Facilities and Administrative Rates- What does this really mean? Louis Guin, Manager, Bearing Point...

Facilities and Administrative Rates- What does this really mean?

Louis Guin, Manager, Bearing Point

Anne Feuerborn, Manager, Arizona State University

April 27, 2008

© 2007 BearingPoint, Inc.

Education and Healthcare Services 2

Overview

A-21 as guidance

What is F&A and why is it important?

What are direct costs and total costs?

Total Cost vs. Modified Total Cost

F&A rate example

Application of the F&A rate



OMB Circular A-21

Guide to help universities properly cost projects and calculate F&A costs

Circular issued by the Office of Management and Budget that contains federal cost principles.

Sets basis for cost allowability

Defines Direct and F&A costs

Defines methodologies for allocating F&A to direct functions



What is F&A?

Per A-21:

Costs which benefit common or joint objectives

Costs which cannot be identified to a specific activity such as instruction or research project

Facilities and Administrative are also called:

F&A

Indirect Cost

Overhead expenses



Examples of F&A Costs

Facilities

Lights, water, gas

Annual cost of a building (depreciation), and its maintenance

Annual cost of equipment (depreciation)

Administrative

Departmental support staff

Office of Sponsored Projects

Payroll department, Human Resources



Why do we calculate F&A rates?

To identify the portion of F&A costs applicable to major functions of the university

Instruction

Organized Research

Other Sponsored Activities

Other Institutional Activities

To recover F&A expenditures allocable to sponsored activities



Why is F&A important to you?

A-21 establishes that the federal government will pay its fair share of total costs

Reimbursement of the university’s investment in sponsored work is what allows the university to keep investing in its resources!

If sponsors do not pay their fair share of F&A, who will?



What is an F&A Rate?

A percentage

Ratio between indirect and direct costs

Simply stated if the F&A rate is 50%:

For every $1.00 spent on research

50 cents of cost is incurred by the university

Why don’t we charge the sponsor 50 cents directly?

F&A, because it is not directly associated with a project, is difficult to estimate project-by-project



Who needs an F&A rate?

Institutions that wish to be reimbursed for Facilities and Administrative costs

Two methods of calculating an F&A rate

Long Form- Required for institutions expending more than $10 million on Federal grants and contracts annually. Calculated rate will be higher using this method

Short Form- Simpler allocation methodologies used by institutions that have smaller research expenditures



Where there is indirect… there is direct

Direct costs, per A-21 are:

Costs that can be identified specifically to a particular sponsored project, or activity, with a high degree of accuracy

Examples

Salaries of a Principal Investigator and GRA’s

Lab Supplies

Project related travel

Equipment directly purchased by the project



Total Costs vs. Modified Total Cost

Total costs are:

Direct + Indirect

Modified Total Costs:

Direct + Indirect – Items not charged with F&A

Modified Total DIRECT costs

Direct – Items not charged with F&A

Most common basis for application of F&A rate



Items not charged with F&A – Section J of A-21

Common Examples:

Capital Equipment purchase

Participant Support Costs

Scholarship/Fellowship

Subcontracts >$25,000

Facilities Rental

Why? Distorts the F&A rate, causes over-recovery of F&A



MTDC Example

Simple example of one project’s MTDC:

Total Direct Costs in our budget: $130,000

Salaries/benefits: $95,000

Supplies: $5,000

Scholarships: $20,000

Capital Equipment: $10,000

Modified Total Direct Costs:

= $130,000 - $10,000 - $20,000

= $100,000 MTDC



Elements of the rate

Base - “Directs”

Main activities of the university- the business which is conducted

Ex. Organized Research, Instruction, Other Sponsored (grant-funded Public Service)

Rate components - “Indirects”

Facilities components

Administrative components

These are items from which the Direct costs benefit!



What does the rate itself mean?

The rate is applied to the cost of a sponsored project, and is the amount of “overhead” which is recovered

Example:

$100,000 of salaries and supplies for research

55% Research F&A rate

University recovers $55,000 for F&A costs



Rate Development Steps

Step 1: Create cost pools

Split costs in indirect and direct

Determine specific type of pool

Step 2: Determine allocation basis

Associating indirects with each base

Step 3: Calculate the rate

Add indirects associated with base

Divide indirects by the base



Rate development step 1: Cost Pools

Costs need to be “pooled” into:

Direct bases

Facilities and Administrative pools



Types of Direct Bases

Instruction

Includes Departmental (non-sponsored) research

Organized Research

Sponsored, or University funded initiatives

Other Sponsored Projects

Public Service

Anything that does not fit instruction or research definition

Other Institutional Activities- Auxiliaries



F&A components- Facilities

Building (Shell, HVAC, Walls, Floors, Cabinets etc) Depreciation

Equipment (Moveable equipment) Dept.

Interest (Cost of financing a structure)

Operations and Maintenance (Utilities, Custodial, Environmental Safety)

Library



Building and Equipment depreciation

Expenses for the portion of costs related to the institution’s buildings, capital improvements to land and buildings, and equipment which are computed in accordance with J.12.



