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Policy: VIII.D.1x2

Issued: July 1, 1999

Owner: Office of Sponsored Programs

Latest Revision: May 1, 2000



For Current Policies:
Policy Table of Contents


1.0 Purpose

This policy describes the general guidelines for allocating indirect costs to sponsored research projects.

2.0 Policy [Top]

2.1 Overview

The total cost of a sponsored program consists of direct and indirect costs. The direct costs are those costs readily identified with a particular sponsored project.  Such costs are itemized in the budget submitted by the principal investigator and may include salaries and wages, fringe benefits, equipment, consumable supplies, travel and other expenditures, and subcontracts.

Indirect costs are those costs incurred in support of many activities and cannot be identified with a single sponsored project.  The cost of operating and maintaining buildings, use of equipment, general and departmental administrative expenses, sponsored projects' administration, and library costs are usually considered indirect costs.  These costs are essential in the support of sponsored program activities.  Indirect costs differ from direct costs in that indirect costs cannot be broken down and directly charged to a specific program.

An indirect cost rate is a method of allocating a portion of the indirect costs to each project or activity.  The rate is an average of the indirect costs for all projects and is generally expressed as a ratio of indirect costs to modified total direct costs (MTDC).

The modification generally excludes equipment, student aid, and health care expenditures.  The indirect cost rate recovers only those costs actually incurred.

2.2 Administrative Responsibility

The development, negotiation and application of the University's indirect cost rates are the responsibilities of the University Comptroller.  The rates are developed by the Department of Financial Reporting and Analysis, applied by the Office of Sponsored Programs, and negotiated by the University Comptroller with the University's cognizant Federal agency (Department of Health and Human Services). Annually, following the completion of the University's audited financial statements for the fiscal year, indirect cost proposals are developed in accordance with Federal regulations.  The completed proposals are submitted to the Department of Health and Human Services and negotiated as approved rates.

2.3 Distribution of Indirect Cost Recoveries

The 1984-86 State Appropriations Act provides:

         "seventy percent of indirect cost reimbursements on grants and  contracts shall be retained by institutions of higher education as an appropriation of funds by the General Assembly for the conduct and enhancement of research and related requirements."

In accordance with this provision, the University Comptroller distributes 100% of the overhead recoveries.  Current Overhead Distribution rates can be found at http://www.virginia.edu/finance/finanalysis/overhead.html#. 

2.4 Current Indirect Cost and Fringe Benefit Rates

Rates are developed for three major functions of the University:

(1) Organized Research, (2) Instruction and Training and (3) Public Service and Other Sponsored Programs.  For each function off and on Grounds rates are developed as a percentage of modified total direct costs (MTDC).  The current indirect cost rates and fringe benefit rates can be found at http://www.virginia.edu/sponsoredprograms/F&A_Fringe_Agreement.pdf.

Each year's rates are effective July 1 and should be used when preparing budgets to which  fringe benefits are charged, including sponsored program proposals.

If you have any questions regarding the application of the fringe benefit rates to sponsored program proposals or awards, please contact the Office of Sponsored Programs at 924-4270. 

3.0 Definitions [Top]

4.0 References [Top]

See also Procedure 8-14, "Budgeting Direct Costs of Sponsored Programs."  

5.0 Approvals and Revisions [Top]

       Previous version in effect from 7/1/99 to 5/1/00 available in policy archive.

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