The University of Arizona

Facilities & Administrative (F&A) Costs

Charging F&A Costs

When universities, like the University of Arizona, perform research on behalf of the federal government through agency grants, contracts, or other agreements, the University incurs costs, called Facilities and Administrative (F&A) costs (sometimes called indirect costs in the vernacular).  F&A costs, defined by the Office of Management and Budget Uniform Guidance 2 CFR, Part 200.56 encompass: the maintenance of sophisticated, high-tech laboratories and research facilities; utilities such as lighting and heating; hazardous waste disposal; data-storage; information technology and internet services; and the administrative support required to comply with various federal, state, and local regulations and reporting requirements.  Historically, the federal government has partnered with research universities to pay for these critical and necessary research expenses, just as it does when it contracts with industry or utilizes its own federal laboratories to conduct research.  F&A costs are nicely summarized in the following infographic (courtesy of AAU).

 

 

All grants, contracts and other sponsored agreements accepted by the University of Arizona are subject to the current federally negotiated F&A rate. The currently applicable rates are outlined in the May 8, 2018 Rate Agreement letter from the Department of Health and Human Services and are also available on the Facilities & Administrative (F&A) Rates page.

Budgeting the Federally Negotiated F&A Rates

It is the University of Arizona’s policy to request the appropriate federally negotiated F&A rate for all sponsored activity regardless of funding source, the federally negotiated F&A rate will be the basis for budget purposes on all sponsored activity.  If a sponsoring agency limits or forbids the reimbursement of F&A based on federal/state/local law, administrative regulation, or published sponsor policy, the following exceptions for Federal Flow through or Stipulated F&A Rates apply.

Federal Flow through Awards. 

When funding flows from a federal prime sponsor to the University of Arizona, through a pass-through entity, as in the case of federal flow-through awards, the University will accept stipulations that meet the requirements of Uniform Guidance 2 CFR 200.414:

  • Federal agencies may stipulate a rate different from a negotiated rate only when required by Federal statute or regulation, or when approved by a Federal awarding agency head or delegate based on a documented justification approved by the Office of Management and Budget.
  • The pass-through entity (prime awardee) should not impose F&A restrictions beyond what is stipulated above. 

Documentation for a stipulated rate must be included with the proposal. To document a stipulated rate, attach a copy of the copy of the law, regulation or published policy stating the limitation on F&A reimbursement under the Abstracts and Attachments tab in the UAccess Research proposal document. 

F&A Cost Rate Stipulations

A reduced reimbursement of F&A costs is allowable when stipulated (required) by a federal/state/local government, industry, or domestic non-profit organization. The University will honor a stipulated rate if the sponsoring agency has a formal, published policy regarding the reimbursement of F&A costs. The stipulation must come from the sponsor’s bylaws, published agency guidelines, administrative regulation, formal solicitation, program announcement or application kit.

If no formal stipulation regarding the reimbursement of F&A costs exists, a letter stating the restrictions on F&A may be substituted: 

  • The lower rate must apply universally to all grantees, not just to the proposal in question.
  • The request must come in the form of written documentation from the sponsor, on official agency letterhead, stating the limitation on the reimbursement of F&A costs.
  • The letter of request must be endorsed by the agency Chief Executive Officer, Chief Financial Officer, Contracts/Grants Officer or equivalent. 

E-mails from a sponsor stipulating a reduced rate do not qualify as stipulations and will require a waiver. No exceptions.

Documentation for a stipulated rate must be included with the proposal. To document a stipulated rate, attach a copy of the copy of the law, regulation or published policy stating the limitation on F&A reimbursement under the Abstracts and Attachments tab in the UAccess Research proposal document.

F&A Cost Rate Reductions

The University does not generally reduce the Facilities & Administrative (F&A) rates. Every project incurs utilities and other facility-based costs for projects in University space and facilities. Also, F&A must proportionately cover the overall costs of administrating the sponsored activity, which includes Sponsored Projects & Contracting Services, compliance, general counsel, police, president’s office, business affairs, HR, administrative staff, and many others.

The Federal government looks carefully at our F&A costs when we submit the F&A proposal to determine our rate, and does not allow inclusion of many of the costs the University incurs in executing research. Because the Federal government determines the rates for a specified year that is previous to the current year, the costs we submit to the government are always lower than what we are currently experiencing (e.g. electricity is more expensive this year than the previous year that was used to determine the rate). When the government determines our F&A rate, it represents the average of all of these facilities and administrative costs amortized over the University research base to yield a fixed percentage that is the F&A rate.

