Q&A: UM cost sharing in sponsored projects

What is cost sharing?

Cost sharing is the financial support contributed by universities to sponsored projects. Some federal agencies have a long-standing expectation that the cost of the research they sponsor will be shared by universities because the benefits are shared. The notion is that research often provides important educational benefits to students (both in exposure to leading-edge ideas and in financial assistance) as well as professional benefits to the faculty. These agencies argue, therefore, that universities should be willing to help support sponsored projects. This general expectation is open to various interpretations by agencies and institutions, and therefore, specific cost-sharing requirements vary widely from sponsor to sponsor.

For some sponsored programs, cost sharing has been made a requirement by Congress. In others, cost sharing is explicitly mandated by the sponsoring agency in the written program guidelines. In other programs, however, cost sharing is more expectation than requirement. Agency staff members, wishing to spread their resources over the largest possible group of applicants, seek to place pressure on universities to share as much of the cost of the research as possible. This pressure is often reinforced by the attitudes of peer reviewers.

It is important, therefore, to distinguish between, on the one hand, cost sharing that is actually required and constitutes an "entry fee" for participation in special external support programs and, on the other hand, cost sharing that is "expected" and that represents a negotiating stance. University officials with responsibility for budgets at the various levels need to think carefully about the amount of institutional funds that can be used as leverage for externally sponsored projects. And, in this thinking, they need to know when they are paying an "entry fee" and when they are "negotiating a price."

The University of Michigan policy is to assume a cost-sharing commitment only when required by the sponsor or by the competitive nature of the award and then to cost-share only to the extent necessary to meet the specific circumstances.

Cost sharing generally is the responsibility of the University unit. In some instances, however, funds may come from a number of sources, including department, college/school, and central administration.

What cost sharing do federal agencies require?

Read the guidelines for the particular funding opportunity, check the agency website for policies, or contact your DRDA project representative. The National Institutes of Health, which supports more research at the UM than any other federal agency, requires no cost sharing on individual research grants.

In general, grants from most federal agencies are likely to require at least a token level of cost sharing. Contracts, on the other hand, which are used when the federal agency is seeking a specified service or product from the University, typically do not require cost sharing. For details on particular sponsors, however, see the publication mentioned above.

What UM expenses can be used as cost sharing?

University cost sharing most often takes the form of faculty time committed to the project without cost to the sponsor. Such cost sharing is usually borne by the unit.

Any percentage of time that the faculty member proposes to spend on the project can be identified in the proposed budget as cost sharing. The signature of the dean, director, or department head on the Proposal Approval Form (PAF) is taken as authorization for the commitment of this amount of time. The faculty member and unit head need to agree on whether or not a reduction of non-research duties is necessary.

Cost sharing can also be accomplished by using University contributions of any other direct cost items. The primary responsibility for cost sharing rests with the academic unit. However, the Office of the Vice President for Research may be able to supplement academic unit cost sharing when necessary to meet sponsor requirements. OVPR has a limited amount of cost-sharing funds and principally assists in the acquisition of major equipment items or necessary renovation of facilities that are clearly beyond the capacity of units to handle.

For the guidelines and application forms for applying to the OVPR for cost-sharing funds, see "Cost Sharing Support"

In addition to specific commitments of funds, UM proposals sometimes show in a general way the institutional resources that have gone into the building of a research program. Although such general support is cost sharing, interpreted broadly, it does not meet the federal requirement for a specific contribution to a proposed project unless it is purchased for the specific project and acquired within the time period of the award.

To meet cost-sharing requirements, the University specifies in proposal budgets submitted to sponsors the financial contribution that it will make to the proposed project if the sponsor approves it for funding.

How does the UM record its commitment to cost sharing?

Cost sharing will be considered a specific commitment and mandatory in terms of subsequent documentation requirements when it is a stated requirement of the sponsoring agency or is considered significant to the negotiation of the award. The University will consider a cost-sharing commitment to be significant if it is explicitly set forth on the Proposal Approval Form (PAF) or is required as a condition of the award agreement. The Project Award Notice (PAN) will reflect the University's cost-sharing commitment to the sponsor, including any changes in the programmatic or financial scope of the project that may have occurred during negotiations.

