Direct Costs vs. Indirect Costs
Every sponsored project has both Direct and Indirect Costs. The direct costs are those that can be specifically and easily identified with a particular project or activity and are allowable under the sponsoring organizations guidelines. Indirect costs, according to the federal Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards issued by the Office of Management and Budget (Uniform Guidance), are those costs that are incurred for common or joint objectives, and cannot be easily and specifically identified with a particular sponsored project, an instructional activity, or any institutional activity. These costs are also sometimes called “facilities and administrative costs (F&A)” or “overhead.” The terms indirect costs, overhead costs, and F&A costs are synonymous. These indirect costs are different than direct costs.
University indirect costs include building and equipment depreciation and use allowance; general administration; departmental, sponsored program, and sponsored project administration expenses; interest; operation and maintenance expenses; library expenses; and student administration and services expense. Most federal agencies and other sponsoring organizations pay the university for indirect costs in addition to the direct costs of a grant or contract award.
Thus, indirect costs are the related costs of using the University's facilities and administrative support that cannot be claimed as direct costs. Indirect costs are not profit; instead they are part of the real costs of conducting the outside funded R&D. By collecting indirect costs from sponsors, UL Lafayette is recovering those expenses. The federal government has established what costs may be charged as direct costs and what costs are considered included in indirect costs. The following summary gives a brief description of costs and whether they should be charged as direct or whether they are included in the indirect cost calculations. This list is only a summary; a comprehensive list can be found at the Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards issued by the Office of Management and Budget.
| Direct Costs (Allowable as Budgeted Items) | Indirect Costs (Not Allowable as Direct Costs) |
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Salaries/Wages & Fringe Benefits: Faculty, other professionals, technicians, post doc associates, research associates, graduate and undergraduate students |
Salaries/Wages & Fringe Benefits: Clerical and administrative assistants, fiscal manager, secretaries, and directors (see Considerations for Administrative Salaries on Sponsored Awards) |
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Materials and Supplies: Project related research and scientific supplies. Any equipment or software that does not qualify under the equipment definition |
Office Supplies/Books & Journals: Pens, pencils, paper, staples, transparencies, toner cartridges, diskettes, printer paper, word processing and spreadsheet programs (see Considerations for Books & Journals) |
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Equipment: Equipment used for scientific, technical, and research purposes that costs greater than $5,000 and has a useful life of at least one year (see Direct Charges for Computing Devices) |
Equipment: General office equipment such as copiers, printers, office computers, and fax machines |
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Facilities: Project specific space rental for off-campus facilities from a third party. Use of specialized equipment for which there is a commonly applied charge |
Facilities: Utilities, building use, grounds maintenance, renovations, and alterations of University property whether on- or off-campus |
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Travel: Transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the institution related to the project |
Travel: Costs of entertainment, and any costs directly associated with such costs (such as tickets to shows or sports events, meals, lodging, rentals, transportation, and gratuities) |
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Telephone: Long distance calls, phone surveys or calls to project participants |
Telephone: Local calls, cell phones, installation and maintenance |
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Maintenance & Repairs: Requires justification that the expenditures are required and directly related to the specific award (e.g., less expensive than buying new) |
Maintenance & Repairs: Maintenance and repairs to general purpose equipment, buildings, and grounds |
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Advertising: Recruitment of research subjects or for job openings approved for a specific project |
Advertising: Public relations to promote unit/department/college |
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Publications: Project specific and project related. Copying included only when charges can be tracked |
Publications: General printing and copying |
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Memberships, subscriptions and professional activity: Membership in business, technical, and professional organizations; related to and supportive of the project. Subscriptions to business, professional, and technical periodicals; related to and supportive of project |
Memberships, subscriptions and professional activity: Membership in any civic or community organization Membership in any country club or social/dining club or organization (see Considerations for Subscriptions, Dues & Memberships) |
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Freight/express deliveries and Postage: Justification required that cost needed to transport project material in a timely way |
Freight/express deliveries and Postage: Routine or internal courier |
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Consulting: Project specific |
Consulting: General, management, financial |
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Miscellaneous Costs: Subcontract costs, recharge center charges, and training costs |
Miscellaneous Costs: Computer network charges and utilities. |
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Participant Support Costs: Participant support costs were traditionally allowed only by certain federal agencies or funding announcements. Under the Uniform Guidance, these costs are allowed with prior written approval of the funding agency, provided they are programmatically justified. The budget justification should describe the purpose for the costs and the way in which they will directly benefit the proposed project’s scope of work. These costs must be excluded when calculating the Modified Total Direct Costs (MTDC) to determine the overall project’s F&A costs. |