F&A Booklet
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3. What is the distinction between direct and F&A
costs?
Circular A-21 states that, “direct costs are those costs that can be identified specifically with a particular sponsored project... relatively easily with a high degree of accuracy.” By contrast, “F&A costs are those that are incurred for common or joint objectives, and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity.” F&A costs are those involving resources used mutually by different individuals and groups, making it difficult to assess precisely which users should pay what share. By contrast, direct costs are easily assigned to a specific research project and paid by its direct grant funding.
In some cases it is easy to make this distinction. For example, if an investigator has to buy a chemical for a specific experiment, then that is clearly a direct cost to the grant. On the other hand, an investigator’s use of electrical power, water and other utilities, or the services of the Sponsored Programs Services Office, Office of Grant Research Development, Office of the Campus Veterinarian, library, etc, are not normally charged directly because it is not practical to account for them separately.
Attributing an appropriate F&A cost amount for the use of research space for grant-related activities can be even more difficult. If, as is typical, a building houses dozens of investigators who are involved individually and collectively in teaching, research, public service and other functions, determining the building costs that should be attributed to a particular faculty member’s research projects is not practical. In certain cases a researcher may have several grants, which may use common space differentially. Although one could imagine a means of attributing a cost for the repair of a section of the roof (which may last 20 to 30 years) to a specific grant, it has generally been agreed that using a more macroscopic and statistically averaged method is much more sensible and cost effective. For example, an annual space study is used as the basis for distribution of space related cost.
The distinction between direct and indirect costs also has an impact based on whether the research is considered on-campus versus off-campus. On-campus is defined as a university-owned and operated facility. A university-owned facility may also include a facility which is leased, if the university is paying for the lease and providing the operational and maintenance support for the facility. A sponsored agreement performed on-campus cannot have facility and operational cost direct charged to sponsors, since the F&A rate recovery is already calculated to reimburse the university for its operational and maintenance expense. Off-campus facilities are neither owned, operated, nor leased by the university. Sponsored agreements performed off campus that only capture the 26 percent F&A rate may direct charge lease, rental, and custodial expenses to the sponsored agreement since the sponsor is only reimbursing F&A based on the administrative component of departmental administration. Regardless of whether the sponsored agreement is considered on-campus or off-campus, departmental administration costs cannot be charged to sponsored agreements, unless the sponsored agreement is defined as a major program under A-21 section C, as outlined below:
Exhibit C — Examples of “major projects” where direct charging of administrative or clerical staff salaries may be appropriate.
- Large, complex programs such as General Clinical Research Centers, Primate Centers, Program Projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
- Projects which involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting (such as epidemiological studies, clinical trials, and retrospective clinical records studies).
- Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
- Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).
- Projects that are geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other research field sites that are remote from campus.
- Individual projects requiring project-specific -database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications.