Procedure | Indirect Costs on Contracts and Grants

Indirect costs (overhead) are costs incurred by the University when conducting research projects. These costs cannot be identified specifically with a particular project or program but are costs incurred in providing services by the Business Office, departmental chairpersons and secretaries, the operation and maintenance of University facilities, the Library, etc.

The rate for federal projects is determined by the Division of Cost Allocation, U.S. Department of Health and Human Services, in accordance with 2 CFR 200.

The University's indirect cost rate applies to all grants, contracts, and agreements unless special agreements have been established.

The University's indirect cost rate for projects conducted for agencies of the State of Tennessee was established in the Spring of 1991 by the Tennessee Higher Education Commission in concert with the Tennessee Department of Finance and Administration.

Procedure
Treatment of Fringe Benefits:

Fringe benefits are specifically identified to each employee and are charged individually as direct costs.

Fringe Benefits include FICA, retirement and Hospitalization insurance.

Treatment of Paid Absences:

Vacation, holiday, sick leave pay and other paid absences are included in salaries and wages and are claimed on grants, contracts and other agreements as part of the normal cost for salaries and wages. Separate claims are not made for the costs of these paid absences.

On-Campus

The federally negotiated indirect cost rate is based on a percentage of modified total direct costs and is to be charged on all federal projects. Modified total direct costs are the total direct costs excluding capital expenditures (buildings, individual items of equipment (equipment means an article of nonexpendable tangible personal property having a useful life of more than one year, and an acquisition cost of $5,000 or more per unit). Also excluded is that portion of each subaward in excess of $25,000 and flow-through funds. The state established indirect cost rate based on a percentage of total direct costs, including equipment, is to be charged on all state projects. The minimum that may be charged for projects funded by industry is the federally negotiated rate. The following table shows the rates and agencies to which the charges apply. The Office of Research will provide updates as changes occur.

Federal

EFFECTIVE: JULY 1, 2013

For All Programs (Research, Instruction, Training)

42% of Modified Total Direct Costs On-Campus

11.5% of Modified Total Direct Costs Off-Campus 

Modified total direct costs (MTDC) are the total direct costs excluding capital expenditures (buildings, individual items of equipment (equipment means an article of nonexpendable tangible personal property having a useful life of more than one year, and an acquisition cost of $5,000 or more per unit). Also excluded is that portion of each subaward in excess of $25,000 and flow-through funds.

These rates apply for all Federal Agency funding except if otherwise specified by the agency.

Participant Support Costs are typically excluded from the MTDC calculation by NSF. Check with the funding agency to ensure compliance.

State (TN) Government

The agency must provide documentation requiring a rate lower than the federally negotiated rate above.  

Business & Industry

For Research Minimum of 42% of Modified Total Direct Costs

For Instruction (Training) Minimum of 42% of Modified Total Direct Costs

If a funding agency has a policy/guideline prohibiting full indirect cost recovery or has special requirements regarding indirect costs, a copy of the policy must accompany the proposal at the time it is submitted to the Office of Research for University approval. If federal funds are "spilled through" a state agency, full federal indirect costs for research are encouraged.

Off-Campus

When determining whether the on‐ or off‐campus rate is to be used, especially when multiple institutions are involved, one should only consider Tennessee Tech’s portion of the project and not the project as a whole. If more than 50% of Tennessee Tech’s part of the project utilizes Tennessee Tech’s facilities and resources, the full indirect cost rate of 42% should be charged for the project. If less than 50% of Tennessee Tech’s part of the project utilizes Tennessee Tech’s facilities and resources, the off-campus rate should be utilized.

If a project is conducted off-campus and no University facilities are involved, an off-campus indirect cost rate of 11.5% of modified total direct costs is to be used on federal projects. Off-campus is defined as: For all activities performed in facilities not owned by the institution and to which rent is directly allocated to the projects(s), the off-campus rate will apply. Grants or contracts will not be subject to more than one F&A cost rate. If more than 50% of a project is performed off-campus, the off-campus rate will apply to the entire project. In certain instances where a student is working at an off-campus site and the project does not involve faculty time and all University expenses are recovered including student fees, an indirect cost recovery may be waived. If faculty time and expenses are involved, the off-campus rate of 11.5% of modified total direct costs is to be charged.

Summary Table 

Agency Type  Minimum Rate
Federal
EFFECTIVE:
JULY 1, 2013
For All Programs (Research, Instruction, Training)
  • 42% of Modified Total Direct Costs On-Campus 
  • 11.5% of Modified Total Direct Costs Off-Campus
  • Modified total direct costs (MTDC) are the total direct costs excluding capital expenditures (buildings, individual items of equipment (equipment means an article of nonexpendable tangible personal property having a useful life of more than one year, and an acquisition cost of $5,000 or more per unit). Also excluded is that portion of each subaward in excess of $25,000 and flow-through funds.
  • These rates apply for all Federal Agency funding except if otherwise specified by the agency.
  • Participant Support Costs are typically excluded from the MTDC calculation by NSF. Check with the funding agency to ensure compliance.
State (TN)
Government
 
  • The agency must provide documentation requiring a rate lower than the federally negotiated rate above.  
Business and Industry  
  • For Research:  Minimum of 42% of Modified Total Direct Costs
  • For Instruction (Training):  Minimum of 42% of Modified Total Direct Costs

Institutional Agreement
The University has one on-campus institutional agreement for research, and others will be negotiated as warranted. The Tripartite Cooperative Agreement between the U.S. Geological Survey (USGS), the Tennessee Wildlife Resources Agency (TWRA), and Tennessee Technological University (TTU) provides funds for the operation of the Cooperative Fishery Research Unit. Under this tripartite agreement, Tennessee Tech is obligated to share in the cost of research conducted through the Unit. No indirect costs are charged against the annual base support funds provided by USGS and TWRA for the Unit. Research projects funded by USGS, TWRA, and other state agencies and administered through the Unit must have an indirect cost rate of 15% of total direct costs, including equipment.

Projects funded by a federal agency other than USGS and processed through the Unit will be charged full indirect costs of 42% of modified total direct costs.

Distribution of Indirect Cost Returns

An amount equal to the indirect costs received by the University is reallocated from the University's General Fund the second fiscal year following collection (i.e., 2004-2005 indirect costs received will be reallocated in 2006-2007) and is distributed as follows:

  • Office of Research 30%*
  • Generating Department 20%
  • Generating College 10%
  • General Fund 30%
  • Faculty 10%

Total 100%

* A portion (50%) of this percentage is allocated to the Faculty Research Grants Program and the remainder is used for matching research equipment requested on grants and contracts and for services that support the research enterprise.

Updated March 27, 2018

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