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Cost Sharing Requirements

Cost sharing is the financial support contributed by universities to sponsored projects. Compliance with federal cost accounting standards requires that cost-shared expenses be treated in a consistent and uniform manner in proposal preparation, award negotiation and the accounting of these expenses in the financial reports to sponsors.

The policy of the University is to assume a cost-sharing commitment only when required by the sponsor or by the competitive nature of the award, and then to cost share only to the extent necessary to meet the specific requirements. All cost-sharing commitments must be included on the Proposal Approval Form (PAF) and must be approved by the University unit responsible for these funds.

Cost sharing commitments frequently consist of academic or calendar year faculty time (with related staff benefits) and the associated indirect costs. All cost-sharing commitments require prior approval of the appropriate University units prior to the submission of a budget to the sponsor. Project Directors are urged to discuss proposed cost-sharing commitments well in advance of the submission deadlines to avoid "eleventh hour" problems and misunderstandings.

The cost-sharing requirements of sponsors vary. Grants often are viewed as a form of financial assistance, and some sponsors consider it necessary to obtain cost-sharing to ensure that the University has a commitment to the proposed project. Nonprofit organizations generally will seek cost sharing by declining to pay certain costs (e.g., faculty time, staff benefits, indirect cost, etc.).  Industry sponsors generally do not require cost sharing. In the case of federal research proposals, cost-sharing is not expected, nor can it be used in the review process, unless a cost sharing requirement is allowed under the awarding agency’s regulations and specified in a notice of funding opportunity (see 2 CFR 200.306).

Any cost-sharing included in an award budget is a condition of the award and is subject to audit. It is most important, therefore, that any cost-sharing commitments be reflected in the project accounts once an award is received.

The federal Uniform Guidance (2 CFR 200.306) states that:

“For all Federal awards, any shared costs or matching funds and all contributions, including cash and third party in-kind contributions, must be accepted as part of the non-Federal entity's cost sharing or matching when such contributions meet all of the following criteria:

(1) Are verifiable from the non-Federal entity's records;

(2) Are not included as contributions for any other Federal award;

(3) Are necessary and reasonable for accomplishment of project or program objectives;

(4) Are allowable under Subpart E—Cost Principles of this part;

(5) Are not paid by the Federal government under another Federal award, except where the Federal statute authorizing a program specifically provides that Federal funds made available for such program can be applied to matching or cost sharing requirements of other Federal programs;

(6) Are provided for in the approved budget when required by the Federal awarding agency; and

(7) Conform to other provisions of this part, as applicable.

Unrecovered indirect costs, including indirect costs on cost sharing or matching may be included as part of cost sharing or matching only with the prior approval of the Federal awarding agency. Unrecovered indirect cost means the difference between the amount charged to the Federal award and the amount which could have been to the Federal award under the non-Federal entity's approved negotiated indirect cost rate.”

Cost sharing will be considered a specific commitment and mandatory in terms of subsequent documentation requirements when it is a stated requirement of the sponsoring agency or is considered significant to the negotiation of the award. The University will consider a cost-sharing commitment to be significant if it is explicitly set forth on the Proposal Approval Form (PAF) or is required as a condition of the award agreement. The Project Award Notice (PAN) will reflect the University's cost-sharing commitment to the sponsor.

To meet the reporting and auditing requirements of the sponsoring agencies, cost-sharing commitments must be charged either to a separate cost-sharing account related to the specified project or to the sponsored project account. Cost-sharing commitments for faculty and staff salaries, benefits, materials and supplies, travel, printing, and other operating costs should be recorded in a cost-sharing account. Cost-sharing commitments in support of graduate student tuition and fees and equipment acquisitions should be recorded in the sponsored project account (unless other arrangements are made). The portion of these charges that represent University cost-sharing will be transferred to the appropriate University account.