To meet the reporting and auditing requirements of the sponsoring agencies, cost-sharing commitments must be charged either to a separate cost-sharing account related to the specified project or to the sponsored project account. Cost-sharing commitments for faculty and staff salaries, benefits, materials and supplies, travel, printing, and other operating costs should be recorded in a cost-sharing account. Cost-sharing commitments in support of graduate student tuition and fees and equipment acquisitions should be recorded in the sponsored project account (unless other arrangements are made). The funds required to cover the portion of these charges that represent University cost-sharing will be transferred into the sponsored project account.

Departments/research units will be responsible for designating on the Proposal Approval Form (PAF) the appropriate amounts and sources of cost-sharing dollars. The account number(s) for the cost sharing amount will be provided on the Project Award Notice (PAN), which is issued by DRDA at the time an award is received and a sponsored project account is established. The use of the PAN as the "trigger" will facilitate the tracking of cost sharing commitments.

How are the cost-sharing expenditures involving faculty time monitored? The actual expenditure of funds involved in cost sharing by means of faculty time is managed through the "Monitored Workload System." A faculty member's division of time among University accounts is recorded on his or her appointment form. When a faculty member is committed to spend a certain percentage of time on a sponsored project, the appointment activity record form or TAD (turn-around document) is prepared by the faculty member at the time the project is funded indicating the revisions made necessary in the appointment form by the faculty member's commitment to that project. This TAD is submitted by the faculty member's unit to the Personnel Department. The result is that the faculty member's total working time is newly apportioned (by percentages, not hours) to reflect the current commitments.

The second stage of the "Monitored Workload System" is the periodic submission to Staff Records by the faculty member's unit of a certification in which the faculty member and the unit head certify that he or she actually divided the available working time according to the percentages specified on the revised appointment form.

The appointment form (with its annual certification) are periodically reviewed by University and federal auditors to ensure that the University's cost-sharing commitments are appropriately executed and monitored.

Voluntary commitments, not required as a condition of the award, will not be reflected in the final budget agreement between the University and the sponsoring agency, and therefore, are not identified in the University's accounting and personnel records. Examples of voluntary commitments include statements in the proposal narrative that identify the available capacity and facilities of the University to carry out the proposed research. When cost sharing is not a specified requirement of the sponsor, it may be desirable to reflect an "anticipated supporting commitment (not auditable)" in lieu of cost sharing. Such a commitment is not to be considered a part of the proposed budget.

What is the Vice President's view of cost sharing?

Because most of the University's resources are distributed via the budgeting process and formula allocations to the deans and directors of academic units for management, with only a small amount retained by the central administration as discretionary funds, the responsibility for cost sharing lies principally in the academic units.

The Vice President for Research has limited funds to assist in cost sharing when the amount needed exceeds unit resources and is required by the sponsor. By design, these funds are available primarily to help in acquiring major research infrastructure items (major equipment and facilities).

Obviously, this modest amount of central funds will not cover every request. The Vice President, therefore, must ration their use, taking into consideration the sponsor's requirement, the unit's contribution, the potential impact in leveraging external support, and unit and institutional priorities.

The Vice President believes that the University should not gratuitously offer cost sharing in the hope that it will make proposals "more competitive." Because the University's resources for cost sharing are extremely limited, they need to be used as strategically as possible. We should be aware that some of our peer institutions minimize the extent of their cost sharing. To the extent that the UM and other institutions offer more than is necessary, the agency expectations and requests for cost sharing will escalate as they try to accommodate increasing numbers of requests. In effect, any superfluous cost sharing on our part simply permits agencies to support more work at other less generous institutions.

Some Frequently Asked Questions

1. Why is faculty time the preferred means of cost sharing?

First, fairness to others in the University community dictates that cost sharing should be borne, in the main, by the unit in which the sponsored project will be conducted, and a percentage of faculty time is generally the resource that the unit can most easily offer as cost sharing. Most faculty appointments include some time intended for research or scholarship, whether externally sponsored or not; thus contributing such time to a sponsored project does not usually dislocate a unit's budget as severely as would, say, taking funds away from an equipment account. Second, cost sharing by means of a percentage of faculty time is easier to track than cost sharing through other budget items such as supplies or computer costs. Supplies, for example, are typically bought in quantity for all needs of the department, and separately monitoring the use of supplies for an individual project would be a headache.

