Using Indirect Costs Effectively
By Susan Athey, NIGMS

Need a piece of equipment to boost your university's research capabilities? Or maybe an administrative assistant to help keep your program and others' running smoothly? Are such costs allowable, and if so, how should they be charged to your grant?

These expenses typically fall under the category of facilities and administration (F&A) costs and are often referred to as "indirect" costs. And yes, F&A funds can assist your university in purchasing equipment or hiring program support staff. But often, F&A costs are not spent correctly—or completely—and unused money ends up being returned to the funding agency at the end of the grant period. So it serves you and your institution well to understand these costs and make the most of them during the lifetime of your grant.

F&A Costs "Unmasked"
Office of Management and Budget Circular A-21, "Cost Principles for Educational Institutions," spells out what is allowable in terms of costs applicable to Federal grants, contracts, and other sponsored agreements with educational institutions. The circular delineates what can be charged as direct costs and what should be charged as indirect costs.

"Direct" costs are those that are directly tied to your specific project and can be clearly identified as such. These costs include expenses like faculty salaries, student stipends, and travel funds for scientific meetings.

F&A costs are incurred for common objectives of your university and therefore cannot be easily identified with your particular research project, instructional activity, or other institutional activity. Examples of F&A costs include student services, building operations and maintenance, building and equipment depreciation, library expenses, departmental secretarial assistance, office supplies, and administration.

Knowing what expenses to charge as direct costs and those to charge as F&A costs can be tricky. When you receive your grant award, you receive a set amount of money to get your program up and running (aka your direct costs). The award may also include an allowable percentage of your direct costs that are funded as F&A costs. For example, the Minority Access to Research Careers (MARC) Undergraduate Student Training in Academic Research program allows F&A costs at the rate of 8 percent of total allowable direct costs (less equipment and tuition). F&A costs on Support of Continuous Research Excellence (SCORE) grants are generally much higher, sometimes as much as 40 to 60 percent depending on the negotiated rate. For example, if your SCORE research program receives $300,000 in direct costs and the negotiated F&A rate is 40 percent (with no exclusions), the F&A portion of the award would be $120,000.

F&A costs are there to help strengthen your institution's research environment and infrastructure. Some investigators report that their institutions pass along some (or all) of the indirect costs to the departments or individuals that generate them. This is not an appropriate use of the funds, which are intended to cover such hidden costs of doing research as campus contracts and grants offices, health safety officers, hazardous waste management, and institutional review boards. Proper use of F&A funds is an important contribution to the well-being of your institution, and by extension, to all who work and learn there.

For a copy of Circular A-21, see http://www.whitehouse.gov/omb/circulars/a021/print/a021.html.
For specifics on F&A costs as they apply to your grant, contact Toni Holland, NIGMS Grants Management Officer, at 301-594-5132.