F&A refers to two broad categories of indirect costs: facilities and administrative. Each category is made up of subcategories, or “cost pools.”
- Facilities includes the depreciation of buildings and equipment, interest on debt associated with capital assets, operations and maintenance of physical plant, and library expenses
- Administrative includes general administration and other general expenses of the Institute, departmental administration, sponsored projects administration, student administration and services, and 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
- Organized research
- Other institutional activities
Since the benefit associated with each function cannot be precisely measured, the costs are assigned or allocated according to methods prescribed in federal regulations, primarily the "Electronic Code of Federal Regulations (e-CFR) Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, or “Uniform Guidance.” as described in “Subpart E-Cost Principles.”
The allocation of F&A pools to direct cost objectives is based on actual expenditure data and statistics such as:
- Expenditure dollars
- Square footage of space occupied and population—the number of faculty, students, and staff
- Salaries and wages
The full cost of an instructional activity or a research project is the sum of the direct cost that can be specifically identified to the project plus the associated F&A 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, teaching or conducting sponsored research would be impossible without incurring costs for buildings, equipment, utilities, maintenance, libraries, and administrative services.
Objective: To the extent that F&A costs benefit externally sponsored research activities, these costs should be reimbursed by the sponsor along with the direct project costs.
Methodology: Reimbursement for F&A costs is accomplished through the use of a rate that reflects the average of all F&A costs associated with sponsored research programs.
- For example, if the Institute incurs an average of 68 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 68 percent
- This rate is based on historical cost data and other pertinent factors, such as new construction or changes in federal regulations, and is subject to audit and negotiation with the federal government
- This is the rate that MIT applies to all externally supported research activities
- The F&A rate for sponsored research is the total allowable indirect (F&A) cost divided by modified total direct cost (MTDC)
- According to OMB Uniform Guidance Subpart E, allowable indirect costs include expenditures for functions that provide a benefit to research, and exclude expenditures that have no benefit to research or that are expressly unallowable for reimbursement purposes
- Modified Total Direct Cost (MTDC) consists of total direct costs less certain categories of exclusions (or modifiers) as specified in OMB Uniform Guidance Subpart E.
- Expenditures for modifiers that are charged to sponsored agreements are excluded from the calculation of the F&A rate, and are not subject to application of the F&A rate as these expenditures are considered non-overhead bearing
- Per OMB Uniform Guidance, Subpart E, standard modifiers include expenditures for:
- Capital expenditures
- Tuition remission
- Renovation costs when included in capital expenditures
- Rental of space
- Scholarships and fellowships
- The subcontract portion in excess of $25,000