FAS Research Administration Services

FAS Policy on Charging Overhead on Subcontracts

The Policy:

Effective July 1, 2006, the FAS will charge overhead on the first $25,000 of expenses on outgoing subcontracts.

The Background:

This change makes FAS practice consistent with Office of Management and Budget Circular A-21, which mandates in section G.2 that:

Facilities and Administrative costs shall be distributed to applicable sponsored agreements...on the basis of modified total direct costs, consisting of all salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of the period covered by the subgrant or subcontract).

Many research institutions nationwide, including our own Medical and Public Health schools, already comply with this OMB guideline. The change in policy will enable FAS to be reimbursed by sponsors for some of the costs associated with administering subcontracts.

Which subcontracts are affected?

  • This change applies only to grants and contracts awarded on or after July 1, 2006. For awards with periods of performance beginning before that date, the overhead charge will not be assessed until the beginning of the next renewal or competing continuation.
  • Awards beginning after July1, 2006 whose proposals have already been submitted will be reviewed on a case-by-case basis - please contact Alan Long in the Financial Office for disposition of these few situations in the FAS.
  • Effective immediately, overhead charges for subcontracts should be included in all proposal budgets for grants or contracts expected to start on or after July 1, 2006 .
  • Should a subrecipient receive more than one subcontract on a given grant, overhead will be charged only on the first $25,000 of the subrecipient's combined award.
  • This policy does NOT affect part-of accounts.

What effect will this policy have on PIs' budgets?

The new policy on subcontracts will not reduce a PI's proposed budget for total direct costs; it will, however, increase the modified total direct cost base (federal sponsors use the MTDC), and hence increase the total project costs. The following table illustrates this point:

Sample Proposal Budgets
  Old Policy (no F&A on subcontracts) New Policy (F&A charged on the first $25,000 of first subcontract)
Personnel 300,000 300,000
General lab supplies 50,000 50,000
Equipment 100,000 100,000
Subcontract 1 to MIT 50,000 50,000
Subcontract 2 to BU 25,000 25,000
Subcontract 3 to MIT 25,000 25,000
Total Direct Costs 550,000 550,000
Modified Total Direct Costs base 350,000 400,000 (the first 25K of the first subcontract to each subrecipient institution was included in the MTDC)
64% on MTDC base 224,000 256,000
Total Project Costs 774,000 806,000

[Last modified: 01/14/13]

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