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Methods of Calculating Indirect Costs: What to Include and Exclude

11/04/2013 · No Comments

To assist faculty and staff with completing grant proposal budgets, below is an explanation of the methods for calculating indirect costs and what to include and exclude from the calculation.

Note that there is one minor change to the Modified Total Direct Cost that will be effective December 1, 2013: Participant Support will be included in the indirect cost base and indirect costs will be calculated on these expenses unless the sponsor specifically states that indirect costs are not to be charged on Participant Support.

Modified Total Direct Costs (MC)

The modified total direct cost is part of the indirect cost negotiation agreement with the Department of Health and Human Services.

The modified total direct cost consists of:

  • All salaries and wages
  • Fringe benefits
  • Travel
  • Materials, supplies, services
  • Participant support
  • Subcontracts up to the first $25,000 of each subcontract (regardless of the period covered by the subcontract)

The modified total direct cost excludes:

  • Equipment
  • Capital expenditures
  • Charges for patient care
  • Participant support
  • Student tuition remission
  • Rental costs of off-site facilities
  • Scholarships and fellowships
  • The portion of each subcontract in excess of $25,000

Total Direct Costs (TC)

Some sponsors will only reimburse an F&A rate (also referred to as administrative overhead or indirect costs) that is lower than the federal negotiated rate. In this case, the F&A rate should be applied to a total direct cost base. This means that no exclusions or exceptions will be taken before applying the F&A.

If you are calculating TDC using the 22% on total federal funds awarded (TFFA) as required by the USDA, add direct costs with no exclusions or exceptions to TDC.

28.2% of TDC would be used to arrive at 22% of TFFA.


Total Direct Costs     $100,000.00
28.2% F&A                         28,205.13    (22% of total costs 28,205.13/128,205.13)
Total                                $128,205.13

Salary & Fringe (SF)

Is used when the program guidelines specifically state that indirect costs are only allowed to be calculated on direct salaries and wages including all fringe benefits.

Exempt (EX)

Is used when the program guidelines specifically state that specific expenses are excluded from F&A.

Always review the programs guidelines as many sponsors indicate what costs, including F&A is and is not allowable. When applying less than the full F&A rate, a copy of the sponsor’s guidelines must be included with the OSP-1.

Categories: Budget Preparation · Proposal Preparation · Update