Facilities and Administrative Costs (previously known as "Indirect Costs" or "Overhead") and How to Calculate Them in a Budget

What are Facilities and Administrative Costs?

Facilities and Administrative (F&A) Costs are real costs related to sponsored projects (grants, contracts, or cooperative agreements funded by external agencies) that are not easily attributable to individual projects, such as the cost of maintenance, security, heating, cooling, lighting, space, disposal of hazardous waste, secretarial support, the library, compliance with government regulations, departmental administration, sponsored programs administration, and other similar kinds of costs.  Instead of deciding how much individual projects incur in terms of these costs, the costs are pooled together for all sponsored projects and each project then charges one flat average rate. 

Without going into the complexities of how the average F&A rate is developed, suffice it to say that we follow federal rules and the rate is reviewed by and negotiated with the Office of Naval Research (ONR). After following these rules and doing a great deal of number crunching, the rate is approved when the College and ONR both reach agreement on what the rate should be to fairly reimburse the College for its F&A expenses. In addition, state law demands we use that rate whenever possible.  In short, we are not making this up, this is not "profit" for the institution, and we have to use it.

One might say, "My project doesn't use much space, the library not at all, and involves no disposal of hazardous wastes. Shouldn't I get a reduced rate?"

Certainly, some projects, in fact, incur more F&A costs than others. But because it is too difficult to determine how much of these costs are incurred by each project individually, it is necessary to charge each project the same flat average rate.  If we do not collect the full rate on all projects--those that truly incur high F&A costs and those that do not--then the College will not fully recover its costs.

Moreover, the College could simply keep the F&A funds it obtains through grants and contracts, as some universities do, but instead it reallocates these funds back to departments and schools, to the internal grants program to support research, and to a research infrastructure investment fund that provides cost-sharing for research-related projects. So much of the funds actually make it back to you! 

So next time you are working on a budget and calculating F&A costs, hopefully you will have a better understanding of what F&A costs are and why you have to include them, and why they can even help you-even if you still don't like them.

What is William & Mary's F&A Rate?

William & Mary's F&A proposed rate on the Main Campus is 47% of Modified Total Direct Costs (MTDC). (VIMS has a separate rate agreement.) 

How should F&A costs be calculated when preparing a proposal budget?

F&A costs are calculated by taking the total direct costs of a project and "modifying" them by subtracting out the following: (1) equipment, (2) tuition, and (3) amounts over $25,000 in a subcontract.  Once these costs have been subtracted out, the remaining amount is called the Modified Total Direct Costs, and the F&A rate is applied on this amount.

Example:
A budget requests $100,000 of Direct Costs, consisting of $50,000 for personnel, $10,000 for equipment, and $40,000 for a subcontract. Modified Total Direct Costs would be the Total Direct Costs, minus the $10,000 of equipment, and minus the amount of the subcontract over $25,000 (which in this case would be $15,000).

$ 100,000  Total Direct Costs
-     10,000   minus equipment
-      15,000  minus amount of subcontract over $25,000
-------------
$  75,000    equals Modified Total Direct Costs (MTDC)

After calculating the MTDC, then the F&A is applied to that amount, which then gives you the amount to request for F&A costs.

$  75,000      MTDC
x             47%  times the F&A Cost Rate
-------------
$  35,250.       equals the amount for F&A costs

The Total Cost of the grant then would be the Total Direct Costs plus F&A Costs.

$ 100,000   Total Direct Costs
+     35,250.   plus F&A Costs
-------------
$ 135,250.    equals Total Costs

Nice try, but I still don't understand this is stuff. What do I do?

Contact [[cacorb,Cindy Corbett]] for further explanation and assistance in correctly determining the F&A costs that should be included in a proposal budget.