Overhead Explained
Contents
Overhead Defined 2
F & A Structure for Organized Research 3
F & A Structure for Organized Research 3
F & A Cost Rates for Different Types of Projects 4
Indirect Cost Rates 4
Overhead Calculations 5
Overhead Distribution 6
Standard Overhead Distribution 6
Northern Capital Region (NCR) Overhead Distribution 7
Virginia Bioinformatics Institute (VBI) Distribution 7
Center for Advanced Engineering Research (CAER) Distribution 8
Institute for Advanced Learning and Research (IALR) Distribution 9
Virginia Tech Carilion Research Institute (VTCRI) Distribution 10
Instructions for Proofing Overhead 13
Overhead Defined
Facilities and Administrative (F&A) charges, commonly referred to as indirect costs or overhead, are the least understood component of sponsored programs. Indirect costs are often viewed negatively by sponsors and faculty alike. Indirect charges are simply costs that cannot practically, or in a cost-effective manner, be directly tied to a single project. Often used illustrations of F&A costs are electricity, water, sewer, general equipment/building depreciation and administrative support. Rarely explained are the administrative support costs, which include salaries and benefits for departmental, college and university personnel involved in the central administration of the institution.
Every institution accepting federal funds negotiates an F&A rate through their cognizant federal agency. The cognizant agency for non-profit organizations is determined by calculating which Federal agency provides the most grant funding. Virginia Tech’s cognizant agency was DHHS but this changed to ONR in December 2006. Approved rates must be accepted by other agencies, unless specific program regulations restrict the recovery of indirect costs. The Controller’s Office negotiates F & A and fringe benefit rates with VT’s cognizant federal agency.
F & A Structure for Organized Research
Institutions are required to negotiate different rate structures based upon location of the project (on-campus or off-campus) and based upon the type of project performed (research, instruction, or extension/public service). The true administrative costs to operate the University exceed the negotiated amount. However, the federal government forces a cap on the administrative component limiting it to the maximum of 26%. The chart below details Virginia Tech’s FY 2010, FY 2011 and FY 2012 negotiated F&A research rate structure.
F A Structure for Organized Research
Virginia Tech F&A Rate NegotiationsOrganized Research
FY2010 / FY2011 / FY2012
ONR Final / ONR Final / ONR Final
Components / Rates / Rates / Rates
G&A / 8.88% / 8.78% / 8.95%
DA / 15.07% / 14.67% / 14.54%
DA Allow / 3.60% / 3.60% / 3.60%
SPA / 3.50% / 3.38% / 3.48%
(rounding/adjustments)
subtotal / 31.05% / 30.43% / 30.57%
admin cap adj / -5.05% / -4.43% / -4.57%
total Admin / 26.00% / 26.00% / 26.00%
Bldg Depr / 4.16% / 4.55% / 5.00%
Equip Depre / 5.15% / 5.01% / 5.01%
Interest / 3.56% / 3.86% / 4.32%
O&M / 17.10% / 16.99% / 16.89%
UCA / 1.30% / 1.30% / 1.30%
Library / 1.30% / 1.26% / 1.26%
(rounding/adjustments) / -0.02% / -0.40% / -0.18%
total Facilities / 32.55% / 32.57% / 33.60%
On Campus Capped / 58.60% / 58.60% / 59.60%
On Campus Uncapped / 63.60% / 63.00% / 64.20%
Off Campus Capped / 26.00% / 26.00% / 26.00%
Off Campus Uncapped / 31.10% / 30.40% / 30.60%
Adjacent Capped / 27.30% / 27.30% / 27.30%
Adjacent Uncapped / 32.40% / 31.70% / 31.80%
F & A Cost Rates for Different Types of Projects
Institutions are required to negotiate different rate structures based upon location of the project (on-campus or off-campus) and based upon the type of project performed (research, instruction, or extension / public service). This information is captured on the Sponsored Programs Approval form. The table below shows the overhead rates for the different types of projects. You can find our signed rate agreement on our website at http://www.osp.vt.edu/rates.html.