The process works much like health insurance - the University pays a total cost, that then is allocated to each employee for an average, even though an individual may use more or less of actual services that go into determining the cost. The costs for facilities and administration that pertain to a particular project are paid by the University first, and then reimbursed at a later date by the sponsor through the charged F&A rate.  If F&A costs are not charged, the portion of the University’s F&A costs that pertain to that project are shifted elsewhere and paid for by some other activity/unit (and not paid by the project). This rationale is why your college has to request the F&A rate adjustment, because these requests affect their bottom line through the balance of costs and revenues in UA’s RCM budget model. Occasionally, there are circumstances that warrant special consideration. The special circumstances are best known by the college dean and staff, which is why college-level approval is required when requesting a reduction of F&A costs.

A written request for reduction of F&A costs is required from all sponsors that do not have a formal stipulation including Federal/State/Local agencies and non-profit organizations.

Please be advised, the University does not grant reductions in F&A costs for industry, other for-profit entities, or foreign governments, as it would constitute a gift of public funds for private benefit. Under certain circumstances, an exception may be considered if the project supports a community service, scholarship/fellowship program, or meets other requirements as determined by the University.

Each proposal that includes less than the full F&A costs, which is not stipulated, must be accompanied by a letter from the Principal Investigator/Project Director, concurred with by the appropriate department/college approval. The letter should provide:

  • The F&A rate being requested
  • Rationale for the reduction, benefit to the University, and the return on this investment
  • Any consequences of accepting or denying the request
  • Any backup documentation that may substantiate the reduction request
  • Approval from the Department Head and/or College Dean or Director

Improving the competitive advantage of the project, sponsor funding limitations, or worthiness of the project are examples of unacceptable justifications for a reduced F&A cost rate. All sponsored projects are worthy endeavors and serve to further the University’s mission.

A Principal Investigator contemplating the submission of a F&A cost reduction request should contact their College Dean or Director to discuss the request and obtain approval prior to submitting the official request.

Sponsored Projects & Contracting Services will review the request prior to forwarding the request to Research, Discovery & Innovation (RDI) for further consideration. RDI will review a request and will notify the Principal Investigator of the decision.

RDI will not review or consider F&A cost reduction requests unless the appropriate department/college officials have approved the UAccess Research proposal or have otherwise approved the request in writing. F&A cost reduction requests may be routed separately from the completed proposal in order to adhere to any sponsor due dates. Please allow time for RDI to review of requests, a minimum of eight days before sponsor due date is required.

Sponsored Projects & Contracting Services will not sign any part of any proposal with reduced F&A costs if it does not have approval from the Senior Vice President for Research (where such approval is required).

Continuation Proposals

A continuation proposal, for a project previously granted an F&A reduction or waiver, will require a new request for F&A cost reduction for the continuation, unless it is clear that Research, Discovery & Innovation granted the initial F&A cost reduction for the life of a project. 

If submitting a new or continuation proposal for a project under a Master Agreement with a pre-negotiated F&A rate, please indicate this to Sponsored Projects & Contracting Services with a note on the Abstracts & Attachment page of the proposal in UAccess Research.

Grant Transfers to the University of Arizona

When a new faculty member transfers their grants to the University of Arizona from their previous institution RDI will accept the previous institution’s F&A lower F&A rate for the period remaining on the grant.  Continuation, supplemental, and competing funds on transferred grants must be proposed using the University of Arizona’s negotiated rates.

Corporate and Industry Sponsored Clinical Trials

Clinical trials are generally conducted off campus, normally with a substantial patient care component in the budget using a standard agreement. Considering that clinical trials involve insignificant facilities and maintenance costs, and minimal administrative costs, and a patient care component, the University will accept a 25% Total Direct Cost (TDC) F&A cost rate for clinical trials that meet the eligibility requirements and use the standard University agreement. The University must ensure that federal sponsors do not in any way subsidize the F&A costs of other sponsors. The clinical trial F&A cost rate of 25% Total Direct Costs is a fair rate and adequately reimburses the University for the F&A costs associated with conducting clinical trials. Studies not meeting all the eligibility criteria or those studies not using the standard agreement or similar terms will be budgeted at the full on campus research F&A cost rate, including federally funded clinical trials.

Eligibility requirements for the 25% TDC Clinical Trial F&A Cost Rate:

  • The study is consistent with the University’s mission.
  • Human subjects are utilized in the study.
  • Spending of award by budget category is discretionary.
  • Limited accountability of funds, no requirement for return of unused funds.
  • Sponsor provides drug or device to be tested, has tested it on animals, has obtained FDA approval to proceed to clinical trial, and has been issued an investigational drug or device number.
  • The clinical trial agreement is compatible with the University-approved standard agreement.

Information on budgeting F&A costs can be found on the Budget Categories page.


Breaking Down the Costs of Federal Research at Universities