Understanding F

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Understanding FA RatesCaroline BeemanDirector
of Cost Analysiscmb8z_at_virginia.eduPhone (434)
924-1453October 15, 2008
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Why an FA Cost Rate?

• It is federal policy to provide for the
  reimbursement of FA costs except when specific
  limitations and prohibitions exist

• This is accomplished through use of an FA rate
• The cognizant agency negotiates and approves the
  FA rates for an educational institution on
  behalf of all Federal agencies

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What is the FA Cost Rate?

• A single number that reimburses the institution
  for the use of
• Buildings
• Equipment
• Interest on Debt
• OM
• General Administration
• Departmental Administration
• Sponsored Projects Administration
• Library

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or stated another way

• The ratio, expressed as a percentage, of an OR
  facilities and administrative cost pool and an OR
  direct cost base.
• The OR cost pool is made up of allocations from
  the administrative and facilities cost pools
• OR pool costs / OR base direct costs OR FA
  rate.

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Calculation of the Facilities Administrative
Rate(aka Indirect Cost Rate)

• FA COSTS
• Building Depreciation
• Operations Maintenance
• General Administration
• Sponsored Project Administration
• Library Support
• Equipment Depreciation
• Departmental Administration
• Interest on Debt

• DIRECT COSTS
• Research Salaries Fringes
• Consultant Services
• Travel
• Technical Services
• Research Supplies
• Subcontracts up to 25,000
• Committed Cost Sharing

FA Costs Direct Costs
1,000,000
515,000
0.515 51.5
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Another Example

• Calculate the OR rate
• GA (318,750) OM (760,000) 1,078,750
• Organized research base 3,600,000
  29.97

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How is the F A Calculation Done?

• Start with Financial Statements
• Adjust to Allowable Cost
• Map to OMB Circular A-21 Pools and Bases
• Allocate Pools
• Summarize Pool Allocations to Each Base
• Calculate Rates

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Types of FA Rates

• Negotiated lump sum for FA (G.3)
• Predetermined rates - normally for 2-4 years
  (G.4)
• Fixed rates and carry forward provisions (G.5)
• Provisional and final rates (G.6)
• Simplified Method for Small Institutions (H)

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Commonly Used Acronyms

• FA Facilities and AdministrativeIndirect
  Costs
• MTDC Modified Total Direct Cost
• SW Salaries and Wages
• FTE Full Time Equivalent
• GA - General Admin and General Expenses
• SPA Sponsored Projects Administration
• DA Departmental Administration
• OIA Other Institutional Activities
• OSA Other Sponsored Activities
• OR Organized Research
• OM - Operations and Maintenance

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THE DIRECT COST BASES
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The Direct Cost Bases

• Bases represent an institutions direct costs
  activities (A-21, Section B.1)
• Instruction and departmental research (IDR)
• Sponsored instruction and training
• Departmental research
• Organized research (OR)
• Sponsored research
• University research
• Other sponsored activities (OSA)
• Other institutional activities (OIA)

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The Direct Cost Bases

• A-21, Section G.2 discusses the distribution
  basis for FA costs and defines it as modified
  total direct costs (MTDC).
• MTDC usually includes
• Salaries and wages associated fringe benefits
• Materials and supplies
• Services
• Travel
• Sub-grants and subcontracts up to the first
  25,000

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The Direct Cost Bases

• MTDC excludes (G.2)
• Equipment (capital equipment only)
• Patient care
• Tuition remission
• Scholarships and fellowships
• Sub-grant and subcontract costs over 25,000
• Space rental costs

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The Direct Cost Bases

• Issues to consider
• Unallowable costs
• Cost overruns
• Cost shared accounts
• Salaries over the NIH cap
• Research training grants
• Applicable credits
• Bases other than MTDC

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INDIRECT COSTS
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Facilities and Administrative Costs

• Costs that are incurred for common or joint
  objectives and therefore cannot be identified
  readily and specifically with a particular
  sponsored project, instructional activity or any
  other institutional activity. (B.4)

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Facilities Administrative Costs

• Facilities components
• Building depreciation
• Building interest
• Equipment depreciation
• Operations and maintenance
• Library

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Depreciation and Use Allowance

• Expenses are for the portion of costs related to
  the institutions buildings, capital improvements
  to land and buildings, and equipment which are
  computed in accordance with J.14, see also F.2.

