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, subcontracts, 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) Instructional; or 3) Other sponsored activities such as conference funding and short term workshops.  For more discussion on project types and defining criteria, see  Definitions of Project Types for F&A Purposes.

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 subcontract to UMass, if federal terms and conditions of the federal prime are flowed 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”

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 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
  • Subcontractor costs in excess of $25,000 (indirects only assessed on the 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)
  • Participant support costs

Formula for calculating indirect costs when indirect costs are a percentage of total proposal 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 an accompanying memorandum from the Principal Investigator to the Director of OPAS and 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.

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

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 acknowledgement 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.

 

Policies and Resources Affecting the Determination of Indirect Costs