The indirect cost of a sponsored project is any cost that cannot be directly attributed to that project. Examples of indirect cost (sometimes called "administrative cost " or " overhead") are:
depreciation of buildings and equipment
library and computing services
Indirect costs are viewed by the federal Office of Management and Budget as real and legitimate costs that may properly and legally be billed to a funding agency. Most universities, EMU included, use a portion of their indirect cost recovery as venture capital to build research capacity and thus increase their external-funding volume.
How Is Indirect Cost Redistributed?
Redistribution policies vary widely among institutions. At EMU 40% of all indirect cost recovery goes to the General Fund, 50% goes to the division in which the grant or contract originated, and 10% goes to ORD for research administration. The divisional share may be further subdivided according to divisional policy. In the Division of Academic Affairs, for example, the Project Director receives 5%, while the remainder is divided equally between the Offices of the Provost, the Dean, and the Project Director's Unit.
What Is EMU's Indirect Cost Rate, and How Is It Determined?
EMU's current federal indirect cost rate is 45.5% of modified total direct costs for on-campus projects and 24% for off-campus projects.
Indirect cost rates vary from one institution to another and are based on such factors as the cost of doing business in a particular geographical area, the institution's infrastructure for research, faculty salary rates, and the like. EMU's rate is negotiated with the US Department of Health and Human Services.
Is any individual or unit at EMU exempt from paying indirect cost?
What is the University's policy with regard to charging indirect cost?
ORD is expected to enforce the University's long-standing policy of seeking maximum allowable indirect cost on all grants and contracts.
"Maximum allowable indirect cost" does not mean that a standard rate will be applied to all proposals. Many agencies dictate their own maximum indirect-cost rates, some consider it a negotiable item, and some disallow it altogether.
To enhance the competitiveness of a proposal, the Director of ORD is authorized to negotiate a lower indirect-cost rate, subject to approval by the Provost. When less than maximum allowable indirect cost is approved, the rationale will be noted on the transmittal, and any indirect cost that has been voluntarily forgone will be recorded as an in-kind contribution by the University.
Principal investigators should not negotiate indirect-cost rates with a funding agency. Any questions about allowable costs should be directed to your designated ORD grants officer.
ORD grants officers have been directed to verify claims made by principal investigators and project directors that an agency refuses to pay indirect cost, or will pay only a certain percentage or amount.
When a proposal is not in the best interests of the University, or when the University's in-kind commitment or match is not justified by a direct benefit to the University's mission, administrators may withhold signature approval of the transmittal until these concerns are satisfactorily addressed.
Principal investigators and project directors who expect to submit proposals asking less than the maximum allowable indirect cost should notify their ORD officer as early as possible in the proposal-writing process.
Unless prior approval has been granted by the Director of ORD, bids and proposals for contracts with business and industry must include the full indirect-cost rate.