Indirect Cost Rate FAQs

What is the Indirect Cost Rate?

In order to compensate the University for administering the federal dollars it receives, the government will pay us a percentage of every dollar for research and other sponsored programs. That percentage is for our overhead (heat, light, salaries, depreciation of buildings, etc..). The overhead rate in Federal terminology is called 'facilities and administration cost rate.' Most people just refer to it as the indirect cost rate.

It's my award. Why should the University get some of my money?

That's a common reaction of the principal investigator. But, consider the proposal form. The budget is designed for direct costs - what it will cost the principal investigator to conduct the project, and for indirect costs - what it will cost the University to provide the space and services to perform the required work. The Federal government recognizes it costs universities to support research endeavors, and is willing to reimburse a portion of those costs.

It's MY money! Sorry, but it's not.

The government granted the indirect costs included in the award to the University. While it seems like a lot of money to you, it doesn't really cover all of the University's costs. Our indirect cost rate is negotiated. That means we go through all of the required exercises to calculate our actual rate, and then Federal negotiators come to campus and negotiate the actual rate we will be entitled to claim. As a private University with one campus, Notre Dame's indirect costs are higher than a state school with many campus locations and centralized operations.

But ...Notre Dame has heat, light, and salaries even if I don't do any research. Why should every one of the award dollars I spend on research, cost the University any more than usual?

The key here is additional burden. Every award brings extra work - and sometimes extra people to campus, and puts additional stress on campus facilities.

But...My research brings prestige to the University. Why doesn't the University recognize that and give the indirect costs back to me so that I can do additional research?

At this time, Notre Dame does not provide a dollar-for-dollar return to its funded researchers. However, the University provides generous support to its research community through direct allocations for specified projects, as well as, through discretionary allocations for use in support of scholarship and research.

You're on their side!

RSPA works for everybody

  • Faculty - we oversee the award spending to be sure costs are allowable and within the terms of the award and are compliance with all pertinent regulations. We provide the financial statements, property reports, and cash reports required by the donor or sponsor. We also prepare the invoices and handle deposit of funds received.
  • Office of Research - we provide the information necessary for budget revisions, and cooperate with training efforts for new faculty.
  • Administration - our work with the faculty and the Office of Research is to help keep the University off the front page of the Chronicle - except for good things, of course. News of a Nobel Prize would be great; news of misuse of federal funds would be a problem.

I have six awards and I'm too busy to look at every expense!

Under federal regulations, the principal investigator is responsible for the integrity of the direct expenses charged to each specific award. The best we can do is be sure your expenses are allowable - both per regulation and per the award budget. If you have awards with a similar budget, we are in no position to determine whether a specific expense is more appropriate to one or the other. However, if the expense is not suitable to the budget, or would exceed the budget allocation, we'll contact you to make a correction.

What do you mean, 'direct?' What do you mean allowable?

Here's the rule - because Notre Dame is a recipient of federal funds (research and other sponsored programs), we have to be able to identify both unallowable costs and unallowable activities. The costs associated with both categories cannot be charged either directly or indirectly to federal funds. So, even if the costs are being charged to funds from private, endowment, or University funding, we need to be able to identify them.

Explain Direct & Unallowable

Unallowable Direct Charge - A faculty member has federal funds which allow him to travel to a laboratory in another country. The faculty member may be reimbursed from award funds for the cost of meals. The reimbursement is a direct charge. However, costs of alcoholic drinks may no be charged. Alcohol is an unallowable direct cost.

Unallowable indirect charges - Certain activities are unallowable. For example, alumni functions could not be charged to federal funds as either direct or indirect expenses. All costs related to the alumni association are separately budgeted and totally excluded from the rate calculation. No alumni expenses are distributed as the indirect costs of running the University.

But, what if I have discretionary funds?

The alcohol may be charged to those funds, but it must be under the 'entertainment' object code. That allows us to identify it and be sure it is excluded it from the direct charges used as a base for the indirect cost rate.

Who calculates the indirect cost rate?

RSPA calculates the rate, with a lot of help from its friends:

  • Plant Fund Accounting
  • Academic Space Management
  • College and Department Administrators
  • Service and Recharge Centers
  • Controller's Group
  • Consultants

What's the calculation like?

The calculation follows stringent government guidelines, which are not always easy to interpret, and may not be consistently discussed with in the Circulars pertinent to higher education:

The components address depreciation of both buildings and equipment, the cost of operations and management, library use, departmental administration, and it favors the government. For example, the departmental administration component is subject to a 26% cap. That hasn't been adjusted in about 20 years.

Who are the negotiators?

The negotiators are from the Department of Health and Human Services' Division of Cost Allocation. Notre Dame is assigned to the Central States Field Office in Dallas, Texas.

Do they actually negotiate?

They look at every step of the calculation and try to find weaknesses. They guard their budget very carefully, and will question any segment of our proposed rate that appears to be too high. Well, they may also question any segment that doesn't appear high.

When do we negotiate?

This fiscal year is our 'base year', i.e., the year which provides the financial records used to develop the rate. Our calculation (proposal for the next rate) is due December 31, 2002. The Dallas office will review our proposal and negotiate with us sometime in the six months following that date.

Is it better to have a lower rate or a high rate?

You should hope for a high rate. It's a good thing to have the University recover costs. It brings money back into the operating fund. You decide how much your project will cost. The government budgets the indirect costs expressly to reimburse a university's costs.