Northwestern Office for Research


Sharing Facilities and Administrative Cost Recovery Revenue

Last Review: October 2005

1. Introduction

Starting in FY 2006, Northwestern University is implementing a program to share Facilities & Administrative (F&A) cost recovery revenues with select research-intensive schools and research centers that operate under the centralized financial management structure. F&A is sometimes referred to as "Indirect Cost Reimbursement" on sponsored projects. This program is not meant to encompass or evaluate any of the underlying scholarly activities that occur as a result of university sponsored research.

The research-intensive areas that operate under the centralized financial management structure include the Weinberg College of Arts and Sciences, the McCormick School of Engineering and Applied Science, the School of Communication, the School of Education and Social Policy, and the research centers reporting to the Vice President for Research (VPR).

The Feinberg School of Medicine and the Law School operate under a decentralized financial management structure and receive all of the F&A cost recoveries that they generate from their sponsored projects. Under the decentralized financial management structure, these schools must pay for the annual operating costs for all of the space they occupy and are assessed their share of University academic and administrative support services.

2. Objectives

The objectives of the F&A recovery revenue sharing program are to:

  • Better support the departmental administration of sponsored project activity;
  • Align growth of departmental resources to growth in sponsored project activity, especially the direct support of PIs with large research groups.

3. Definition of F&A Recovery

F&A recovery revenues are generated by the assessment of indirect cost expenses to individual sponsored projects. The assessment is accomplished through the charging of an F&A cost rate to most direct costs on an individual sponsored project account. The F&A cost rate is negotiated periodically (typically, every three to four years) between the University and the Federal agency assigned to the University for this purpose.

The Facilities and Administrative cost rate is comprised of the following components, as defined by the Federal government:

Facilities costs (so-called "F" component)

  • Building depreciation
  • Equipment depreciation
  • Interest
  • Operations & maintenance
  • Library

Administrative costs (so-called "A" component)
  • General administration
  • Department administration
  • Sponsored project administration
  • Student services administration

For additional background information on institutional F&A cost rates, see the Office of Research's F&A Costs Primer.

4. Description of the F&A Recovery Sharing Program

Under this new program, the research-intensive areas will receive the portion of F&A recoveries that are attributable to the department administration component of the University's calculated organized (sponsored) research F&A rate, which represents approximately 28.0% of the total F&A recovery.

The central administration has allocated an additional $1 million for FY 2006 to the research-intensive areas participating in this program. This will be augmented by an additional $1 million in FY 2007. These recurring funds were allocated based on the current level of research expenditure activity at the school or area level.

For each research-intensive area participating in the F&A recovery revenue sharing program, the Budget Planning Office has established revenue budgets equivalent to 28.0% of F&A recoveries generated by that area. In addition, the Budget Planning Office has reduced the annual expense budget appropriation to the participating areas by an amount equal to the new F&A recovery budget. In FY 2006, the net impact on this new revenue budget for participating areas will be zero, since the actual recovery revenue transfers will exactly equal the revenue budget. The 28.0% share of recoveries is based on a three-year moving average of actual recoveries, lagged two years. The FY 2006 revenue budget and actual transfer reflect actual F&A recovery expenses in FY 2002, 2003, and 2004. The participating research-intensive areas will receive the transfer revenue at the start of FY 2006.

For the centralized areas that have opted for this revenue sharing program, budgeting for FY 2007 and beyond requires an annual calculation of the area's new weighted three-year average recovery revenue budget. The new recovery budget for FY 2007 will be based on the actual F&A recoveries for FY 2003, 2004, and 2005. When the recalculated recovery revenue exceeds the prior year's recovery revenue budget, the area realizes a revenue gain. Conversely, when the calculated three-year average recovery revenue is less than the prior year total recovery revenue budget, the area will experience a loss of revenue in this portion of its budget.

5. Recalculation of the Percentage for Department Administration

The portion of F&A recovery revenues that are attributable to department research administration generally will be recalculated every three or four years, each time a new F&A rate is negotiated with the Federal government. While it is possible that the 28.0% share will change, the University does not anticipate that it will change significantly in future years.

