Determining Indirect Cost Rate
Sidebar
Indirect costs are assessed on a percentage basis against certain direct costs of the project. Four key factors are used to help determine the appropriate indirect rate to apply to a sponsored project: location, activity, base, and sponsor.
Determining Indirect Cost
Use the on-campus rate when:
- A project is being conducted in space owned by the university
- A project is being conducted in leased space and the lease costs are charged to the university
Use the off-campus rate when:
- A project is being conducted in facilities not owned by the university
- A project is being conducted in leased space and the lease costs are being charged directly to the project
- More than 50% of the salaries and wages being directly charged to the project are incurred at an off-campus facility
If a project is determined to be off-campus, it is considered wholly off-campus. Separate on- and off-campus rates cannot be applied to a single project.
Knowing the type of activity being conducted is critical to selecting the right indirect cost rate. The activity types negotiated and/or recognized by UofL are:
- Organized research, including research training
- Instruction
- Other sponsored activities
- Industry funded clinical projects
The base is the sum of direct costs to which the indirect cost rate is applied.
Total Direct Costs (TDC)
In this base type, indirect costs are assessed on all direct costs. The TDC cost base is used for agencies or nonprofits when published, universally applied policies restrict indirect cost recovery below UofL’s negotiated rate. TDC is also used for off-campus industry-sponsored clinical projects.
Modified Total Direct Costs (MTDC)
The MTDC base is the default base used for federal and most other projects. Modified total direct costs consist of all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award). These form the base to which indirect costs are applied.
Under the MTDC base, indirect costs are NOT applied to equipment (as defined in UofL's rate agreement), capital expenditures, patient care costs, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $25,000.
Total Costs (TC)
The TC base includes all direct and indirect costs, with no exclusions. Indirect costs are calculated as a percentage of the total project amount.
UofL’s negotiated rate agreement applies to projects sponsored by the federal government. With few exceptions, the rates are also applicable to other sponsor types, including state government agencies, local government agencies, foundations, and nonprofits.
Industry Funded Clinical Trials and Clinical Research
Industry funded clinical research and clinical trials are managed under a separate indirect cost rate structure. Industry funded clinical programs conducted on-campus must use the federally negotiated organized research rate. Industry funded clinical research programs conducted off-campus must apply a 30% rate calculated on total direct costs (TDC).
UofL has adopted the following definition from the National Institutes of Health for a clinical trial:
Research study in which one or more human subjects are prospectively assigned to one or more interventions (which may include placebo or other control) to evaluate the effects of those interventions on health-related biomedical or behavioral outcomes.
In comparison, UofL considers the following to define clinical research:
Non-interventional or non-prospectively assigned project conducted with human subjects or on human-derived material such as tissues, specimens, and cognitive phenomena (e.g., observational or specimen study, chart review, survey research).
Indirect Cost FAQ
The federal government recognizes that it is not possible to accurately capture all costs of an organization that are allocable to a particular sponsored project. Federal guidelines define a process for grouping costs into specified cost pools, which are then distributed to appropriate activities in a cost allocation process. Once the cost allocations are made, negotiations take place between the university and its cognizant agency to negotiate the indirect cost rates. Rates cover organized research, instruction, and other sponsored activities.
Federally negotiated indirect cost rates are applied to modified total direct costs (MTDC). Modified total direct costs exclude equipment, capital expenditures, charges for patient care and tuition remission, rental costs, scholarships and fellowships, as well as the portion of each subaward in excess of $25,000. At UofL, equipment is defined as tangible personal property (including information technology systems) having an acquisition cost of $5,000 or more and a useful life of more than one year (see UofL's rate agreement for additional details). Please note that on project budgets that include indirect rates other than the federally negotiated rates, the rate is generally applied against total direct costs (TDC).
Please see UofL’s Indirect Cost Distribution Policy.
For the latest indirect cost rates, see UofL's current Indirect Cost Rate Agreement.
Only in exceptional circumstances are reductions in the negotiated indirect cost rate considered. For additional guidance see the F&A Reduction/Cost-Burdening Request Form.