Indirect Costs

Definition

Indirect costs, also known as overhead and more recently defined by the federal government as Facilities and Administration (F&A), Definitions of Project Types for F&A purposes, are those costs that the UM incurs for common or joint objectives that cannot be identified easily with a particular project. Such costs are for UM facilities and services as a whole. The following are some examples of the pooled costs used by the University in determining its indirect cost rates: maintaining and operating a physical plant; utilities; general administration; library; use of capital assets; and staff services such as purchasing, payroll, grants and contracts, and accounting.  See Section F of OMB Circular A-21 for more details.

If it is anticipated that an Indirect Cost Waiver or reduction will be requested, please follow the Procedure for Indirect Cost Waiver or Reduction.

Application

Indirect costs are assessed on the direct costs of the project -- including salary, fringe, supplies, administrative costs, travel, consultants, subcontracts, maintenance contracts, etc.

Example based on research rate of 55% used on federal and industry sponsored research:

  Total
   
Salary $50,000
Fringe $15,000
Supplies $1,500
Other $500
   
Total Direct Costs $67,000
Total Indirect Costs (55% MTDC) $36,850
Total Cost $103,850
   
   

Important considerations:

1)  Indirect cost rates vary according to the following factors:

  • Project type - Research; Instructional; or Other sponsored activities such as conference funding, short term workshops
  • Sponsor type - federal/industry/non-Massachusetts governmental agencies; foundations and non-profits; Commonwealth of Massachusetts and Local government agencies
  • Project location - on or off-campus
  • Sponsor mandated restrictions on indirect costs - provide a copy of sponsor guidelines or published policy to OGCA along with the proposal for review.  If the rate is not supported by a published policy or in written guidelines that applies to all applicants, you must request an indirect cost waiver.
  • Award type anticipated: unrestricted grant vs. restricted grant. (See Unrestricted grant)**propnote

For current rates by project type and sponsor type see the OGCA Fact Sheet.

  2)  MTDC vs. TDC -- Indirect costs vary depending on the indirect cost base

Indirect costs are assessed either on a Total Direct Cost (TDC) basis or a so-called Modified Total Direct Cost basis (MTDC).  Check sponsor guidelines for direction.  If the guidelines are inconclusive, please confer with the OGCA pre-award administrator assigned to that particular sponsor.

Total Direct Cost basis (TDC)

Important considerations:

  • Indirect costs are assessed on all direct costs less the curriculum fee 
  • Curriculum fee is always exempt from indirect costs 
  • TDC is the default base for foundations/non-profits unless the guidelines specify otherwise
  • Commonwealth of Massachusetts grants and unrestricted grants are on a TDC base
  • Consult sponsor guidelines for applicable rates/bases

Sample TDC budget:

(10% Commonwealth of Massachusetts indirect cost rate used below is for illustrative purposes)

 

  Year 1 Year 2 Year 3 Total
         
Salary $50,000 $51,500 $53,045 $154,545
Fringe $15,000 $15,450 $15,914 $46,364
Equipment $10,000 $5,000 $0 $15,000
Supplies $1,500 $1,545 $1,591 $4,636
Subcontract $10,000 $15,000 $15,000 $40,000
Curriculum fee $4,696 $4,931 $5,177 $14,804
         
         
Total Direct Costs $91,196 $93,426 $90,727 $275,349
Total Indirect Costs (10% TDC) $8,650 $8,850 $8,555 $26,055
Total Cost $99,846 $102,276 $99,282 $301,404
         
         

Modified Total Direct Cost basis (MTDC)

Indirect costs are NOT assessed on the following costs on an MTDC basis:

  • Equipment (with a unit cost of $5,000)
  • Curriculum fee
  • Tuition
  • Subcontract (only assessed on first $25,000 of each subcontract)
  • Patient care costs
  • Rental costs of off-site facilities (not owned by UMass)
  • Fellowships and Scholarships
  • Capital Expenditures (construction costs)

Sample MTDC budget:

(55% indirect cost rate for research used below for illustrative purposes)

  Year 1 Year 2 Year 3 Total
         
Salary $50,000 $51,500 $53,045 $154,545
Fringe $15,000 $15,450 $15,914 $46,364
Equipment $10,000 $5,000 $0 $15,000
Supplies $1,500 $1,545 $1,591 $4,636
Subcontract 1 $10,000 $15,000 $15,000 $40,000
Subcontract 2 $50,000 $50,000 $50,000 $150,000
Curriculum fee $4,696 $4,931 $5,177 $14,804
         
Total Direct Costs $141,196 $143,426 $140,727 $425,349
Total Indirect Costs (55% MTDC) $55,825 $45,922 $38,802 $140,549
Total Cost $197,021 $189,348 $179,529 $565,899
         
         

To summarize, indirect costs are not assessed on the following:

  • Equipment ($5k or greater)
  • Curriculum fee
  • Subcontract 1:  indirect costs are not assessed in year 3
  • Subcontract 2:  indirect cost are only assessed on the first $25K in year 1, thus $125K is exempt.

Other important considerations:

  • Confer with the on-line Fact Sheet for current rates when crafting a proposal.  Do not print up this document since it is subject to change
  • If sponsor guidelines don't put a ceiling on the indirect cost rate, the full rate will be used, and, per the UM’s negotiated Rate Agreement, an MTDC basis will be employed
  • As a general rule, use the following when sponsor guidelines do not specify:  MTDC: Federal, Industry, and non-Massachusetts agencies.  TDC: Foundations, non-profits, Commonwealth of Massachusetts, Unrestricted grants

On-Off Campus indirect cost determination

For purposes of determining the appropriate on or off-campus indirect cost rate the following guidelines shall apply:

 

  • Off-Campus Rate:  for all activities performed in facilities not owned by the institution and to which rent is directly allocated to the project(s), the off-campus rate (26%) will apply.  Actual costs will be apportioned between on-campus and off-campus components.  Each portion will bear the appropriate rate.

  • On-Campus Rate:  for all other conditions which do not meet the requirements of A above, the on-campus indirect cost rate shall be applied to the modified total direct costs of the project.

Processing Procedures:

An explanation of the indirect cost rate(s) applied in the project budget should be included in an accompanying memorandum from the Principal Investigator to the Director of OGCA and included in the budget explanation to the sponsor.

Sample budget:

(55% indirect cost rate for research used below for illustrative purposes)

  On Off Total
Indirect cost rate 55% 26%  
       
Salary $50,000 $25,000 $75,000
Fringe $15,000 $7,500 $22,500
Supplies $1,500   $1,500
Space rental   $12,000 $12,000
Travel $2,000 $4,000 $6,000
       
Total Direct Costs $68,500 $48,500 $117,000
Total Indirect Costs (55%; 26% MTDC) $37,675 $12,610 $50,285
Total Cost $106,175 $61,110 $167,285
       
       

 

For more details, see Determination of On and Off Campus Indirect Cost Rates on Grants and Contracts