Understanding F&A (Indirect Cost) Rates
F&A (indirect) costs are the real expenses of running research that can't be charged to a single project, and they're often half or more of an award's value. This guide explains where the rate comes from and how it's applied.
If you've ever wondered why your award total jumps after the direct costs, F&A is the answer.
What F&A actually covers
- Facility operations and maintenance: lab space, utilities, buildings.
- Libraries, depreciation, and shared research infrastructure.
- Sponsored-programs administration and departmental support.
How the rate is set
- Your institution negotiates a rate with its cognizant federal agency, documented in a NICRA (Negotiated Indirect Cost Rate Agreement).
- Rates differ by activity: organized research, instruction, other sponsored activity.
- On-campus and off-campus work carry different rates.
What the rate is applied to (MTDC)
- F&A is usually applied to Modified Total Direct Cost: total direct costs minus certain exclusions.
- Excluded: equipment, capital expenditures, patient care, tuition remission, rent, scholarships, participant support, and each subaward beyond the first $25,000 (NIH) or $50,000 (2024 Uniform Guidance, if your rate agreement cites it). See the full MTDC guide for details.
- Change the mix of excluded costs and F&A recovery changes, even if direct costs are the same.
When the rate is reduced
- Some sponsors, especially private foundations and certain programs: cap or disallow F&A.
- A rate below your negotiated rate usually needs institutional approval.
- Document any reduction; the gap is effectively an institutional cost.
Common pitfalls
- Applying F&A to total direct costs instead of the MTDC base.
- Counting the full value of a large subaward in the base rather than only the first $25,000 (NIH and older rate agreements) or $50,000 (2024 Uniform Guidance, where your rate agreement cites it).
- Using the on-campus rate for off-campus work, or the wrong activity-type rate.
F&A isn't a markup: it's negotiated cost recovery applied to a specific base, and small budgeting choices move it a lot.
Frequently asked questions
What base is F&A applied to?
Usually modified total direct costs, which is total direct costs minus exclusions like equipment, participant support, tuition, and the portion of each subaward above $25,000 for NIH awards, or $50,000 where the 2024 Uniform Guidance applies and your rate agreement cites it.
Where does my F&A rate come from?
From your institution's Negotiated Indirect Cost Rate Agreement with its cognizant federal agency, which sets the rates, base, and period.
Can a sponsor pay less F&A than my negotiated rate?
Yes. Some sponsors cap F&A or disallow it. Budget to the sponsor's allowed rate, and the difference is not recovered.
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