2. How can a faculty member account for the hours worked in addition to 40 per week?

The faculty member's appointment is given in terms of percentage, not hours. Assuming a full-time appointment, all the commitments must total 100%. The number of hours per week is not the appropriate measure.

3. Can a faculty member's total time commitments on various proposals add up to more than 100%?

It is possible that a person's proposed future time commitments could total more than 100%, including all proposals outstanding and all current appointments. The expectation in such a case is that not all of the proposals will be funded. If, by chance, they are, the faculty member would have to reduce some of the commitments so that the total appointment is 100% (if full-time).

4. Why should a faculty member be held to a time clock when the hours worked are frequently an inseparable combination of research, instruction, and service?

This concern is frequently expressed by faculty members and has often been argued with federal auditors and other officials. The university world recognizes that it is extraordinarily difficult for faculty members to separate for accounting purposes what is essentially integral in the academic environment. The federal authorities maintain, however, that, in order to benefit from federal sponsorship, universities must devise some viable means to estimate and record allocations of faculty time to various functions. The alternative is not to accept federal support.

Actually, our monitored workload system is not as onerous as faculty members might fear before gaining some experience with it. They are not required to hold a stopwatch on themselves. They merely have to affirm, once per year, that they have actually divided their working time in accordance with the percentages of time indicated on their current appointment form (and, if they at any time realize that they will not be able to so affirm, they are obligated to submit a TAD ("turn-around document") to change the appointment form.

5. What happens when a faculty member who has a 100% teaching appointment gets a sponsored research project requiring a 20% time commitment but receives no reduction in teaching load?

Actually, if the sponsored research project is funded, the teaching appointment will have to be reduced to 80% (to accommodate the 20% appointment on the sponsored project), and the department head agrees to this reduction by signing the proposal approval form.

The real point of the question presumably is not merely whether the department head will reduce the stated percentage on the appointment form but whether he or she will also reduce the number of classes taught or other workload. This is a matter to be negotiated with the department head at the time the proposal is submitted.

Faculty members sometimes begin participating in sponsored research without reductions in the number of assigned classes. The additional load may seem unfair at first view, but one should remember that appointments in academic departments are intended to include some time for scholarship and research. Moreover, the department may assume in some cases that, with increasing experience, the faculty member will need less time to prepare for classes, or that the needed extra time for the project can be found mainly in the summer months. In any event, the faculty member should reach an understanding with the department head in advance and redefine his or her commitments so that the agreed-upon time (over the total project budget period) can be devoted to the project.

6. Is outside consulting permitted when a faculty member is paid entirely from sponsored funds?

Sponsors rarely raise objections to project directors following University policies and practices as long as these policies and practices are followed consistently and across the board. Thus project directors may engage in outside consulting as long as it is permitted by the faculty member's unit (most academic units permit up to four days per month for consulting) and as long as the consulting does not unduly interfere with performance on the sponsored project.

Consulting within the University is another matter. Sponsors generally will not permit a project to employ a faculty member from the same University as a consultant. All such faculty contributions to the project are to be included as personnel costs and paid at the faculty member's regular salary rate.

7. How does OVPR make decisions on requests for cost sharing?

See: Cost Sharing Support for details about applying to the Office of the Vice President for Research for cost-sharing support. The highlights are as follows:

1. For Amounts up to $5000: Cost sharing of direct costs up to a limit of $5000 can be authorized by DRDA on the Proposal Approval Form (PAF) at the time the proposal is submitted.

2. For Amounts over $5000: Requests for cost sharing of direct costs of more than $5000 are reviewed by OVPR on a competitive basis. OVPR reviews requests for cost sharing with the appropriate DRDA project representative and the relevant research dean when necessary. In reaching a decision, OVPR takes into account whether the cost sharing is required by the sponsor, as well as the unit contribution, the potential impact on leveraging external support, and unit and institutional priorities. Cost sharing requests may take the form of a telephone call, electronic mail message, or memorandum. OVPR expects that requests will be submitted at least one week in advance of proposal submission to DRDA.

