Research Project Components
Two components comprise the total cost of a research project: (1) direct costs and (2) facilities and administrative (F&A) or indirect costs.
- Direct costs include those that can be identified specifically with a particular sponsored project or those that can be directly assigned to a particular project with a high degree of accuracy.
- F&A costs are those costs that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project.
When distinguishing direct from F&A costs, the nature of the cost is not the determining factor. Rather, it is whether or not the cost can be specifically identified with a particular sponsored project.
F&A refers to two broad categories of indirect costs: facilities and administration. Each of these categories is made up of subcategories or “cost pools.”
- Facilities includes depreciation of building and equipment, interest on debt associated with capital assets, operations and maintenance of physical plant, and library expenses.
- Administration includes general administration and other general expenses of the institution, departmental administration, sponsored projects administration, student administration and services, and all other types of indirect costs not listed under Facilities.
F&A costs are incurred for the benefit of the Institute’s three primary functions or direct cost objectives:
- Instruction and departmental research includes teaching and training activities, sponsored instruction, and departmental research such as startup fund activity.
- Organized research refers to research activities that are separately budgeted and accounted for, such as federal and non-federal sponsored research and university research including cost sharing.
- Other institutional activities include housing, dining, MIT Press, and other unallowable activities such as resource development and alumni.
Since the benefit associated with each of the primary functions cannot be precisely measured, the F&A costs are assigned or allocated according to the methods prescribed in federal regulations, primarily the Office of Management and Budget (OMB) Electronic Code of Federal Regulations (e-CFR) Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, or “ OMB Uniform Guidance.” The allocation of F&A pools to direct cost objectives is based on statistics such as expenditure dollars; square footage of the space occupied; population, including the number of faculty, students, and staff; and salaries and wages.
In determining the full cost of an instructional activity or a research project, the associated F&A cost should be added to the direct cost. Although F&A cannot be directly assigned, these costs are incurred for infrastructure and administrative support services that are essential to the operation of the Institute and its programs. For example, it would be impossible to teach or to conduct sponsored research without incurring costs for buildings, equipment, utilities, maintenance, libraries, and administrative services.
To the extent that F&A costs benefit externally sponsored research activities, the sponsor should reimburse these costs along with the direct project costs. Reimbursement for F&A costs is accomplished through the use of a rate that reflects the average of all F&A costs associated with all sponsored research programs. For example, if the Institute incurs an average of 60 cents in F&A costs for every dollar of “modified” direct research expenditures (see the following paragraph for a description of “modified” cost), the F&A rate would be 60%. This rate is based on historical cost data and other pertinent factors, such as new construction or changes in federal regulation, and is subject to audit and negotiation with the federal government. MIT applies this rate to all externally supported research activities.
The F&A rate for sponsored research is the ratio of total allowable indirect or F&A costs divided by the modified total direct costs (MTDC).
Allowable indirect costs include expenditures for functions that, according to OMB Uniform Guidance, provide a benefit to research; they exclude expenditures that have no benefit to research or that are expressly unallowable for reimbursement purposes.
MTDC consists of total direct costs less certain categories of exclusions, or modifiers, as specified in OMB Uniform Guidance. In addition to being excluded from the calculation of the F&A rate, expenditures for modifiers that are charged to sponsored agreements are not subject to application of the F&A rate, as these expenditures are deemed to be non-overhead bearing. Per OMB Uniform Guidance, standard modifiers include costs for equipment, capital expenditures, tuition remission, rental of space, scholarships and fellowships, and the portion of a subcontract in excess of $25,000.
General and Administrative Expenses: This category includes costs that have been incurred for the general executive and administrative offices of the Institute, as well as other expenses of a general nature that do not relate solely to any major function. Examples include the Offices of the President, Executive Vice President, and Vice Presidents; the Office of the Provost; the Office of the Vice President for Finance; and Human Resources.
Departmental Administration: These costs are incurred for administrative and supporting services in departments, interdepartmental laboratories, or centers, and provide a benefit to the research projects in these units. This category includes the salaries and wages costs for Department Heads and Institute Professors, Academic Deans and Laboratory Directors and Deans. Office expenses and other costs related to the administration of the entire department, including the academic department headquarters, also fall under departmental administration.
Sponsored Programs Administration: This includes the costs incurred to administer sponsored projects. At MIT, this pool includes the Office of Sponsored Programs, a portion of the Technology Licensing Office, and the Office of Cost Analysis.
Building Depreciation: This is the portion of the cost of MIT buildings and the capital improvements to buildings and land supported by Institute funds that can be attributed to research.
Equipment Depreciation: This is the portion of the cost of MIT equipment supported by Institute funds that can be attributed to research.
Interest Expense: This is the portion of the cost of interest on debt-financed research facilities and equipment that is paid to an external party and that can be attributed to research.
Plant Operations and Maintenance: This includes expenses that have been incurred for the administration, supervision, operation, maintenance, preservation, and protection of the Institute’s physical plant. These include utility, maintenance, and custodial costs; ordinary repairs; the care of grounds and buildings; the Physical Plant Office; building renovations and space changes; and campus security.
Library: These are the costs incurred to operate the MIT libraries, including books and library materials and library administration.