Indirect Costs (Overhead) Explained

Indirect costs represent those expenses not readily allocable to any single research or training project, but which represent the University's costs for carrying out research, training activities and other sponsored programs. The U.S. Office of Management and Budget (OMB) has issued, in conjunction with college and university representatives, Federal Management Circular A-21 entitled, "Principles for Determining Costs Applicable to Research Development Under Grants and Contracts with Educational Institutions," which identifies allowable direct cost categories and also prescribes a standard distribution and allocation method for recovery of indirect costs. Like all other universities with federally funded research and training grants and contracts, New York University (NYU) prepares and submits a periodic determination of indirect costs based upon operating expenditures in conformance with A-21 standards. The submission is reviewed by federal auditors and is negotiated by the University's Controller’s Division with representatives of the University's cognizant federal agency, the Department of Health and Human Services (DHHS).

Indirect costs (Facilities and Administration (F&A) in the current Federal vernacular) comprise portions of the following: operation and maintenance of facilities, including rent and depreciation/use charges on buildings and equipment; library services; research and training administration expenses; deans' and department chairpersons' office expenses, including salaries and wages expended jointly for research and instructional activities; and overall University administration.

The base that F&A is calculated on varies by type of sponsor. Most Federal awards will exclude certain expenditures from the base, thus using a Modified Total Direct Costs (MTDC). Private foundations and other sponsors typically use the Total Direct Cost (TDC) as the base for F&A calculation.

Indirect Cost Rates for Governmental Proposals

The current Rate Agreement with DHHS outlines indirect cost (F&A) rates for both on- and off-campus activities. These rates must be incorporated into all budgets for research projects. Indirect costs are charged on a modified total direct cost base which excludes capital equipment (items of equipment costing in excess of $3000 and having an expected life of more than two years), alterations and renovations, subcontract costs in excess of $25,000, student aid, participant support costs, and tuition remission for Research Assistants (for the life of the project).

The off-campus indirect cost rate may generally only be charged when all aspects of the project are conducted off the premises for a consecutive three-month or more period.

Indirect Costs Applicable to Non-Governmental Proposals

In applications for research and training support to non-governmental sponsors, including foundations and industry, an appropriate charge for University overhead expenses should be included. University policy stipulates that indirect costs from commercial entities should be recovered at the rate stipulated in the funder’s written policies.  When a sponsor has a written policy disallowing indirect charges, indirect costs should be itemized to the extent allowable as direct charges, including, for example, administrative salaries, local telephone and office furnishings. In cases where a funder does not have a written policy and does not provide guidance on an allowable indirect rate, the Office of Research will coordinate with the sponsor and the Dean of Research on approval of an acceptable rate which will then need the approval of OSP. Exceptions to University policy require the specific written approval of the dean of the originating school, unless total costs exceed $100,000, in which case the approval of the Vice President for Finance (and sometimes the Provost ) is also required. All requests for exception must be carefully justified with approvals coordinated through OSP.

The table below shows how NYU’s current (AY 2015/16) Federal indirect rates compared to a selection of other research universities.

 On-Campus ResearchOff-Campus Research
NYU 58.5% 26%
Columbia University 60% 26%
Harvard University 69% 26%
Yale University 66.5% 26%
Princeton University 62% 26%
Stanford University 60.5% 30.4%