F&A Proposal
Preparation &
Negotiation, and
Application of
Negotiated F&A
Rates
An Introduction to the Process
Pre-Conference October 12, 2015
Presenters
 Jim


Carter
Managing Director
Huron Consulting Group
 Mike


Legrand
Director, Costing Policy and Analysis
University of California, Davis
2
Where to Start?
Not Just Colleges & Universities
 Not-for-profit
Organizations
 Hospitals
 State
And Local Governments
4
Regulations
 Uniform



Colleges And Universities (Old circular: A-21)
Not-for-profits (Old circular: A-122)
State & Local Governments (Old circular: A-87)
 Not


Guidance (2 CFR Part 200)
covered in this presentation
Hospitals – OASC-3
For-profits – FARS
 Uniform
Guidance and OASC-3 are part of
the Code of Federal Regulations (CFR)
5
Different Terminology –
Same Concept
 Facilities

Colleges and Universities
 Indirect




And Administrative (F&A) Rates
Costs
Non-profit
State and Local governments
Hospitals (OASC-3)
CAS
 Burden
Rates
 Overhead Rates
6
Cost Reimbursement
Not a New Idea
 Most
grants are cost reimbursement
 You spend the money
 The Sponsor pays you back what you already
have spent
8
Reimbursement is Easy
for Some Costs
 Salaries
 Animals
 Supplies
Directly Benefit the Grant
9
Reimbursement is Harder
for Other Costs
 Buildings
 Equipment
 Utilities
and Maintenance
 Writing pay checks
 Top quality grant administration
 Top quality department support
Benefit Many Grants and Activities
Indirect Costs
10
What is Indirect Cost?
An indirect cost is a cost that benefits
different activities and cannot be easily
identified to benefit any one activity.
11
Direct Cost
Indirect Cost
Total Cost
12
Work the Equation
Total Cost
Direct Cost
??????
13
Work It Further
Indirect Cost
Direct Cost
Indirect Cost Rate
14
How It Works
 Indirect
Costs are NOT reimbursed on specific
identification
 Indirect Cost Rate is applied to a Direct Cost
Base
Indirect
Cost Rate
Direct
Cost Base
Indirect
Cost
Recovery
15
Is It That Simple?
16
Of Course Not
 Exclusions
 Allowable
Costs
 Unallowable Costs
 Allowances
 Limitations – Caps
 Multiple Rates
 Multiple Rate Bases
 Multiple Rate Types
17
How to Prepare a
Facilities and Administrative
Cost Proposal
How To Prepare An F&A Proposal –
At a Glance
1
2
3
Start with
Financial
Statement
Adjust to
Modified Total
Cost
Assign
expenditures to
cost pools
Calculate Rates:
Indirect /
Modified Total
Direct Costs
Allocate pool
costs to major
functions (bases)
Remove
unallowable
costs from pools*
6
5
4
19
1
Start with Financial Statement, Expenditures
Example of Major Functions in Higher Education*
Instruction
Organized
Research
Other
Sponsored
Activities
Other
Institutional
Activities
*Classification of major functions for F&A proposals may
differ depending on types of institutions
20
2
Adjust to Modified Total Costs
 Adjust

To Modified Total Cost
Minus Non-MTDC Items
 Student
Financial Aid
 Capital Expenditures
 Double Counted Items
 Patient Care
 Participant Support

Add Allocations
 State
Wide Cost Allocations
 Parent University Allocations
 University System Allocations
21
3
Costs are classified as Direct vs. Indirect (F&A)
Lab
Suppli
es
Fringe
Benefi
ts
PI
Salary
Direct Costs


Office
Compu
ter
Admin
Salary
Buildi
ng
F&A Costs
Direct costs: PI Salary, Lab Supplies, Fringe Benefits, Animals, PostDoc Salaries, Travel, etc.
Indirect costs: Admin Salary, General support, Office computer,
Library, Building, Custodial Services, etc.
22
3
Assign Expenditures to Cost Pools
 Identify Indirect Costs and Put in Pools
Facilities Related Costs





Building Depreciation/ Use
Allowance
Equipment Depreciation/
Use Allowance
Interest
Operations &
Maintenance
Library
Administrative Related Costs




General Administration
(GA)*
Department Administration
(DA)*
Sponsored Projects
Administration (SPA)*
Student Services
23
4
Remove Unallowable Costs from Pools
 Identify







Unallowable Indirect Costs
Fund Raising
Entertainment
Alcohol
Royalties
Judgments
Fines
Taxes
 Eliminate
From Indirect Cost
 Leave In Direct Cost
24
5
Allocate Pool Costs to Major Functions
 Identify
Direct Costs and allocate to Bases
(major functions)