Indirect Cost Rates
Type / FY 10 / FY 11 / FY 12Research On-Campus * / 58.6% / 58.6% / 59.6%
Research On-Campus ** / 63.6% / 63% / 64.2%
Research Adjacent * / 27.3% / 27.3% / 27.3%
Research Adjacent ** / 32.4% / 31.7% / 31.8%
Research Remote * / 26% / 26% / 26%
Research Remote ** / 31.1% / 30.4% / 30.6%
Instruction On-Campus / 51.7% / 51.7% / 51.7%
Instruction Off-Campus / 26% / 26% / 26%
Other On-Campus / 32% / 32% / 32%
Other Off-Campus / 23% / 23% / 23%
Ag Exp Stat On-Camp / 47.3% / 47.3% / 47.3%
Ag Exp Stat Off-Camp / 21.5% / 21.5% / 21.5%
*Applies to all DoD contracts awarded or issued before 11/30/1993, all non-DoD instruments and all DoD grants. (Capped rate)
**Applies to all DoD contracts awarded or issued after 11/30/1993 in accordance with and under the authority of DFARS 231.303(1). (Uncapped Rate)
Overhead Calculations
On the last working day of each month, the General Accounting section of the Controller’s Office executes the month end overhead program. This program uses three major attributes from FZMFNDA to perform the calculation of the overhead to charge sponsored program funds.
1. Overhead Rate – this code specifies the overhead rate (percentage) to be applied to the fund.
2. Overhead Basis – this code specifies the various bases that can be used to calculate overhead (modified total direct costs, total direct costs, no indirect charged).
3. Overhead Status – this code indicates the type of recovery allowed on this fund (full, partial, hand calculate, etc.)
Virginia Tech uses two methods to calculate overhead
1. Modified Total Direct Costs (MTDC)
a. Excludes account code 1244D (conference services)
b. Excludes account codes 14210 through 14260 (scholarships)
i. Account codes 14130 (honorariums) and 14137 (human subjects) roll up under awards on the summary account statement and indirect is assessed on both account codes. So you need to look at FRIGITD in concert with the summary account statement.
c. Excludes account codes 15210 – 15270 and 15310 – 15370 (rental costs)
d. Excludes amounts which exceed $25,000 on each 19xxx and 2xxxx object code (subawards)
e. Excludes 21000 – 21990 (site improvements, etc)
f. Excludes 22000 – 22990 (equipment)
g. Excludes 23000 – 23990 (capital outlay constructions and renovations)
2. Total Direct Costs (TDC) - indirect is taken on every expenditure.
Account code exclusions are housed on FTMBASI screen in Banner. Click on “Basis Definition Code” to select the overheard basis, then perform a next block function.
Overhead Distribution
Another common misconception, as related to overhead, is the distribution of earned indirect. Indirect is only
distributed once it is earned, after expenditures post to the fund in Banner (FRIGITD). Sponsored project funds are charged (debited) to overhead account codes according to the distribution appropriate for the project. Overhead distributions which vary from the standard state, central capital and capital 2 distributions must be approved by the budget office and the Controller’s Office. Below is a summary of approved distributions.
Standard Overhead Distribution
This distribution gives the receiving college/department discretionary funds to offset costs related to the conduct and enhancement of research and research-related requirements. It is the flexibility of these funds that is so important to our research enterprise. Therefore, it is imperative that the University attempt to collect the maximum indirect allowed. Any waiver or reduction of indirect impacts the colleges and departments the most.
Standard Overhead DistributionComponent / Description / Percentage
Commonwealth of Virginia (OH120) / Distributed to the state whereby it is returned to the University as part of the annual educational and general funds. / 30%
OVPR (OH130) / Supports research administration and operations. / 8.57%
College/Department (OH140) / The largest portion of distributed indirect goes to the college. The college distributes to department. OSP nor OVPR has control or knowledge regarding the amount distributed to PIs/departments. / 40.29%
Central Capital Account (OH150) / Used by the University to acquire, repair, renovate, or improve buildings or equipment used directly for organized research. / 11.14%
Capital 2 (OH170) / Used to pay for the construction of new research space at the Corporate Research Center (CRC) / 10%
Northern Capital Region (NCR) Overhead Distribution
The PI/department will indicate the project is being conducted in the NCR on the Sponsored Programs Approval form. For Banner to distribute overhead to NCR accounts the overhead status selection on FZMFNDA must have “NCR” in the description. Also, on FRAGRNT the literal SI and value NCR attribute must be entered under the user defined tab.