8. How much money does OVPR have for cost sharing?

About $1.65 million in the Vice President's annual budget is specifically designated for cost sharing. Most of the requests are for amounts in the range of $5,000 to $50,000. When requests for very large amounts of cost sharing appear justifiable, the Vice President consults with the other executive officers to determine if other University funds can be made available for the requested purpose.

9. Will OVPR automatically match the funds contributed by a faculty member's unit for cost sharing?

No. This is an often-heard misconception. The unit's cost sharing is determined before the OVPR review takes place. Although the end result may be that the unit and OVPR each contribute the same amount toward the cost sharing, matching is not automatic.

10. Under what circumstances can indirect costs be waived as a form of UM cost sharing?

The University strives to protect the integrity of the process by which it is reimbursed for indirect costs. Waiver or reduction of indirect costs is rare except for private foundations and charitable organization sponsors with established policies regarding indirect cost reimbursement. Where full indirect costs are not charged to the sponsor, they still should be shown on the budget as a cost-sharing expense being borne by the University.

11. Rumor has it that the best strategy for obtaining cost-sharing support from OVPR is to make the request at the last minute just as the proposal is due. Comments?

Rumor is mistaken. Last-minute requests, except in emergencies outside the control of the requestor, may simply not be able to be handled in time, leaving the applicant unable to specify an institutional commitment in the proposal. Although some agencies permit the submission of supplemental information to the original proposal, they cannot guarantee that it will be considered fully. If an emergency commitment is made, it is likely to be less than can be provided with full consideration. The OVPR has developed a streamlined system for fair review of requests for the limited funds available and appreciates the cooperation from applicants and their units in following the guidelines set forth.

When proposals must be prepared at the last moment, owing to circumstances beyond the investigator's control, the OVPR provides two alternatives for required cost sharing: (1) the proposal can state that University cost sharing has been requested and is being reviewed; (2) the proposal can include a commitment for the cost sharing that has been requested of OVPR with the agreement of the requestor's unit that it will provide the funds if OVPR turns down the request during the subsequent review. These procedures are spelled out in the booklet on applying for funds from the OVPR referred to above.

12. In a case where cost sharing is requested for necessary equipment and a sponsor cuts back the total budget, if OVPR also cuts back its cost sharing, doesn't this severely penalize the investigator? The equipment cost remains the same regardless.

Because the University's funds for cost sharing are severely limited, it is reasonable that University cost sharing be tied to some extent to the amount of funding provided by the sponsor. Thus, when a proposed project budget is significantly reduced by the sponsor, we would expect in the negotiation with the sponsor to reduce the University's cost sharing also. Such cases, however, are decided individually; there may be circumstances when a project must have an expensive piece of equipment if it is to be undertaken at all. In the usual case, negotiation with the sponsor can arrive at reasonable compromises when significant cutbacks are necessary.

13. Many investigators have the view that they are required to spend undue time and energy "putting together a cost-sharing package" by playing off one administrator against another, gradually ratcheting up the cost-sharing commitments. Comments?

This view, unfortunately, reflects a situation that has too often occurred and that naturally develops when the procedures for negotiating cost sharing are not thoroughly spelled out. The OVPR policies and procedures detailed in the Cost Sharing Support are intended to reduce time-consuming bargaining and gamesmanship and to ensure that requests for cost sharing are handled in an efficient and equitable manner. In general, the procedure calls for the requestor to settle the question of the cost sharing available from his or her unit(s) before applying for cost sharing from OVPR.

14. What are Cost Accounting Standards and how do they affect cost-sharing requirements on sponsored projects?

The Cost Accounting Standards Board (CASB) was established by Congress in 1970 and currently operates as an independent board within the Office of Federal Procurement Policy of the Office of Management and Budget. Between 1970 and 1980, the Board formulated nineteen cost accounting standards to govern the measurement, assignment, and allocation of costs to federal contracts awarded to all private and non profit organizations that meet the $10 million threshold in terms of annual government contracts. Until recently, however, colleges and universities have been exempted from compliance with these standards.

