F&A Proposal Preparation & Negotiation, and Application of Negotiated F&A Rates

An Introduction to the Process

Pre-Conference October 12, 2015

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Presenters

Jim Carter Managing Director Huron Consulting Group

Mike Legrand Director, Costing Policy and Analysis University of California, Davis

Where to Start?

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Not Just Colleges & Universities

Not-for-profit Organizations Hospitals State And Local Governments

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Regulations

Uniform Guidance (2 CFR Part 200) Colleges And Universities (Old circular: A-21) Not-for-profits (Old circular: A-122) State & Local Governments (Old circular: A-

87) Not covered in this presentation

Hospitals – OASC-3 For-profits – FARS

Uniform Guidance and OASC-3 are part of the Code of Federal Regulations (CFR)

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Different Terminology – Same Concept Facilities And Administrative (F&A) Rates

Colleges and Universities Indirect Costs

Non-profit State and Local governments Hospitals (OASC-3) CAS

Burden Rates Overhead Rates

Cost Reimbursement

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Not a New Idea

Most grants are cost reimbursement You spend the money The Sponsor pays you back what you

already have spent

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Reimbursement is Easyfor Some Costs

Salaries Animals Supplies

Directly Benefit the Grant

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Reimbursement is Harder for Other Costs

Buildings Equipment Utilities and Maintenance Writing pay checks Top quality grant administration Top quality department support

Benefit Many Grants and Activities

Indirect Costs

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What is Indirect Cost?

An indirect cost is a cost that benefits different activities and cannot be easily identified to

benefit any one activity.

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Direct Cost

Indirect Cost

Total Cost

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Work the Equation

Total Cost

Direct Cost

??????

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Work It Further

Indirect Cost

Direct Cost

Indirect Cost Rate

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How It Works

Indirect Costs are NOT reimbursed on specific identification

Indirect Cost Rate is applied to a Direct Cost Base

Indirect Cost Rate

Direct

Cost Base

Indirect

Cost Recovery

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Is It That Simple?

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Of Course Not

Exclusions Allowable Costs Unallowable Costs Allowances Limitations – Caps Multiple Rates Multiple Rate Bases Multiple Rate Types

How to Prepare aFacilities and

AdministrativeCost Proposal

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How To Prepare An F&A Proposal – At a Glance

Start with Financial

Statement

Adjust to Modified Total

Cost

Assign expenditures to

cost pools

Remove unallowable costs from

pools*

Allocate pool costs to major

functions (bases)

Calculate Rates:Indirect /

Modified Total Direct Costs

1 2 3

456

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Start with Financial Statement, ExpendituresExample of Major Functions in Higher Education*

Instruction

Organized Research

Other Sponsored Activities

Other Institutional Activities

*Classification of major functions for F&A proposals may differ depending on types of institutions

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Adjust to Modified Total Costs

Adjust To Modified Total Cost Minus Non-MTDC Items

Student Financial Aid Capital Expenditures Double Counted Items Patient Care Participant Support

Add Allocations State Wide Cost Allocations Parent University Allocations University System Allocations

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Costs are classified as Direct vs. Indirect (F&A)

Direct costs: PI Salary, Lab Supplies, Fringe Benefits, Animals, Post-Doc Salaries, Travel, etc.

Indirect costs: Admin Salary, General support, Office computer, Library, Building, Custodial Services, etc.

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F&A Costs

Building

Office Computer

Admin

Salary

Direct Costs

PI Salar

y

Lab Supplies

Fringe

Benefits

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Facilities Related Costs

Building Depreciation/ Use Allowance

Equipment Depreciation/ Use Allowance

Interest Operations &

Maintenance Library

Administrative Related Costs

General Administration (GA)*

Department Administration (DA)*

Sponsored Projects Administration (SPA)*

Student Services

Assign Expenditures to Cost Pools Identify Indirect Costs and Put in Pools

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Remove Unallowable Costs from Pools

Identify Unallowable Indirect Costs Fund Raising Entertainment Alcohol Royalties Judgments Fines Taxes

Eliminate From Indirect Cost Leave In Direct Cost

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Allocate Pool Costs to Major Functions

Identify Direct Costs and allocate to Bases (major functions) Instruction, Organized Research, etc.

