Waiver of Facilities and Administrative Costs
Effective Date: 11-01-2008
PDF Version

Applicability
Policy
Background
Criteria for Indirect Cost Reduction or Waiver
Procedures
Definitions
Annual Review of Procedures Manual
Waiver Form

APPLICABILITY

This policy is applicable to all members of the university community, including all students, faculty, and staff seeking Principal Investigator or Co-Principal Investigator status on any sponsored project.

POLICY

It is the general policy of the University to recover full costs for all sponsored projects, i.e. both direct and Facilities and Administrative (F&A) costs (also referred to as Indirect or Overhead costs).   These are the real costs incurred by the institution that cannot be billed to individual projects.  Examples of F&A costs include, but are not limited to, utilities to heat, cool and illuminate laboratories, library resources, central purchasing and payroll services, building maintenance, insurance, etc.  When the University does not receive reimbursement for F&A costs from a sponsor, those costs do not disappear, and resources must be diverted from other University objectives to cover expenses.

The purpose of this policy is to set the standard F&A policy and to set forth special circumstances for requesting a reduction in or waiver of indirect costs on sponsored projects. As stated above, Florida Atlantic University's (FAU) policy is to recover FULL Facilities and Administrative (F&A) costs (also referred to as Indirect or Overhead costs) whenever possible.  It is important to collect full F&A costs, especially from federal government and private sponsors, to offset the real costs of conducting sponsored projects.  However, FAU recognizes that some sponsors require or strongly recommend a waived F&A rate. Therefore, reduction in or waiver of F&A costs may be allowed under certain circumstances. 

BACKGROUND

The practice of providing indirect cost returns to recipients of research, training, and demonstration grants originated with the United States government. Government officials recognized that it is not possible for prospective grantees to accurately proportion the organization's overhead costs among its various, and often numerous, activities and funded projects. F&A costs are those costs incurred by an organization which are not readily identifiable with a specific project, program, or activity but which are necessary to the general operation of the organization.

In recognition that such F&A costs are real costs of doing business, the process of negotiating indirect cost rates was developed as a means to provide reimbursement to grantees for these supportive services. Grantee organizational expenditures are grouped into indirect cost pools and then distributed to appropriate organizational activities in a cost allocation process. This information is presented by the grantee organization to one of several agencies empowered to negotiate a federal indirect cost rate. Florida Atlantic University's F&A rate is negotiated and established every two to three years with the U.S. Department of Health and Human Services (HHS).

The grantee's fiscal information is analyzed by federal officials to determine the allowable F&A rates, which are expressed as percentages. They are then applied to either "Modified Total Direct Costs" (MTDC) base, which excludes certain expenditure categories such as certain subcontract expenses and capital outlay.  The base upon which the rate is applied is determined during the rate negotiation with the cognizant federal agency.  FAU's rate is based on MTDC and our cognizant federal agency is HHS.

Application of the indirect cost rate determines the amount of reimbursement above the direct costs of the project that the grantee can request from the funding agency. The indirect cost rate is renegotiated periodically to allow for inflation, changes in the operations of the grantee organization, and/or changes in the level of sponsored activity.  FAU's rate is renegotiated on a regular basis.

Although a grantee organization may negotiate an F&A rate, it is not guaranteed that rate on every project. The rate is negotiated at the federal level, but not all federal agencies reimburse the full amount for all funded projects.  Further, policies on indirect costs vary widely among state, regional, and local governmental agencies and public and private not-for-profit organizations.  Often, both large and small private and corporate foundations will not reimburse indirect costs. They may, however, pay an "administrative fee" to offset some of the overhead costs of the recipient institution.  However, industry sponsors who are expected to benefit financially from sponsored research should be willing to pay the institution's full indirect cost rate.

