research, will be 52 percent in fiscal 2016 and 2017, 53 percent in fiscal 2018 and 54 percent in fiscal 2019 and beyond.
Indirect costs, otherwise known as F&A, cover the facilities and administrative costs of research. These funds are reimbursement for infrastructure costs such as the construction and maintenance of buildings and shared research facilities, utility costs, libraries and shared central and departmental staff. At the U, F&A revenue is returned to colleges (or equivalent resource responsibility center (RRC)), which must pay these costs in the first place. Among its peers in the Big Ten, the U of M’s F&A costs are slightly below average.
Today, the U’s F&A rates for on-campus research are 52 percent modified total direct costs (MTDC), meaning that in most cases the F&A costs for a given federal grant are 52 percent of the direct costs of the research project after excluding from the calculation certain costs the government does not allow.
The actual cost of research overhead is almost 62 percent MTDC, so even the federal government, our largest funder and a relatively generous provider of F&A funds, requires, in effect, a 10 percent subsidy from the University. (The U also negotiates rates for its non-research projects, such as public service and outreach projects. These types of projects have their own negotiated rate that is much lower.)
Certain federal programs (such as NIH and Department of Education training grants) and certain federal agencies (such as USDA) have their F&A rate limits, and the State of Minnesota and many charitable sponsors impose even lower limits on the F&A rate they will pay. The overall average amount of F&A the University ultimately recovers on research grants is significantly lower than the negotiated rate – about 40 percent. The University makes up for this shortfall, which has grown over time, with institutional funds.
Why are rates rising for fiscal years 2018 and 2019? Using a set of prescriptive formulas common to all universities, federal officials acknowledged that the U has incurred increased costs associated with the new research facilities that came online between 2010 and 2014, including the Cancer and Cardiovascular Research Building and the Physics and Nanotechnology Building, along with the costs that will accompany the facilities expected to come online over the next four years.
In his annual report on University of Minnesota research, Vice President for Research Brian Herman indicated that the office of Sponsored Projects Administration will be visiting colleges and units to discuss with faculty the true cost of research at the U, and the elements and drivers of F&A costs. He indicated as well that the University needed to have frank discussions with funders, federal and otherwise, about those true costs, and the limits to the University’s ability to subsidize externally funded research.
Starting immediately, researchers should use the new F&A rates for both new proposals and renewal proposals. The Electronic Grants Management System (EGMS) and Enterprise Financial System (EFS) have been updated with these new rates.
For a complete list of the rates, and more detail on how they will be implemented in proposals, pending awards and existing awards, visit the SPA F&A Rates page. Ask your grants administrator or a SPA manager if you have any questions.