Interest

Interest is allowable on similar newly acquired assets, but is subject to a number of conditions involving cost, federal occupancy, equity contribution, relocation of federal programs etc.



Operations and Maintenance

Expenses incurred for administration, supervision, operation, maintenance, preservation and protection of the institution’s physical plant

The Utility Cost Adjustment is part of O&M. UCA is a 1.3 point allowance for institutions who once employed a utility cost study



Library

Expenses incurred for the operation of the library including the costs of books and library materials purchased for the library less applicable credits



F&A Components- Administration

General Administration (President, payroll, HR, Provost)

Departmental Admin (College Admin, Department support staff and supplies)

Sponsored Projects (Pre and post award)

Student Services (usually only benefits instruction base)



General Administration

Expenses incurred for the general executive and administrative offices and other expense of a general nature which do not relate solely to any major function of the institution



Departmental Administration

Expenses incurred for administrative and supporting services that benefit common or joint departmental activities or objectives



Sponsored Projects Administration

Expenses are limited to those incurred by a separate organization established primarily to administer sponsored projects. Includes grant and contract administration, special security, purchasing, personnel, etc.



Student Services Administration

Expenses incurred for the administration of student affairs and for services to students including dean’s of students, admissions, registrar, counseling and placement, student advisors, student health and infirmary services, catalogs and commencements and convocations.



Rate Development Step 2: Allocation

What does it mean to allocate a cost?

Choose a basis (prescribed by A-21) to distribute the F&A costs to the cost objectives they benefit

In other words, the indirect costs will be matched to the direct costs that they benefit



Rate Development Step 2: Allocation

F&A Pools are allocated to Direct Bases in the following order:

Depreciation

Interest

O&M

G&A

DA

SPA

Library



Allocation of Facilities Components

Facilities components allocate either by:

Full Time Equivalent (FTE)

Assignable Square Footage (ASF)

Most Facilities costs allocate on the basis of ASF

Library and Land Improvement (Building component) allocate based on FTE



A simple F&A- Facilities component

Facilities expense per year: $1,000,000

University space profile of 10,000 asf is:

5,000 ASF Instruction, or 50% Instruction

3,000 ASF Research or 30% Research

2,000 ASF Administration , or 20% Admin

1,000 ASF Operations and Maintenance 10% O&M

Facilities cost for Research:

$1,000,000 x .30= $300,000



Allocation of Admin Components

Administration components allocate on the basis of Modified Total Costs

Student Services is the exception: most universities allocate only to instruction



A simple F&A- Admin component

Administrative expense per year: $500,000

University MTDC is: $2,000,000

Instruction is $1,000,000 or 50% MTDC

Research is $1,000,000 or 50% MTDC

Administrative cost for Research:

$500,000 x .50= $250,000



Rate Development Step 3: The Rate

Take facilities and administrative costs allocated to Organized Research, divided by the Organized Research direct cost base.



A simple F&A- Research Rate totals

Facilities Cost: $300,000

Admin Cost: $250,000

Base Amount for Research: $1,000,000

Research Rate= $550,000/$1,000,000

= 55% F&A rate for Research



Basis for various rate calculations

Functions:

Instruction

Research

Public Service

Location of the function:

On Campus

Off Campus (usually only administrative costs, capped at 26%)



F&A Rates Example

Organized Research On Campus: 50%

Organized Research Off Campus: 26%

Instruction On Campus 55%

Instruction Off Campus 26%

Other Sponsored Activities On Campus 36%

Other Sponsored Activities Off Campus 26%



Rate Application Shortfalls

Barriers to charging the full F&A rate

F&A Waivers

Institution grants privileged exceptions

Institution wants to foment a relationship with a new sponsor

Sponsor limitations

Ex. USDA 8%

Ex. Department of Education 8%

Ex. Foundations (common with humanities programs)



Rate Application- TDC vs. MTDC

TDC vs. MTDC

TDC base contains more costs, thus potential for more recovery

MTDC

F&A rate approved by cognizant agency is based on MTDC

Most Federal sponsors specifically require use of MTDC

TDC

Used when a sponsor has a rate limitation

Usually only Non-Federal Sponsors

Unless otherwise stated in a rate agreement, your institution may choose to charge the reduced rate on a TDC basis.



Risks in the Rate Application

Indirect vs. Direct:

Cost Accounting Standards (CAS)

CAS states that costs be treated consistently

A-21 mentions notable exceptions where indirects can be charged directly

Many universities have a mechanism to allow for the direct charging of administrators, supplies, memberships, and postage.

Risk of “double charging”



Questions?

Thanks for attending!

Contact info:

Anne Feuerborn [email protected]

Louis Guin [email protected]

mailto:[email protected]

mailto:[email protected]

Facilities and Administrative Rates- What does this really mean? Louis Guin, Manager, Bearing Point...

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