For example, the Project Director has committed to cost share 15% of his or her academic appointment in support of a sponsored research project. This commitment should be charged to the assigned cost-sharing account. If the cost-sharing commitment is to provide partial tuition support for GSRA's assigned to the sponsored project, the full tuition charges should be made to the sponsored research project and the cost-shared portion of these charges will be transferred to the appropriate University account. Cost-sharing commitments for equipment acquisitions should also be charged to the sponsored project account and funds transferred into this account from the appropriate cost-sharing sources.

Departments/research units will be responsible for designating on the Proposal Approval Form the appropriate amounts and sources of cost-sharing dollars. The account number(s) for the cost sharing amount will be provided on the Project Award Notice (PAN) which is issued by ORSP at the time an award is received and a sponsored project account is established. The use of the PAN as the "trigger" will facilitate the tracking of cost-sharing commitments.

The time and effort of the faculty and staff designated as part of the cost-sharing commitment will be monitored. If appropriate salary charges are not made in the cost-sharing account, the department/unit will be contacted to remind them effort must be accounted for. At the end of the budget period, funds will be transferred from the appropriate sources (e.g., general fund accounts) to cover the actual expenditures recorded in the cost-sharing account. The department/unit will be responsible for ensuring that the cost-sharing amounts shown on the PAN are correct and that the appointments are submitted on a timely basis.

These procedures will ensure that all of the project costs--those costs covered by the sponsor and those committed by the University as cost-sharing--are recorded in the sponsored project account and/or the associated cost-sharing account and reflect the budget commitments approved by the sponsor and agreed to by the University at the time of the award. This consistency between budget commitment and expenditures is essential to ensure compliance with federal cost accounting standards.

Voluntary uncommitted cost-sharing is cost-sharing provided by the University that is not explicitly quantified in the proposal budget or ensuing award document.  As a result, it is not required as a condition of the award, will not be reflected in the final budget agreement between the University and the sponsoring agency, and therefore, is not identified in the University's accounting and personnel records. Examples of voluntary uncommitted cost-sharing include statements in the proposal narrative that identify the available capacity and facilities of the University to carry out the proposed research. When cost-sharing is not a specified requirement of the sponsor, it may be desirable to reflect an "anticipated supporting commitment (not auditable)" in lieu of cost-sharing. Such a commitment is not considered a part of the proposed budget.

 

FAQ

Q&A: U-M cost sharing in sponsored projects

What is cost sharing?

Cost sharing is the financial support contributed by universities to sponsored projects. Some federal agencies have a long-standing expectation that the cost of the research they sponsor will be shared by universities because the benefits are shared. The notion is that research often provides important educational benefits to students (both in exposure to leading-edge ideas and in financial assistance) as well as professional benefits to the faculty. These agencies argue, therefore, that universities should be willing to help support sponsored projects. This general expectation is open to various interpretations by agencies and institutions, and therefore, specific cost-sharing requirements vary widely from sponsor to sponsor.

For some sponsored programs, cost sharing has been made a requirement by Congress. In others, cost sharing is explicitly mandated by the sponsoring agency in the written program guidelines. It is important, therefore, to distinguish between, on the one hand, cost sharing that is actually required and constitutes an "entry fee" for participation in special external support programs and, on the other hand, cost sharing that is "expected" and that represents a negotiating stance. University officials with responsibility for budgets need to think carefully about the amount of institutional funds that can be used as leverage for externally sponsored projects. And they need to know when they are paying an "entry fee" and when they are "negotiating a price."

The University of Michigan policy is to assume a cost-sharing commitment only when required by the sponsor or by the competitive nature of the award and then to cost-share only to the extent necessary to meet the specific circumstances.

Cost sharing generally is the responsibility of the University unit(s) proposing the work. In some instances, however, funds may come from a number of sources, including department, college/school, and central administration.

What cost sharing do federal agencies require?

Read the guidelines for the particular funding opportunity, check the agency website for policies, or contact your ORSP project representative.  Grants from federal agencies will only have a cost sharing requirement when allowed under the awarding agency’s regulations and specified in a notice of funding opportunity (see 2 CFR 200.306). Contracts, which are used when the federal agency is seeking a specified service or product from the University, typically do not require cost sharing.

