UC Berkeley investigators and staff preparing DoD proposal budgets should continue to use the negotiated campus Facilities and Administrative (Indirect Cost) Rates of 53.5 percent for on-campus sponsored research and 26 percent for off-campus sponsored research.
Upon award, the DoD awarding agency will be responsible for any adjustments to the budget proposal. In those situations where the budget proposal included F&A costs that exceeded the cap, the agency may adjust the award. However, a university that has a negotiated F&A rate of 53.8 percent or less should not incur a loss of indirect cost recovery.
The Council on Governmental Relations provides an explanation of the math involved in determining if an institution is affected by the 35-percent limit:
Institutions that have a negotiated F&A rate of 53.8 percent, or less, will be financially unaffected (i.e., F&A can not exceed 35 cents for every $1 expended; therefore a ratio of 35 cents of F&A to 65 cents of direct costs is the conversion ratio to the “standard” F&A rate based on modified total direct costs. In situations where all direct costs on an award are F&A eligible, 53.8 percent is effectively the F&A rate cap).Example one:
- On a $100,000 award, $35,000 in indirect costs is the maximum allowed ($100,000 x 35%)
- If $35,000 is the indirect cost, $65,000 is the direct cost ($100,000 - $35,000 = $65,000)
- So, $35,000/ $65,000 = 53.846%
- Thus, 35% Total Cost = 53.846% of Direct Costs
- $100,000 MTDC x 53% IDC = $53,000
- $153,000 Total Costs
- $153,000 x 35% = $53,550
- $53,000 < $53,550 so full indirect cost rate can be applied
DoD guidance on the limit is available at http://www.dod.mil/ddre/doc/LABS_Memo_indirect_cost_limitation.pdf.