Memo to: Research Associate Deans
From: Jim Randolph
Subject: Policy Statement on Full Cost Recovery

It is the goal of the University of Michigan to recover the full costs of each individual sponsored project where permitted by the established policies of the funding agency. Full costs are defined as those costs that reasonably can be associated with and allocated to a particular project. They include costs that are generally treated as direct (costs that can be readily and specifically identified with a particular sponsored project relatively easily with a high degree of accuracy) and indirect (costs that are incurred for common or joint objectives and, therefore, cannot be identified readily and specifically with a particular sponsored project).

For sponsored projects supported by the federal government, Office of Management and Budget Circular A-21 (OMB A-21) prescribes the allowability of certain costs and the assignment of those allowable costs as direct or indirect. With certain limitations, OMB A-21 is intended to enable the University to recover full costs on projects sponsored by federal agencies.

(OMB A-21 uses the term Facilities and Administrative or F & A Costs to describe what most institutions typically refer to as indirect costs.)

Periodically, the Department of Health and Human Services (acting on behalf of the federal government) and the University negotiate an agreement setting forth indirect cost rates for three types of sponsored activities: organized research, instruction, and other sponsored activities. The agreement specifies the rates at which the University can recover its indirect costs associated with projects sponsored by all agencies of the federal government.

Non-federal sponsors are not bound by the terms of OMB A-21 and are not necessarily guided by the principle of full cost recovery for the University. In particular, not-for-profit agencies routinely refuse to reimburse the University for its appropriate indirect costs by prescribing indirect cost rates considerably lower than those set forth in the rate agreement with the federal government. In some instances these lower indirect cost rates are linked to a funding agency's operating philosophy of partnering with the University in developing new programs. In the majority of cases, however, it is simply an administrative decision on the part of the sponsor not to honor the University's established indirect cost rate agreement.

For a sponsored project that 1) is funded by a non-federal agency (with non-federal funds), and 2) does not include indirect cost recovery at the prevailing federal or industry rates, it is permissible to recover through direct charges, costs that can be attributed to that project, but that otherwise typically are treated as indirect. In all cases, the services or items being charged, must be allowable under University policy, must be associated with that specific project, and their costs must be proportionate to the level of their use on that project. Examples include: clerical and administrative salaries; space/facilities (see note below); routine postage; telephone line rental; memberships; subscriptions; and local area network expenses.

While the University encourages implementing these direct charges and wants them done uniformly across the campus, the final decision on including such charges in project budget remains with the individual schools, colleges, and institutes.

If you have questions or would like additional information, please let me know. [Jim Randolph, nihjim@umich.edu]

Space/facilities charge

The opportunity to directly recover space/facilities costs represents a change in policy and is effective July 1, 2000. In addition to the criteria noted above, the following specifics apply: