April 23, 2020
Indirect Cost Rate
Purpose and scope
When conducting sponsored projects, USC is required to apply the appropriate Facilities and Administrative (“F&A”) rate (also referred to as the “Indirect Cost Rate”) to the appropriate direct cost base for each project. Under federal requirements, and USC’s Indirect Cost Rate agreement with the federal government, different indirect cost rates applied to a modified total direct cost base (MTDC) have been established based on activity type and location of the work.
The purpose of this policy is to provide guidance to principal investigators and others responsible for the administration of sponsored projects on the requirements for determining the appropriate indirect cost rate(s) applicable to a particular sponsored project, and applies to all faculty and staff who are responsible for authorizing, processing, and monitoring charges to sponsored projects.
Indirect costs represent expenses that are not readily assignable to any single research or training project, but which represent the university’s costs to carry out research, training activities, and other sponsored programs. Examples include costs the university incurs to acquire and maintain buildings and equipment, operational support services such as maintenance and operations (utilities, janitorial services, police services, etc.), library operations, and other administrative services.
Indirect Cost Rate
The indirect cost rate is the mechanism through which the university recovers its indirect costs. The university periodically negotiates this rate (expressed as a percentage) with the government and applies the rate to a Modified Total Direct Cost base (e.g., salary, equipment, and travel specifically allocable to a project) of the project.
Modified Total Direct Costs
MTDC means 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). MTDC excludes equipment, capital expenditures, charges for patient care, rental costs of off-site facilities, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs.
On campus is defined under USC’s Indirect Cost Rate agreement with the federal government as sponsored projects that occur in university-owned or operated locations where indirect costs associated with physical plant and library are considered applicable to the project.
Off campus is defined under USC’s Indirect Cost Rate agreement with the federal government as sponsored projects that do not occur in university-owned or operated locations and where indirect costs associated with physical plant and library are not considered applicable to the project.
On and off campus
Sponsored projects that are conducted partially on-campus and partially off-campus.
If a sponsored project is being conducted in an on-campus location as defined in this policy, the current on-campus indirect cost rate applies to the project and must be accurately reflected in the budget for the project and applied to the project’s MTDC or sponsor’s applicable direct cost base. To determine the current on-campus indirect cost rate, visit the Office of Research website or contact the Department of Contracts and Grants.
If a sponsored project is being conducted in an off-campus location as defined in this policy, the current off-campus indirect cost rate applies to the project and must be accurately reflected in the budget for the project and applied to the project’s MTDC or sponsor’s applicable direct cost base. To determine the current off-campus indirect cost rate, visit the Office of Research website or contact the Department of Contracts and Grants.
If you are unsure whether a sponsored project is taking place in an on-campus or off-campus location, please consult with the Department of Contracts and Grants and/or the Office of Financial Analysis.
If the sponsored project is conducted in on- and off- campus locations, modified total direct costs or the sponsor’s applicable direct cost base must be apportioned between on-campus and off-campus sites consistent with where the work is performed with each location bearing the appropriate on-campus or off-campus rate. For guidance on how to appropriately apportion rates for projects conducted in both on and off campus locations, consult with the Office of Financial Analysis.
If the location of a sponsored project moves at any point during its performance, the principal investigator and school of the principal investigator’s primary appointment must perform an assessment to determine whether the new location(s) is on or off campus as defined in this policy, and to ensure the correct Indirect Cost Rate(s) is charged. For guidance on how to update a sponsored project with a new Indirect Cost Rate, please contact the Department of Contracts and Grants.
Principal investigators and research administrators who perform roles in proposal preparation are responsible for accurately disclosing in proposals the actual location(s) where the sponsored project will take place. For example, the central administrative office for a school or department cannot be identified as the location where the sponsored project will take place.
Exceptions to the negotiated F&A cost rates
The university requires the full recovery of direct and indirect (F&A) costs whenever possible. Exception requests to reduce or waive indirect costs must be submitted to the dean and/or designee of the school of the principal investigator’s primary appointment.
Office of Financial Analysis