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Interest on Debt

• Interest associated with certain buildings,
  equipment and capital improvements are allowable
  if they support sponsored agreements (F.3)
• Buildings acquired or completed after July 1,
  1982
• Major reconstruction and remodeling of existing
  buildings completed on or after July 1, 1982
• Acquisition or fabrication of capital equipment
  completed on or after July 1, 1982, costing
  10,000 or more, if the government agrees

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Operations and Maintenance

• Expenses incurred for administration,
  supervision, operation, maintenance, preservation
  and protection of the institutions physical
  plant (F.4)
• Normally includes
• Janitorial/housekeeping
• Utilities
• Grounds maintenance
• Security
• Environmental safety
• Hazardous waste disposal
• Utility cost adjustment (UCA) of 1.3 points only
  Exhibit B schools

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Facilities and Administrative Costs

• Administrative components
• General administration and general expenses
• Departmental administration
• Sponsored projects administration
• Student administration and services
• Administrative components are capped at 26 of
  modified total direct costs (G.8)

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General Administration and General Expenses

• Expenses incurred for the general executive and
  administrative offices and other expense of a
  general nature which do not relate solely to any
  major function of the institution (F.5)
• Normally includes
• Allocations from administrative offices that
  serve an entire university system
• Institutional administrative executive offices
• Financial planning, budgeting, payroll,
  accounting
• Safety and risk management
• General counsel
• Management information systems
• Cross allocations from depreciation, interest and
  OM

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Departmental Administration

• Expenses incurred for administrative and
  supporting services that benefit common or joint
  departmental activities or objectives (F.6)
• The most difficult cost pool to develop
• DA costs are not normally identified on
  university current fund statements

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Department Administration

• Composed of
• Academic deans offices (limited to costs
  associated with administrative activities)
• Academic departments and divisions salaries and
  fringe benefits attributable to administrative
  work
• Includes bid and proposal effort
• Limited to 3.6 of department MTDC of salaries
  fringe of faculty and professional personnel
  conducting research and/or instruction
• 3.6 limit does not apply to professional
  business or administrative officers
• Other administrative and supporting costs are
  allowable provided they are treated consistently
  in like circumstances (includes secretarial and
  clerical salaries, administrative officers and
  assistants, travel, office supplies etc)

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Sponsored Projects Administration

• Expenses are limited to those incurred by a
  separate organization established primarily to
  administer sponsored projects. Includes grant
  and contract administration, special security,
  purchasing, personnel, etc. (F.7)
• SPA is allocated to the functions performing
  sponsored projects based on MTC of the sponsored
  projects
• Usually includes
• Organized research
• Sponsored instruction
• Other sponsored activity

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Library

• Expenses incurred for the operation of the
  library including the costs of books and library
  materials purchased for the library less
  applicable credits (F.8)
• Standard Allocation based on FTEs

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Student Administration and Services

• Expenses incurred for the administration of
  student affairs and for services to students
  including deans of students, admissions,
  registrar, counseling and placement, student
  advisors, student health and infirmary services,
  catalogs and commencements and convocations (F.9)
• Per A-21 - shall normally be allocated 100
  percent to instruction function

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What is a Space Survey?

• A space survey is the process of assigning
  institutional space into OMB Circular A-21
  functional categories based on space use
• The results are used to calculate the percentage
  of space that is used to support organized
  research and support the subsequent allocation of
  space related costs to organized research

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Why is the Space Survey Necessary?

• The survey supports the development of the
  institutions FA rate proposal
• The space survey has become the primary focus for
  government review since administrative components
  were capped at 26
• Used to allocate Building and Equipment
  Depreciation, Interest and OM

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Other FA Rate Proposal Issues

• The proposal and supporting documentation becomes
  the basis for negotiating your institutions FA
  rate
• Standard format required by A-21, Appendix C
  (G.12)
• Certifications by VP or CFO required (K)
• Base period normally coincides with fiscal year
• Administrative costs are limited to 26 of MTDC
  (G.8)
• Negotiated rates in effect at the time of the
  initial award shall be used throughout the life
  of the sponsored agreement (G.7)

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Where/When Do I Submit the Proposal?