Remember Formula Modified Total Costs- Indirect Cost=Modified Total Direct Costs

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Allocation

F&A F&A F&A F&A

Allowable Facilities Related Indirect Costs

AllowableAdministrati

ve Indirect Costs

Organized Research

MTDC

Instruction MTDC

Other Sponsored Activities

MTDC

Other Institutional Activities

MTDC

Bases:

Pools:

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Allocation

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F&A Pool Allocation MethodBuilding Depreciation Space Study – Functionalized ASF

Equipment Depreciation Space Study – Functionalized ASF

Capital Interest Specific identification / Space Study – Functionalized ASF

Operations & Maintenance

Space Study – Functionalized ASF, plus utility cost adjustment

Library User FTE’s & S&W or Special use survey

General Admin MTDC of functions receiving services

Departmental Admin Complex: Pool for each department / formula driven based on faculty salaries and charging of support staff

Sponsored Projects Admin MTDC of functions receiving SPA services

Student Services 100% to instruction

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Calculate Rates

Calculate Rate per Major Function

Indirect Cost= F&A Rate

Modified Total Direct Cost

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Exercise

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Reconciliation Schedule 1

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Reconciliation Schedule 2

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Reconciliation Schedule 3

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Reconciliation Schedule 4

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Reconciliation Schedule 5

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Quiz-Complete the Instruction Rate

Schedule

Comparative Anatomy

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Comparative Anatomy Colleges and Universities (Uniform Guidance)

Short-Form Long-Form

Non-profit (Uniform Guidance) Free Form Isolate Fund Raising

Hospitals (OASC – 3 http://rates.psc.gov/fms/dca/cfr45_pt74_appx_e.html )

Follow Medicare Cost Plan State and Local Governments (Uniform Guidance)

Follows Cost Elements

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Comparative Anatomy

Short Form One Rate S&W or MTDC Weak Departmental Allowance O&M Carve Out For Auxiliaries Low Rates Easy To Review S&W Adds Insult To Injury

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Comparative Anatomy

Long-Form Organized Research Requires Detailed Space Survey Requires Detailed Cost-Sharing Data Formula Departmental Administration Faculty Administrative Allowance Capped Administration Incorporates Cost Accounting Standards Mandated Reporting Format

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Comparative Anatomy

A-122 Not-Profits Depends Upon Organization Structure Separate Fund Raising Separate Public Service Isolate Federally Funded Activities No Definition Of Departmental Administration No Definition Of Sponsored Projects

Administration

Exercise

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Indirect Cost Rate Proposal – Salaries and Wages Base

Quiz

Negotiation and Strategic Planning

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Negotiating an F&A Rate

Step One – Find A Cognizant Agency Predominant Funding

Only HHS Or DOD-ONR For Higher Education Can Be Any Agency For Others

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Negotiating an F&A Rate

Cognizant Agency Sole Federal agency responsible for

negotiating rates Same negotiated rates across all agencies Doesn’t mean they will be paid Effort to align with funding Can cause problems

May be different for audit

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Negotiating an F&A Rate

Step Two – Determine Type of Rate Predetermined

Most Common Requires History Can Be For Up To Five Years Not For Hospitals

Fixed With Carry-Forward Provisional/Final

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Negotiating an F&A Rate

Step Three – Submit the Rate Proposal Appropriate Cognizant Agency Appropriate Office

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Negotiating an F&A Rate

Step Four – Wait

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Negotiating an F&A Rate

Next Steps - HHS Wait Desk Review Questions Site Visit Questions Negotiations

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Negotiating an F&A Rate

Next Steps - HHS Desk Review

Takes place at HHS office May involve phone calls Could result in rate offer Usually results in written questions and data

requests

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Negotiating an F&A Rate

Next Steps - HHS Questions

Usually very detailed Sometimes hard to understand Usually requires a lot of work to comply Best to answer thoroughly Just answer the questions

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Negotiating an F&A Rate

Next Steps - HHS Site Visit

1-3 Days Have an Entrance Meeting to set the Ground Rules Walk space Meet department heads/Principal Investigators Ask more questions Get away from the office

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Negotiating an F&A Rate

Next Steps - HHS Questions

If no negotiations Should address specific questions Must be taken seriously Keep copies of all responses Do not show shock Respond Quickly

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Negotiating an F&A Rate

Next Steps - HHS Negotiations

Not always based on facts What is best for institution Live to fight again Hard to judge success

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Negotiating an F&A Rate

Other Agencies DOD/ONR

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So what you basically are saying is that our proposal is what….too high?

William J. Tisch, University of Arizona

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Other Useful Information

You Must Have An Award Paying Full Indirect Cost to Get a Rate from HHS

Do Not Expect to Get Respect You Are Always Wrong Your Rate Is Always Too High You Are Always In The Middle

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Strategic Planning

Rate calculation Reconciliation is critical Accuracy is important Remember your audience Should you get help?

Proposal preparation Mandatory format Creativity not appreciated Tie it out

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Strategic Planning

Timing No good answer All things being equal, be on time

Requested rate Sometimes you need to tip your hand Do not ask for the rate you must negotiate Negotiation is a downward process

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Strategic Planning

Rate period Go long when your rate is going down Go short when your rate is going up How much pain can you stand

Negotiation process Who should participate Who will baby-sit Prep the departments What rate is acceptable

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How to Collect Indirect Cost

Put it in the proposal budget 8% Off-campus Full Rate Discounted Rate

Get it awarded Spend the direct costs Bill the indirect costs