NCR Overhead DistributionComponent / Description / Percentage
Commonwealth of Virginia - NCR (OH121) / Distributed to the state whereby it is returned to the University as part of the annual educational and general funds. This code ensures the NCR receives the appropriate allocation for projects conducted in the NCR. / 30%
OVPR (OH130) / Supports research administration and operations. / 8.57%
College/Department (OH140) / The largest portion of distributed indirect goes to the college. The college distributes to department. OSP nor OVPR has control or knowledge regarding the amount distributed to PIs/departments. / 40.29%
Central Capital Account - NCR (OH151) / Used by the University to acquire, repair, renovate, or improve buildings or equipment located in the NCR used directly for organized research. / 11.14%
Capital 2 - NCR (OH171) / Used to pay for the construction of new research space at the NCR. / 10%
Virginia Bioinformatics Institute (VBI) Distribution
VBI Overhead DistributionComponent / Description / Percentage
Indirect Costs - Bioinformatics (OH160) / Standard overhead distribution returns funds to the state and university to pay for fringe benefits and building construction and maintenance. One-hundred percent of overhead is returned to VBI as VBI pays the mortgage on buildings and fringe benefits for state employees. Departments following the standard distribution receive state funding to pay for fringe benefits and building construction and maintenance. / 100%
Center for Advanced Engineering Research (CAER) Distribution
The CAER is aRegion 2000initiative to develop an industry-focused regional research and development center that drives the development of innovative products and processes by providing local access to university and federal research and inventions. The CAER is dedicated to the creation of an industry-based research hub in Region 2000 that will bring together private and public money, talent and resources to foster knowledge creation, facilitate technology transfer and improve the scientific and engineering workforce to benefit local industry.
When CAER is the sponsor, the CAER the overhead status 17 must be selected on FZMFNDA. This allows Banner to automatically post 70% of the overhead to CAER and 30% of the overhead to the State.
CAER Overhead DistributionComponent / Description / Percentage
Commonwealth of Virginia (OH120) / Distributed to the state whereby it is returned to the University as part of the annual educational and general funds. / 30%
Collaborative agreement – CAER (OH161) / Distributed to CAER / 70%
Institute for Advanced Learning and Research (IALR) Distribution
When the PI is conducting work at IALR, they must indicate the percentage of work completed at IALR on the Sponsored Programs Approval form. Based on this, the percentage work completed at IALR will be taken from the overhead generated each month. The remaining overhead balance will be distributed according to the standard overhead distribution.
When the Institute for Advanced Learning and Research is the sponsor an overhead status code with IALR needs to be in the title on FZMFNDA (Codes 18-27). Banner will automatically post the overhead to the correct accounts.
IALR Overhead DistributionComponent / Description / Percentage
Commonwealth of Virginia (OH120) / Distributed to the state whereby it is returned to the University as part of the annual educational and general funds. / 30% after IALR portion
OVPR (OH130) / Supports research administration and operations. / 8.57% after IALR portion
College/Department (OH140) / The largest portion of distributed indirect goes to the college. The college distributes to department. OSP nor OVPR has control or knowledge regarding the amount distributed to PIs/departments. / 40.29% after IALR portion
Central Capital Account (OH150) / Used by the University to acquire, repair, renovate, or improve buildings or equipment used directly for organized research. / 11.14% after IALR portion
Collaborative agreement – IALR (OH162) / About the only department using IALR overhead distribution is Mechanical Engineering. The PI will indicate on the Sponsored Programs Approval form what percentage of the work is being completed at IALR.
Banner take the percentage of work completed at IALR and distributes the percentage of indirect each month to OH162. The remaining balance of indirect for that month follows the distribution for the remaining accounts. / Indicated on Sponsored
Programs Approval Form
Capital 2 (OH170) / Used to pay for the construction of new research space at the Corporate Research Center (CRC) / 10% after IALR portion
For example, if 60% of the work was completed at IALR and the overhead for that month was $100.00. The split would be as follows.
Banner first calculates $100.00 *.6 = $60 which goes to OH162
The remaining balance is $40 and distributed according to the usual percentages.
IALR Overhead DistributionAccount Code & Description / Calculation / Amount
OH120 – State / $40 *.30 / $12.00
OH130 – OVPR / $40*.0858 / $3.43
OH140 – College/Department / $40 *.4029 / $16.12
OH150 – Central capital / $40*.1114 / $4.45
OH162 - Collaborative agreement – IALR / $100.00 *.6 / $60.00
OH170 – Capital 2 / $40-.10 / $4.00
Virginia Tech Carilion Research Institute (VTCRI) Distribution
VTCRI Overhead DistributionComponent / Description / Percentage
Commonwealth of Virginia (OH120) / Distributed to the state whereby it is returned to the University as part of the annual educational and general funds. / 30%
Collaborative agreement – VTCRI (OH163) / In Dr Friedlander’s startup package, the University pledged to allocate 70% of the overhead generated by VTCRI extramural funding to VTCRI. / 70%
Waived college and/or OVPR portion
The college and/or OVPR may waive their portion of the returned overhead. When this occurs, the percentage charged must be adjusted. When the overhead status codes referenced below are on FZMFNDA overhead will not generate for the waived portion.
Overhead Status on FZMFNDA / Description04 / Waive all but State percentage & Capital percentage
05 / Waive college percentage
06 / Waive administrative percentage (OVPR)
Form C - Special Indirect Agreement