In November 1994, the Board approved the application of four of the 19 cost accounting standards to colleges and universities, following prolonged discussions with the Office of Management and Budget, other federal agencies, and organizations representing institutions of higher education. These cost accounting standards became effective on January 9, 1995, and are applicable to educational institutions that receive negotiated federal contract or subcontract awards in excess of $500,000.

Adherence to these cost accounting standards will have significant implications for the preparation and approval of budget materials for inclusion in proposals to federal sponsors. The University must provide assurances: (1) that the pricing of the proposed effort has been undertaken in a manner consistent with the capacity of the University's accounting system to accumulate and report expenditures incurred; and (2) that costs incurred for the same purpose in like circumstances have been treated consistently as either direct or indirect costs.

15. How are the consistency requirements under Cost Accounting Standards interpreted in terms of cost-sharing commitments?

The University is required to handle cost-sharing costs consistently and in accordance with OMB Circular A-110, which states that: "All contributions, including cash and third party in-kind, shall be accepted as part of the recipient's cost sharing or matching when such contributions. . . are verifiable from the recipient's records. . . .are necessary and reasonable for proper and efficient accomplishment of project or program objectives. . . .are allowable under applicable cost principles (i.e., A-21). . . are provided for in the approved budget when required by the federal awarding agency." In short, cost-sharing commitments offered by the University in support of a sponsored project must be treated in the same manner as are the direct costs charged to the sponsors of the project.

16. What about "voluntary" or informal cost-sharing?

Any cost-sharing "explicitly set forth in the Proposal Approval Form" will be considered to be a commitment significant to the negotiation of the award and will be subject to the reporting and auditing requirements of the agencies. The term "voluntary cost-sharing" is misleading. A more appropriate term would be "voluntary commitments"--commitments that are not required as a condition of the award. These commitments will not need to be reflected in the final budget agreement between the University and the sponsoring agency, and therefore, are not identified in the University's accounting and personnel records.

A good example of a "voluntary commitment" would be a statement in the proposal narrative that indicated it is the practice of the University to provide out-of-state tuition remission for those GSRAs who meet certain qualifications and that this commitment, on average, represents about $5,000 per term per qualified out-of-state GSRA. No money is put into the project account to cover this tuition remission, and therefore, the Principal Investigator cannot elect to spend these "voluntary commitments" on other direct costs.

17. How are increases in compensation costs treated under Cost Accounting Standards?

The procedures for estimating increases in salaries and benefits in the out-years of a multi-year project is no different under cost accounting standards than under previous practices. If the cost-sharing commitment is a percentage of effort (e.g., 20% of the Principal Investigator's academic year salary plus benefits), then it really should not matter to the sponsor if the Principal Investigator's salary increases by 4% rather than by the 5% figure shown in the proposed budget. However, if the budget proposes a $20,000 cost-sharing commitment, and this commitment is predicated on a 5% salary increase across-the-board for certain project personnel (but this relationship is not made explicit), then the University is obligated to document $20,000 in cost-sharing regardless of what the actual percentage increases are for these individual's salaries.

18. Why can't cost-sharing commitments for salaries simply be recorded on the TADs, as has been done in the past?

The turnaround document (TAD) is a personnel appointment form and currently is not linked directly to the University's accounting system. After careful review of the current practices in the use of TADs to record and monitor cost-sharing commitments from faculty and staff salaries, it was recommended by our consultants, Coopers and Lybrand, that a mechanism to record the transfer of funds be used for all cost-sharing commitments to ensure consistency and to establish an appropriate audit trail. This "fund transfer" is accomplished by the establishment of a separate cost-sharing account for each project account.

19. Can waived indirect costs be used to meet cost-sharing requirements?

The restriction on applying unrecovered indirect costs as cost-sharing comes from A-110, which states in section 23(7)(b): "Unrecovered indirect costs may be included as part of cost sharing or matching only with the prior approval of the federal awarding agency."

Revised March 1996

Minor updates May 2000