Reduction in or Waiver of Indirect Costs on Sponsored Projects

at the College of Charleston

College of Charleston Academic Affairs - Office of Research & Grants Administration Faculty and Administration Manual

Reduction in or Waiver of Indirect Costs on Sponsored Projects


1.0 Purpose

2.0 Background

3.0 Act 651 Requirements

4.0 Criteria for Discretionary Reduction or Waiver

5.0 Procedure for Requesting Reduction or Waiver

6.0 Request Form   

1.0     PURPOSE

     Although it is important to collect full indirect costs  (also called "facilities and administration [F&A] costs" or "overhead"), especially from federal government and private sponsors, to offset the real costs of conducting sponsored projects, the College recognizes that some flexibility in indirect cost policies is required if the research enterprise is to grow and prosper.  Discretionary reduction in or waiver of indirect costs may be allowed under certain circumstances.  The purpose of this policy is to set forth these circumstances and to establish the procedure for requesting a reduction in or waiver of indirect costs on sponsored projects.   


     The practice of providing indirect cost returns to recipients of research, training, and demonstration grants originated with the United States government.  Government officials recognized that it is not possible for prospective grantees to accurately proportion the organization's overhead costs among its various, and often numerous, activities and funded projects.  Indirect costs are those costs incurred by a grantee organization which are not readily identifiable with a specific project, program, or activity but which are necessary to the general operation of the organization.  These are costs of operating the facilities and may include the costs of maintenance, depreciation, general and departmental administration, utilities, janitorial services, accounting and purchasing services, research and grants administration and accounting services, library operations, etc.

     In recognition that such overhead costs are real costs of doing business, the process of negotiating indirect cost rates was developed as a means to provide some reimbursement to grantees for these supportive services.  Grantee organizational expenditures are grouped into indirect cost pools and then distributed to appropriate organizational activities in a cost allocation process.  This information is presented by the grantee organization to one of several agencies empowered to negotiate a federal indirect cost rate.

     The grantee's fiscal information is analyzed by federal officials to determine the allowable indirect cost rate.  Indirect cost rates are expressed as percentages.  They are usually applied to either "modified total direct costs" (MTDC) base, which excludes certain expenditure categories such as certain subcontract expenses and capital outlay; to salaries and wages (S+W) only; or to salaries, wages and fringe benefits (S+W+F) only.  The base on which the rate is applied is determined during the rate negotiation with the cognizant federal agency.  Application of the indirect cost rate determines the amount of reimbursement above the direct cost of the project that the grantee can request from the funding agency.  The indirect cost rate is renegotiated periodically to allow for inflation, changes in the operations of the grantee organization, and/or changes in the level of sponsored activity.

     Although a grantee organization may negotiate an indirect cost rate, it is not guaranteed this return on every project.  The rate is negotiated at the federal level, but not all federal agencies reimburse the full amount for all funded projects.  For example, some federal agencies limit indirect costs to 8% of TDC (Total Direct Cost) for training and educational programs.  Policies on indirect costs vary widely among state, regional, and local governmental agencies and public and private not-for-profit organizations.  Often, both large and small private and corporate foundations will not reimburse indirect costs.  They may, however, pay an "administrative fee" to offset some of the overhead costs of the recipient institution.  Corporate sponsors who are expected to benefit financially from sponsored research should be willing to pay the institution's full indirect cost rate.  


     South Carolina Act 651 requires the College to collect the full amount of indirect costs allowable by the sponsoring agency on all federally funded non-research projects of $200,000 or more per year, including those funded with federal dollars which "flow through" state agencies.  These recovered indirect costs must be remitted to the State's General Fund.    


     When the sponsored project is either classified as research or is less than $200,000 per year, the College may consider a discretionary reduction in or waiver of indirect costs and/or administrative fees in certain situations, which include, but are not limited to, the following:

4.1     The sponsoring agency's operational policies restrict or prohibit payment of full indirect costs and/or administrative fees;

4.2     The benefit of the proposed project to the College, in terms of institutional capacity building, is deemed to outweigh the loss of indirect cost revenue;

4.3     The proposed project is relatively small, will not require extraordinary effort and/or resources to administer, and will significantly assist the investigator in beginning or enhancing his/her research career;

4.4     The project requires significant institutional cost-sharing that cannot be fully met by other sources;

4.5     The assessment of the full indirect cost rate or administrative fee would significantly reduce the competitiveness of the proposal;

4.6     The assessment of the full indirect cost rate on a project with a maximum allowable total cost would reduce the amount of direct funds available for project implementation to such an extent that the scope of work or deliverable could not be accomplished; and/or 

4.7     A particular market condition makes a reduction in or waiver of indirect costs and/or administrative fees appropriate or advisable.


5.1     The Office of Research & Grants Administration (ORGA) is responsible for determining if a proposed project is classified as research or non-research as defined in South Carolina Act 651.

5.2     The investigator is not authorized to negotiate a reduction in the indirect cost rate or waiver of indirect costs with the sponsor on any sponsored project without the prior approval of ORGA.  Should need for negotiation be anticipated, the investigator should contact ORGA well in advance of budget development and proposal submission so that the matter may be addressed.

5.3     If the sponsoring agency's operational policies restrict or prohibit payment of full indirect costs, a written copy of the policy must be provided to ORGA at the time the proposal is submitted for institutional review and approval.  If no such policy exists in writing, a letter stating restrictions on indirect cost reimbursement from either the Chief Executive Officer or the Chief Financial Officer of the sponsoring agency may be substituted.    5.4     If the investigator wishes to seek a discretionary reduction in or waiver of indirect costs from the College, he/she shall submit a written request (using the Request for Discretionary Indirect Cost Reduction or Waiver form) to his/her department chair/unit director and dean/cognizant vice-president prior to finalizing the project budget.  The department chair/unit director and dean/vice-president will review the justification, assess the potential impacts of the loss indirect cost revenue on the institution, consult with ORGA as necessary, and determine if they will endorse the request.     

5.5     If the department chair/unit director and the dean/vice-president endorse the request, it will be forwarded to ORGA for final review and either approval or denial.  ORGA may consult with the department chair/unit director, the dean/vice-president, the Office of the Provost, and/or Business Affairs representatives before making the decision.  ORGA's decision will be final and binding.   


     Requests for reduction in or waiver of indirect costs must be made in writing using the "Request for Discretionary Indirect Cost Reduction or Waiver" form available on the ORGA web site.

Sponsor:  Office of Research & Grants Administration   12-06-2002

Review:  Academic Affairs and Academic Deans   01-22-2003

Review:  Faculty Research & Development Committee   02-20-2003  

Approval:  Provost   02-21-2003