Instruction, Organized Research, etc.
 Remember
Formula
Modified Total Costs
- Indirect Cost
=Modified Total Direct Costs
25
5
Allocation
Allowable
Facilities
Related
Indirect Costs
Allowable
Administrative
Indirect Costs
Pools:
F&A
Bases:
Organized
Research MTDC
F&A
Instruction
MTDC
F&A
Other Sponsored
Activities
MTDC
F&A
Other
Institutional
Activities
MTDC
26
5
Allocation
F&A Pool
Allocation Method
Building Depreciation
Space Study – Functionalized ASF
Equipment Depreciation
Space Study – Functionalized ASF
Capital Interest
Specific identification / Space Study – Functionalized
ASF
Operations & Maintenance
Space Study – Functionalized ASF, plus utility cost
adjustment
Library
User FTE’s & S&W or Special use survey
General Admin
MTDC of functions receiving services
Departmental Admin
Complex: Pool for each department / formula driven
based on faculty salaries and charging of support
staff
Sponsored Projects Admin
MTDC of functions receiving SPA services
Student Services
100% to instruction
27
6
Calculate Rates
 Calculate
Rate per Major Function
Indirect Cost
Modified Total Direct Cost
=
F&A Rate
28
Exercise
Reconciliation Schedule 1
30
Reconciliation Schedule 2
31
Reconciliation Schedule 3
32
Reconciliation Schedule 4
33
Reconciliation Schedule 5
34
35
Quiz
-Complete the Instruction Rate Schedule
Comparative Anatomy
Comparative Anatomy
 Colleges


and Universities (Uniform Guidance)
Short-Form
Long-Form
 Non-profit (Uniform Guidance)


Free Form
Isolate Fund Raising
 Hospitals

Follow Medicare Cost Plan
 State

(OASC – 3 http://rates.psc.gov/fms/dca/cfr45_pt74_appx_e.html )
and Local Governments (Uniform Guidance)
Follows Cost Elements
38
Comparative Anatomy
 Short







Form
One Rate
S&W or MTDC
Weak Departmental Allowance
O&M Carve Out For Auxiliaries
Low Rates
Easy To Review
S&W Adds Insult To Injury
39
Comparative Anatomy
 Long-Form








Organized Research
Requires Detailed Space Survey
Requires Detailed Cost-Sharing Data
Formula Departmental Administration
Faculty Administrative Allowance
Capped Administration
Incorporates Cost Accounting Standards
Mandated Reporting Format
40
Comparative Anatomy
 A-122






Not-Profits
Depends Upon Organization Structure
Separate Fund Raising
Separate Public Service
Isolate Federally Funded Activities
No Definition Of Departmental Administration
No Definition Of Sponsored Projects
Administration
41
Exercise
Indirect Cost Rate Proposal – Salaries and Wages Base
43
Quiz
Negotiation and
Strategic Planning
Negotiating an F&A Rate
 Step

One – Find A Cognizant Agency
Predominant Funding
 Only
HHS Or DOD-ONR For Higher Education
 Can Be Any Agency For Others
46
Negotiating an F&A Rate
 Cognizant

Agency
Sole Federal agency responsible for negotiating
rates
 Same
negotiated rates across all agencies
 Doesn’t mean they will be paid
 Effort to align with funding
 Can cause problems

May be different for audit
47
Negotiating an F&A Rate
 Step

Two – Determine Type of Rate
Predetermined
 Most
Common
 Requires History
 Can Be For Up To Five Years
 Not For Hospitals


Fixed With Carry-Forward
Provisional/Final
48
Negotiating an F&A Rate
 Step


Three – Submit the Rate Proposal
Appropriate Cognizant Agency
Appropriate Office
49
Negotiating an F&A Rate
 Step
Four – Wait
50
Negotiating an F&A Rate
 Next






Steps - HHS
Wait
Desk Review
Questions
Site Visit
Questions
Negotiations
51
Negotiating an F&A Rate
 Next

Steps - HHS
Desk Review
 Takes
place at HHS office
 May involve phone calls
 Could result in rate offer
 Usually results in written questions and data
requests
52
Negotiating an F&A Rate
 Next

Steps - HHS
Questions
 Usually
very detailed
 Sometimes hard to understand
 Usually requires a lot of work to comply
 Best to answer thoroughly
 Just answer the questions
53
Negotiating an F&A Rate
 Next

Steps - HHS
Site Visit
 1-3
Days
 Have an Entrance Meeting to set the Ground Rules
 Walk space
 Meet department heads/Principal Investigators
 Ask more questions
 Get away from the office
54
Negotiating an F&A Rate
 Next

Steps - HHS
Questions
 If
no negotiations
 Should address specific questions
 Must be taken seriously
 Keep copies of all responses
 Do not show shock
 Respond Quickly
55
Negotiating an F&A Rate
 Next

Steps - HHS
Negotiations
 Not
always based on facts
 What is best for institution
 Live to fight again
 Hard to judge success
56
Negotiating an F&A Rate
 Other

Agencies
DOD/ONR
57
So what you basically are saying is that our proposal is
what….too high?
William J. Tisch, University of Arizona
58
Other Useful Information
 You
Must Have An Award Paying Full Indirect
Cost to Get a Rate from HHS
 Do Not Expect to Get Respect



You Are Always Wrong
Your Rate Is Always Too High
You Are Always In The Middle
59
Strategic Planning
 Rate




calculation
Reconciliation is critical
Accuracy is important
Remember your audience
Should you get help?
 Proposal



preparation
Mandatory format
Creativity not appreciated
Tie it out
60
Strategic Planning
 Timing


No good answer
All things being equal, be on time
 Requested



rate
Sometimes you need to tip your hand
Do not ask for the rate you must negotiate
Negotiation is a downward process
61
Strategic Planning
 Rate



period
Go long when your rate is going down
Go short when your rate is going up
How much pain can you stand
 Negotiation




process
Who should participate
Who will baby-sit
Prep the departments
What rate is acceptable
62
How to Collect Indirect Cost
 Put




it in the proposal budget
8%
Off-campus
Full Rate
Discounted Rate
 Get
it awarded
 Spend the direct costs
 Bill the indirect costs
63