• The proposal is submitted to the either the
  Department of Health and Human Services (DHHS),
  Division of Cost Allocation (DCA) for those DHHS
  cognizant schools or to the Office of Naval
  Research for the Department of Defense (DOD)
  cognizant schools
• DCA- DHHS
• DCA Best Practices Manual For Reviewing College
  and University Long-Form University Facilities
  Administrative Cost Rate Proposals
• Office of Naval Research
• Reviews conducted by (DCAA) Defense Contract
  Audit Agency
• Usually due 6 months after the end of the base
  year

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Applying the FA Rate example 1

• FA Rate 40
• Research project budget for direct costs
  125,000
• Item of equipment included in direct costs
  25,000 (only item excluded from the FA base)
• What is total cost of the project?

MTDC Direct costs - exclusions MTDC 125,000
- 25,000 100,000
FA MTDC x FA rate FA 100,000 x 40
40,000
Total cost Direct costs FA costs Total cost
125,000, 40,000 165,000
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Applying the FA Rate example 2

• PI on NSF grant to re-budget 150,000 in
  renovation monies into equipment
• FA rate 54
• How much is available for equipment purchase?

Total available total direct total FA Total
available (MTDC exclusions) total
FA Total available (MTDC exclusions)
(MTDC x FA rate) 150,000 (0
equipment) (0 x 54) 150,000
equipment 0 Equipment
150,000
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Applying the FA Rate example 3

• PI on NSF grant to re-budget 150,000 in
  renovation monies into personnel costs
• FA rate 54
• How much is available for personnel costs?

Total available total direct
total FA Total available (MTDC exclusions)
total FA Total available (MTDC
exclusions) (MTDC x FA rate) 150,000
(personnel 0 ) (personnel x
54) 150,000 - 0 (personnel x 1)
(personnel x 0.54) 150,000
personnel x (1 0.54) Personnel
150,000 / 1.54 Personnel 97,403
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Applying the FA Rate example 4

• Total grant available 800,000
• FA rate 54
• Tuition remission 5,000 Rent 4,000
  Equipment 21,000
• How much is available for direct costs?

Total available total direct total FA Total
available (MTDC exclusions) (MTDC x FA
rate) 800,000 (MTDC 30,000)
(MTDC x 54) 800,000 - 30,000 (MTDC x 1)
(MTDC x 0.54) 770,000 MTDC x (1
0.54) MTDC 770,000 / 1.54
500,000 Total directs MTDC exclusions
Total directs 500,000 30,000 530,000
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Significant Issues Regarding Recharge Operations
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OMB Circular A-21 References

• Where it is determined that certain expenses are
  for the support of a service unit or facility
  whose output is susceptible of measurement on a
  workload or other quantitative basis, such
  expenses should be set aside as a separate cost
  grouping for distribution on such basis to
  organized research, instructional and other
  activities at the institution or within the
  department. (sec E.2.c (3))
• The cost of materials supplied from stock or
  services rendered by specialized facilities or
  other institutional service operations may be
  included as direct costs of sponsored agreements
  (sec D.2)

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OMB Circular A-21 sec. F.6.b (1)

• costs incurred for the same purpose in like
  circumstances are treated consistently as either
  direct or FA costs. For example, salaries of
  technical staff, laboratory supplies shall be
  treated as direct cost wherever identifiable to a
  particular cost objective. Direct charging of
  these costs may be accomplished through specific
  identification of individual costs to benefiting
  cost objectives, or through recharge centers or
  specialized service facilities, as appropriate
  under the circumstances.

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From OMB Circular A-21 sec. J.47

• Does not discriminate against federally-supported
  activities of the institution, including usage
  by the institution for internal purposes.
• Is designed to recover only the aggregate costs
  of the services.
• The costs of each service shall consist normally
  of both its direct costs and its allocable share
  of all FA costs.
• Rate shall be adjusted at least biennially, and
  shall take into consideration over/under applied
  costs of the previous period(s).

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OMB Circular A-110 Paragraph_C.45

• Some form of cost or price analysis shall be
  made and documented in the procurement files in
  connection with every procurement action. Price
  analysis may be accomplished in various ways,
  including the comparison of price quotations
  submitted, market prices and similar indicia,
  together with discounts. Cost analysis is the
  review and evaluation of each element of cost to
  determine reasonableness, allocability and
  allowability.

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Other Key Points

• No profit break-even recover only cost
• No unallowable costs
• If over-charge, then must refund to every grant
  or lower next years rate
• Depreciation is allowable
• Consistency, consistency, consistency
• Use a recognized method of computing actual costs
• Conform to generally accepted cost accounting
  practices
• Service center, recharge center, specialized
  service facility