Indirect Costs

Unless the sponsor has a published policy disallowing them, indirect costs must be budgeted — see below for more details. For current rates, see the Fact Sheet. 

Definition

Indirect costs, also known as overhead and more recently defined by the federal government as Facilities and Administration (F&A), are those costs that UMass incurs for common or joint objectives that cannot be identified easily with a particular project. Such costs are for UMass facilities and administrative 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 

Application

Indirect costs are assessed on a percentage basis against the direct costs of the project — including salary, fringe, supplies, administrative costs, travel, consultants, subawards, maintenance contracts, etc. Tuition Charges are always exempt from indirect costs. 

Important considerations: 

Indirect cost rates vary according to the following factors: 

Project type 

Project types include: 1) Research; 2) Instruction; or 3) Other sponsored activities such as conference funding and short term workshops.  

Research 

Sponsored Research means all research and development activities that are sponsored by federal and non-federal agencies and organizations. This term includes activities involving the training of individuals in research techniques where such activities utilize the same facilities as other research and development activities and where such activities are not included in the instruction function. 

Research seeks fuller knowledge of a subject and involves investigation aimed at the discovery of new facts or revision of accepted theories. Research projects may include laboratory work, testing and evaluation, questionnaires, pre- and post-tests, and statistical analysis. 

Instruction 

Sponsored Instruction means the teaching and training activities of an institution established by grant, contract, or cooperative agreement. These activities may be offered for credits toward a degree or certificate or on a non-credit basis, and may be offered through regular academic departments or through separate divisions, such as summer school or extension. (Research training is not included; it is included under Research above.) 

Instruction is used when the primary purpose of the project involves training, curriculum development, instruction, demonstration, or efforts to improve pedagogical methods.  Instructional projects may include some elements of research, particularly if new techniques of instruction or curriculum content are being developed. 

Examples 

• Any project for which the purpose is to instruct any student at any location; recipients of this instruction may be UMass students or staff, teachers or students in elementary or secondary schools, or the general public 
• Curriculum development projects at any level, including projects which involve evaluation of curriculum or teaching methods; such evaluation may be considered “research” only when the preponderance of activity is data collection, evaluation and reporting 
• Projects which involved UMass students in community service activities for which they are receiving academic credit. 
• Activities funded by awards to departments or schools for the support of students 
• Dissertation work funded by grants, including grants for travel in relation to a dissertation 
• Programs bringing local students on campus for classes 
• General support for the writing of textbooks or reference books, video or software to be used as instructional materials. 

Other Sponsored Activities 

Other Sponsored Activities are programs and projects sponsored by federal and non-federal agencies which involve the performance of work other than instruction and organized research. They usually involve community engagement.

Examples include health service projects, community service programs, non-credit community education, and conferences. 

Sponsor Type

Sponsor types include: Federal, industry, non-Massachusetts governmental agencies; foundations and non-profits; Commonwealth of Massachusetts and local government agencies.  Keep in mind that the prime source of funds is often the determining factor of defining whether a project has a federal or non-federal rate. For example, if the Commonwealth of Massachusetts receives federal funding and issues a subaward to UMass, if federal terms and conditions of the federal prime flow down, indirect costs would generally be budgeted at the federal rate and not the Commonwealth of Massachusetts indirect cost rate. When in doubt, check with your business manager or OPAS contact. 

Sponsor-mandated Restrictions

If the sponsor does not allow, or limits the indirect cost rate, the sponsor guidelines or other published sponsor policy must be provided to your business manager and to OPAS.  

• When in doubt, contact your business manager and/or OPAS as early as possible.  
• If the rate is not supported by a published policy or in written guidelines that applies to all applicants, the applicable indirect cost rates must be budgeted.
• Emails from sponsors do not suffice as adequate documentation. It must be a published restriction.
• On the Kuali Questionnaire, check Yes to indirect cost variance and further check Sponsor-mandated.

TDC vs. MTDC

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 your business manager or with the OPAS pre-award administrator assigned to that particular sponsor. 

Total Direct Cost basis (TDC) 

• Indirect costs are assessed on all direct costs less the tuition charge. 
• Tuition Charge is always exempt from indirect costs. 
• TDC is the default base for foundations/non-profits unless the guidelines specify otherwise. 
• Consult sponsor guidelines for applicable rates/bases. 

Modified Total Direct Cost basis (MTDC) 

Indirect costs are NOT assessed on the following costs: 

• Equipment (with a unit cost of $5,000) 
• Tuition 
• Subaward costs in excess of $25,000 (indirects only assessed on the first $25,000 of each subaward) 
• Patient care costs 
• Rental costs of off-site facilities (not owned by UMass) 
• Fellowships and scholarships 
• Capital expenditures (construction costs) 
• Participant support costs

On-Off Campus Indirect Cost Determination

There are two scenarios that drive when the off-campus indirect cost rate can be used. 

Scenario #1 applies when all project activities are performed in facilities that are: 

• Not owned by UMass Amherst and; 
• Rent is directly allocated/budgeted to the project(s) 

Scenario #2 where project activities are performed in facilities provided at no cost by another organization for longer than one semester or three summer months.  

• Qualifying project personnel must be budgeted for that period of time (1 semester or three summer months) 
• Qualifying project personnel must be at the off-campus location continuously without interruption – there cannot be regular or intermittent travel back to UMass during that period. 
• Home offices do not qualify as “off-campus” 
• the off-campus facility must be used in place of UMass Amherst facilities 
• The direct costs must be apportioned between on-campus and off-campus components. Each portion will bear the appropriate rate — see the Fact Sheet for current rates. 

For all other conditions which do not meet the requirements of the two scenarios listed 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 the budget explanation to the sponsor. This should be done by providing a table or tables that provides a distinction between on and off-campus costs. 

Unrestricted Grant

Unrestricted grants carry a reduced indirect cost rate but are also very strictly defined – the award and the project are, simply put, unrestricted. See detailed description below: 

Unrestricted grants carry an indirect cost rate of 10% TDC for any award $1000 or more. The F&A is assessed in all cases. In order to be classified as an unrestricted grant, the faculty members must be free to use the funds in any way that benefits the university by supporting their general research interests. They differ from regular grants and contracts in that there can be no formal requirements by the sponsor for financial or technical reports and the sponsor has no claim whatsoever to any intellectual property rights that may result from projects supported by unrestricted grants. Because of the unrestricted nature of the project, it is anticipated that there is no attributed level of effort on behalf of the PI. If the PI feels that a level of effort is required, the PI must report that level of effort to OPAS and the award letter must provide the sponsors acknowledgment and approval that the PI use this money for appropriate salary per university guidelines. 

For current rates, see the Fact Sheet. 

Indirect Cost Waivers 

If a reduced indirect cost rate or total waiver of indirect costs is deemed desirable by the PI, a request can be submitted for consideration by the Vice Chancellor for Research and Engagement all applicants. 

• The VCRE may reduce indirect costs rates with substantial justification. 
• Reductions are an exception rather than the rule. 
• For the process to seek such a reduction, see the Indirect Cost Waiver/Reduction Form.
• Read the instructions carefully. 
• Indirect cost waiver requests must be submitted to the VCRE via the dean with chair input no later than 12 days before the sponsor deadline.