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How to Calculate Unusual Indirect Costs

Last updated: 04/18/2022 - 11:52am

Indirect Costs (IDC)/Facilities & Administrative Costs (F&A) can be charged in a variety of different ways. Usually, we see F&A as a percentage of total direct costs (TDC), but there are cases in which F&A is charged as a percentage of total project costs (TPC). Additionally, sponsors may limit the F&A rate and the total award amount, so we need to determine how much of the award can go to direct costs vs. indirect costs. The below will go over examples of those situations and more to provide some guidance on how to not only apply unusual F&A rates, but also how to enter the rate into ERA.

Indirect Costs Limited to Percentage of Total Direct Costs

To determine how much direct costs are allowed, divide total costs by 1.XX where XX is the indirect cost rate expressed as a decimal (e.g. 30% = 0.30).

Total Project Costs (TPC) / (1.XX) = Maximum Direct Costs
Direct Costs x F&A rate = Indirect Costs (IDC)
Maximum Direct Costs + Indirect Costs (IDC) = Total Project Costs (TPC)

Example 1: Total Costs Limited to a Specific Amount
Applicants may request up to $100,000, and the F&A rate is limited to 30% of total direct costs (TDC).

$100,000 (TPC) / 1.30 (1.F&A rate) = $76,923.08 (maximum total direct costs)

$76,923.08 (TDC) x 0.30 (F&A rate) = $23,076.92 (IDC)

$76,923.08 (TDC) + $23,076.92 (IDC) = $100,000 (TPC)

How to enter F&A rate into ERA: Since this is a percentage of TDC, just enter the F&A rate of 30% TDC into ERA.

Indirect Costs Limited to Percentage of Total Award
  1. Take the funding ceiling* and multiply that by the % limited of F&A
  2. Subtract the F&A from the Total Project Costs to figure out the Direct Costs
  3. Divide the F&A by the Direct Costs to figure out the F&A rate to enter into ERA
    *If the Request for Proposal (RFP) limits proposals to a funding ceiling, use that as the Total Project Costs (TPC), otherwise, use a number as a substitute.

To determine how much may be requested for direct and indirect costs, use the following formulas, with F&A rate % expressed as a decimal (e.g., 30% = 0.30):

Total Direct Costs (TDC) / (1.0 - F&A rate %) = Total Project Costs (TPC)
OR
Total Project Costs (TPC) x (1.0 - F&A rate %) = Total Direct Costs (TDC)

TPC x F&A rate % = IDC
TDC + IDC = TPC

ERA does not have functionality to use a rate on Total Project Costs (aka, TFFA, Total Award, etc.). When the F&A limit is a % of the total costs, then we need to calculate outside of the system to determine what rate to use in ERA – with either the Total Direct Cost (TDC) or Modified Total Direct Cost (MTDC) rate base.

A quick way to calculate this is to take the rate stated and divide it by 1 minus the rate. When using this method, the base in ERA will be TDC.

X = The Sponsor Limited F&A of TPC
Y = The Rate to Enter into ERA
Y= X/(1-X)

Example 2a: Total Costs Limited to a Specific Amount
Applicants may request up to $100,000 total project costs (TPC), and the indirect costs may not exceed 30% of costs:

$100,000 (TPC) x (1.0 - 0.30) = $70,000 (TDC)

$100,000 (TPC) x 0.30 = $30,000 (IDC)

How to enter F&A rate into ERA: Y = 0.30/(1-0.30) = 0.4286 = 42.86% TDC

Example 2b: No Maximum Total Costs Indicated
The F&A rate is limited to 8% of total award, and the PI only needs $60,000 for direct costs:

$60,000 (TDC) / (1.0 - 0.08) = $65,217 (TPC)

$65,217 x 0.08 = $5,217 (IDC)

$60,000 + $5,217 = $65,217 (TPC)

How to enter F&A rate into ERA: Y= 0.08/(1-0.08) = 0.08695 = 8.695% TDC

USDA-NIFA Proposals with Subawards

“Section 1462(a) and (c) of the National Agricultural Research, Extension, and Teaching Policy Act of 1977 (NARETPA) limits indirect costs for the overall award to 30 percent of Total Federal Funds Awarded (TFFA) under a research, education, or extension grant. The maximum indirect cost rate allowed under the award is determined by calculating the amount of indirect costs using:

  1. the sum of an institution’s negotiated indirect cost rate and the indirect cost rate charged by sub-awardees, if any; or
  2. 30 percent of TFFA.”

This means that the total F&A requested (ASU’s F&A + all Subaward F&A) must be less than 30% of total project costs. In order to meet this requirement, use the following guidance:

  • Give any subawards on your USDA-NIFA proposal a budget cap early in the process that includes F&A. This way we know early on the maximum F&A to expect from each.
  • Require subs to limit their F&A to either 30% of their request or their negotiated rate, whichever is lower.
  • Get final budgets from subawards well before the proposal due date. All F&A will then need to be totaled. If using our negotiated rate leads to exceeding 30% TFFA, the RA will reduce our F&A amount (as lead), by decreasing the F&A rate or re-budgeting between F&A bearing and non-F&A bearing costs, as appropriate for the project.
  • Review the NIFA-19-010 2018 Farm Bill Indirect Cost Provision

It is always recommended to start the process with subaward institutions early. Your Proposal GCO will help ensure that F&A does not exceed the required cap, as long as sufficient time is provided from PNT review.

 

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