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An Overview of Indirect Costs at Cal Poly

Facilities and Administrative Charges (F&A), commonly referred to as indirect costs (IDC) or overhead, are one of the least understood components of sponsored programs.  These indirect charges are costs that cannot practically, or in a cost-effective manner, be directly tied to a single project.  Often-used illustrations of F&A costs are electricity, water, sewer, and general equipment/building maintenance and depreciation, but also included are administrative support costs, including salaries and benefits, for departmental, college, and university personnel who provide some portion of their time in activities that support sponsored projects.  Every institution accepting federal funds negotiates an F&A rate through their cognizant federal agency, in most cases for a three- to five-year period.  This negotiation process typically results in rates lower than actual costs in some areas.  For example, the federal government imposes a cap on the administrative component, limiting it to a maximum of 26 percent of the total direct project costs when true costs are actually higher.

Cal Poly's current negotiated IDC rates are:

  • For all government-funded projects (federal, state, and local), federal flow-through, and subcontracts from prime contractors with federal funding, as well as contracts with private, for-profit entities;
  • 39% of Modified Total Direct Costs (MTDC), which includes the project's direct costs and the first $25K of subcontract costs, but excludes equipment, tuition remission, and rental of off-campus facilities;
  • 18% of MTDC for off-campus projects. The current negotiated IDC agreement stipulates that the off-campus rate applies to activities performed in facilities not owned by the Institution and to which rent is directly allocated to the project(s). Grants or contracts may use only one cost rate. If more than 50% of a project is performed off-campus, the off-campus rate will apply to the entire project. Working at home or at an off-campus Cal Poly location, or in the field does not constitute an off-campus project;
  • 8% of Total Direct Costs (TDC) for student-centered projects, defined as projects that are primarily for student work (for example, a senior project or Master's thesis) and in which financial support goes primarily to students, while faculty who supervise the projects contribute their time and receive no compensation.

If the project includes subcontracts to other entities, the appropriate rate is applied only to the first $25,000 of subcontracted costs. For those sponsors or programs with a fixed rate that is published and consistently applied to all grant recipients and is less than Cal Poly's federally negotiated rate (such as USDA or many Foundations), the University will normally accept that published rate and absorb the costs, showing the unrecovered indirect as cost sharing.

Principal Investigators/Project Directors are not authorized to negotiate indirect costs.