6. Eligibility

The F&A cost recovery revenue sharing program is limited to research-intensive areas that are managed under the centralized financial management structure, and those areas for which the annual F&A cost recovery revenue exceeds $350,000. An area must reach this threshold before it can choose to participate in the new recovery revenue sharing program. Each area above this threshold will decide whether to participate in the program, in consultation with the Provost. For FY 2006, Weinberg College, the McCormick School, the School of Education and Social Policy, and the research centers reporting to the Vice President for Research all have opted to participate in this program.

7. F&A Recovery that Crosses Areas

The F&A recovery revenue-sharing program assumes that the administration of sponsored projects is provided by the areas to which accounts are assigned in the University's General Ledger (CUFS) system. To the extent that responsibilities are borne in a different area, the respective area managers must work out an equitable arrangement to distribute both the administrative responsibilities and the F&A recovery. The assignment of sponsored project expenditure credit is discussed further in a separate document titled Tracking Investigator Award and Expenditure Credit for Sponsored Programs.

8. Distribution of F&A Recovery to Departments and Individual Principal Investigators

The deans and the VPR are responsible for the distribution and management of these recoveries within their respective areas.

9. Impact of Changes in the Organizational Unit

In cases where the organizational unit moves from one management area to another, sponsored activity associated with that unit will be credited to the new management area, regardless of where accounts reside in CUFS. (The Infrastructure Technology Institute and the Transportation Center are recent examples of these types of changes.) Changes of this nature may require restating expenditures and recalculating the three-year average for purposes of measuring the bases for this new revenue sharing program.

10. Allowable Expenditures from the F&A Recovery

Under these guidelines there are two classes of research-intensive areas in the University: decentralized areas and centralized areas. The decentralized areas are: Feinberg School of Medicine and the Law School. All of the F&A cost recoveries attributable to these areas are treated as revenues to these areas. The decentralized areas pay for their own space costs and are assessed their share of University academic and administrative support services. Both of the decentralized areas have full discretion over the use of the F&A revenues they receive.

For the centralized areas that have opted to participate in this new program, the Facilities portion of the F&A cost recoveries is not allocated to the areas because the University pays for all of their space costs. Only the F&A recovery revenue that is attributable to departmental administration is allocated to these areas under this new revenue sharing arrangement. The deans and the VPR decide how these recovery revenues will be allocated within their respective areas.

In general, the Federal government does not stipulate or limit how an institution may use the F&A recovery revenue it generates on its sponsored projects. (The one exception relates to the recovery associated with the building depreciation component of Facilities costs). The Federal government expects institutions to demonstrate that an amount equal to federal recoveries generated at the negotiated F&A rate have been invested in construction or improvement of research facilities.

The annual expense budget appropriation to the areas participating in this program supports the existing administrative support staff, such as PI administrative assistants, financial assistants and accounting clerks who are assigned to assist principal investigators in managing their sponsored project activity. These staff members can be serving in the dean's office, in the department or center office, and/or in an individual laboratory office. The annual expense budget appropriation also supports expenses for general material and service costs such as office supplies, copying, postage, and recurring telephone and data line costs that support sponsored project activity, but cannot be charged as direct costs to the project accounts. Under this new revenue sharing program, any incremental funds received annually by the participating areas are expected to support new administrative staff positions and their associated non-personnel related costs reflective of the growth in sponsored project activity.

There are two basic principles that govern the use of these cost recovery revenues:

  • The funds cannot be simply assigned to individual PIs; deans and department chairs, or the VPR and center directors, make the decisions governing the allocations of these funds for specific purposes;
  • The funds must be used to support departmental research administration in the schools or administrative support for research centers that report to the VPR.

Though there is a relatively broad interpretation of research administration, there are important boundaries for using of these funds. For example, the allocated recovery funds cannot be used for:

  • Research activities of a single individual PI;
  • Faculty salaries, including summer salary for full-time faculty;
  • Salaries for research staff having no administrative responsibilities;
  • Scientific equipment purchases;
  • Expenditures related to sponsored project matching/cost sharing requirements.

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