Indirect Costs (IDC or F&A)

What are Indirect (IDC or F&A) Costs?

Federal Regulations define IDC as "Indirect costs are those that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective." 

Indirect costs, also known as facilities & administrative costs or overhead costs, are expenses that are not directly tied to a specific project, product, or activity. Instead, they support the overall infrastructure and administration of research projects. Examples of indirect costs include:

• Utilities (electricity, water, etc.)
• Facilities support (HVAC, maintenance, housekeeping)
• Administrative salaries (e.g., HR, accounting, departmental administration)
• Office supplies (e.g., paper, pens)
• Depreciation  on equipment

F&A costs are a reimbursement to the institution for costs already incurred in supporting federally sponsored activities. However, these reimbursements do not cover the entire cost of conducting research.

How is W&M's organized research IDC rate determined?

To calculate the level of federal IDC reimbursement, every 2 to 4 years, the agency responsible for setting a university’s IDC rate (for W&M - the Department of Defense Office of Naval Research, ONR)  comprehensively reviews these shared costs to determine the appropriate federal reimbursement rate.

ONR audits W&M's rate proposal and confirms that federal guidelines have been followed, unallowable expenses and activities that do not benefit federal research (e.g. fundraising) have been removed from proposed F&A costs, and that chosen allocation methods are reasonable and in accordance with the prescribed methodology. ONR requires adjustments if any problems are found and may further reduce rates if it considers them unreasonable (e.g. if they have increased significantly from the last negotiated rates). 

The reimbursement rate is a percentage of a subset of direct research costs (not a percentage of total award). Some direct research costs (like equipment, capital expenditures, charges for patient care, rental costs, tuition remission, and scholarships and fellowships) are excluded from the direct cost for F&A cost calculation purposes. This remaining amount is known as modified total direct cost (MTDC).

Why is there so much variation in IDC rates between institutions?

F&A cost rates can vary significantly across institutions due to differences in costs across different regions of the country, urban versus more rural environments, the type and complexity of the research portfolio of the institution, the age and condition of facilities and buildings, the amount of renovation and construction needed to house certain types of research projects, and other variables that impact the cost of doing research.

How does W&M use the IDC funds it recovers?

IDC costs (also known as F&A) reflect the actual cost of conducting research at W&M and are NOT extra money, revenue, or profit, attached to research awards. F&A funds reimburse actual expenses that W&M has already incurred to support research activities. They are real costs related to buildings, maintenance, utilities, equipment, insurance, safety, administration, compliance, legal, etc. F&A costs are collected retroactively.

F&A is a reimbursement of expenditures to cover some portion of the indirect costs incurred as a function of completing a research award. In contrast to tuition, IDC is not revenue but a repayment of costs already sustained. As such, the use of IDC funds is not restricted to any particular use. A useful analogy is the reimbursement of expenses for the business use of a personal automobile. When an employee uses her car for a business trip, the university reimburses the employee at a standard rate per mile. When the employee receives the reimbursement, she is under no obligation to use the funds for auto-related expenses. Similarly, the W&M is under no obligation from the federal government to use the IDC in a certain way. W&M is required by the code of Virginia to distribute a certain portion of indirect cost recoveries for the conduct and enhancement of research and research-related requirements, and the rest is included in the educational and general revenues of the institution to meet administrative costs.

Are there costs that W&M does not recover?

W&M (and other universities) are prohibited by regulation from requesting reimbursement for the full cost of administering federally funded research. The federally-mandated 26% cap on reimbursement of university administrative costs prevents universities from charging federal awards their full share of the administrative burden associated with sponsored research.  W&M's current rate does not include administrative costs that exceed the cap.  (2 CFR Appendix-III-to-Part-200 8.a.)

Additional resources to explain indirect costs

•  APLU - Research Facilities & Administrative Costs

•  COGR - F&A Cost Reimbursement Materials