Indirect Cost Rate (F&A Rate)

How Indirect Cost Rates Are Determined

Institutions negotiate their F&A rate with a cognizant federal agency — typically the Department of Health and Human Services (DHHS) for universities. The negotiation is based on an audited cost study that categorizes institutional expenses into direct and indirect pools.

• On-campus rate — Typically 40-65% of modified total direct costs, covering facilities and administration (rates vary by institution and are renegotiated periodically)
• Off-campus rate — Usually 20–26%, reflecting lower facilities costs for work done away from the institution
• De minimis rate — 10% of modified total direct costs, available to organizations that have never negotiated a rate
• Rate agreement period — Rates are typically negotiated for 2–4 year periods

What Costs Are Included

Indirect costs cover institutional infrastructure that benefits all sponsored projects.

• Facilities — Building depreciation, equipment depreciation, interest on debt, operations and maintenance
• Administration — General administration, departmental administration, sponsored programs administration
• Library costs — Institutional library operations that support research
• Student services — Administrative services that support student researchers (at universities)

Impact on Grant Budgets

Understanding your institution's indirect cost rate is essential for accurate budgeting. On a $500,000 direct cost grant with a 55% F&A rate, indirect costs add $275,000 — making the total award $775,000. Some agencies and foundations cap indirect costs (for example, many private foundations allow only 10–15% overhead), so you need to know the sponsor's policy before building your budget. Items typically excluded from the indirect cost base include equipment over $5,000, participant support costs, and subaward amounts over $25,000.