CRITERIA FOR INDIRECT COST REDUCTION OR WAIVER

Whenever a Principal Investigator seeks to recover less than the F&A rate, a waiver must be obtained prior to the submission of the proposal being processed by the Division of Research.  The waiver form must be completed that includes information on what is being sought [i.e., reduction from the full rate to the proposed rate and a justification of the request].  All waiver forms must be signed by the PI and, if applicable the Co-PI, the chair(s), dean(s), and the Vice President for Research prior to submission.  Note that if the full F&A rate is not recovered, then the unreimbursed portion must be provided by the University which is considered cost-sharing in the project.

FAU may consider a reduction in or waiver of indirect costs in the following situations:

1. The sponsoring agency's institutional policies restrict or prohibit payment of full indirect costs.  A copy of the current written policy of the foundation must be attached to the F&A waiver form; or
   
   
2. When a medical or pharmaceutical company funds a clinical trial to determine or confirm efficacy of a drug, compare two or more drugs, or to determine the effectiveness of a medical device, implant or equipment, the F&A rate used in these cases is one half of our prevailing federally negotiated rate.¹  The basis for this rate is that typically research is not being conducted, only testing, and that the activities are frequently conducted off-campus, and the primary F&A costs to be defrayed are administrative and compliance; or
   
   
3. Grant or contract less than $50,000 to solely support graduate and/or undergraduate student(s).  The minimum F&A rate of 8% will be used for training grants on all projects that support graduate and/or undergraduate student(s); or
   
   
4. Grant or contract with a tenant of the FAU Research Park or the FAU Research Park Incubator.

Written approval by the Vice President for Research (VPR) is required. Submission of a discretionary waiver must occur five (5) working days before the sponsor submission due date.

PROCEDURE FOR REQUESTING INDIRECT COST REDUCTION OR WAIVER

The Sponsored Programs (SP) Office is responsible for approving F&A waivers as outlined above.  Principal Investigators are not authorized to negotiate a reduction or waiver of indirect costs with the sponsor without the prior approval of SP.  Should need for negotiation be anticipated, the investigator should contact SP well in advance of budget development and proposal submission.

If the sponsoring agency's institutional policies restrict or prohibit payment of full F&A costs, a written copy of the restriction must be provided to RPO, along with the RP01 form, at the time the proposal is submitted for institutional review and approval.

If the investigator wishes to seek an internal reduction in or waiver of F&A costs, he/she must submit a written request to the Vice President for Research prior to finalizing the project budget. The VPR will review the justification, assess the potential impacts on the University, consult with SP as necessary, and determine if the request will be approved.  The written request must be submitted to the Vice President for Research’s Office at least five (5) working business days before sponsor submission date.

DEFINITIONS

Principal Investigator. A “principal investigator” is an individual who is primarily responsible for, and in charge of, an externally funded sponsored project.

Facilities and Administrative (F&A) Costs.   Also known as “indirect costs” or “overhead”, “F&A” are costs that are incurred for common or joint objectives and therefore, cannot be readily and specifically identified with a particular sponsored project, and instructional activity or any other institutional activity. Illustrative types of F&A costs are general departmental, college and university administration and maintenance expenses such as administrative and clerical support, accounting, purchasing, personnel, compliance, general maintenance and repair, depreciation and use allowance costs of buildings and equipment, libraries, janitorial support, space and utilities. The F&A rate is negotiated by FAU with the U.S. Department of Health and Human Services (FAU's cognizant agency) and reflects a negotiated rate based on the reimbursement for real, audited, facilities and administration costs incurred by FAU in the conduct of research.

Total Direct Costs (TDC).   “Total Direct Costs” include all costs charged to a sponsored program account, excluding indirect costs.

Modified Total Direct Costs (MTDC).  “Modified Total Direct Costs” consist of "salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of the period covered by the subgrant or subcontract). Equipment, capital expenditures, charges for patient care, tuition remission, rental costs, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000 shall be excluded from modified total direct costs."

ANNUAL REVIEW OF PROCEDURES MANUAL

The Waiver of Facilities and Administrative Costs Policy will be reviewed annually.