What U-M expenses can be used as cost sharing?

University cost sharing most often takes the form of faculty time committed to the project without cost to the sponsor. Such cost sharing is usually borne by the unit.

Any percentage of time that the faculty member proposes to spend on the project can be identified in the proposed budget as cost sharing. The signature of the dean, director, or department head on the Proposal Approval Form (PAF) is taken as authorization for the commitment of this amount of time. The faculty member and unit head need to agree on whether or not a reduction of non-research duties is necessary.

Cost sharing can also be accomplished by using University contributions of any other direct cost items. The primary responsibility for cost sharing rests with the academic unit. However, the U-M Office of Research ("UMOR") may be able to supplement academic unit cost sharing when necessary to meet sponsor requirements. UMOR has a limited amount of cost-sharing funds and principally assists in the acquisition of major equipment items or necessary renovation of facilities that are clearly beyond the capacity of units to handle.

For the guidelines and application forms for applying to the UMOR for cost-sharing funds, see "Cost Sharing Support"

In addition to specific commitments of funds, UM proposals sometimes show in a general way the institutional resources that have gone into the building of a research program. Although such general support is cost sharing, interpreted broadly, it does not meet the requirement for a specific contribution to a proposed project unless it is purchased for the specific project and acquired within the time period of the award.

To meet cost-sharing requirements, the University specifies in proposal budgets submitted to sponsors the financial contribution that it will make to the proposed project if the sponsor approves it for funding.

How does U-M record its commitment to cost sharing?

Cost sharing will be considered a specific commitment and mandatory in terms of subsequent documentation requirements when it is a stated requirement of the sponsoring agency or is considered significant to the negotiation of the award. The University will consider a cost-sharing commitment to be significant if it is explicitly set forth on the Proposal Approval Form (PAF) or is required as a condition of the award agreement. The Project Award Notice (PAN) will reflect the University's cost-sharing commitment to the sponsor.

To meet the reporting and auditing requirements of the sponsoring agencies, cost-sharing commitments must be charged either to a separate cost-sharing account related to the specified project or to the sponsored project account. Cost-sharing commitments for faculty and staff salaries, benefits, materials and supplies, travel, printing, and other operating costs should be recorded in a cost-sharing account. Cost-sharing commitments in support of graduate student tuition and fees and equipment acquisitions should be recorded in the sponsored project account (unless other arrangements are made). The funds required to cover the portion of these charges that represent University cost-sharing will be transferred into the sponsored project account.

Departments/research units will be responsible for designating on the Proposal Approval Form (PAF) the appropriate amounts and sources of cost-sharing dollars. The account number(s) for the cost sharing amount will be provided on the Project Award Notice (PAN), which is issued by ORSP at the time an award is received and a sponsored project account is established. The use of the PAN as the "trigger" will facilitate the tracking of cost sharing commitments.

How are the cost-sharing expenditures involving faculty time monitored?

The actual expenditure of funds involved in cost sharing by means of faculty time is effected by processing a Department Budget Earning (DBE) appointment change. A faculty member's division of time among University accounts is recorded on his or her appointment form. When a faculty member is committed to spend a certain percentage of time on a sponsored project, the faculty member's unit submits to the Human Resources the distribution of the faculty member's effort The result is that the faculty member's total working time is newly apportioned (by percentages, not hours) to reflect the current commitments.

A second subsequent step involves periodic certification by the faculty member that he or she actually divided the available working time according to the percentages specified in the appointment.

Effort certification is periodically reviewed by University and federal auditors to ensure that the University's cost-sharing commitments are appropriately executed and monitored.

Voluntary uncommitted cost sharing of faculty effort is the effort expended by faculty above and beyond what is supported by the sponsor’s funds and which is not quantified in the proposal or award document.  For example, if a sponsor fully funded an award based on a proposal in which a faculty member requested 20% effort and also made no statements that quantified any additional effort on the project, then any faculty effort over 20% is voluntary uncommitted cost sharing.  It is not required as a condition of the award, will not be reflected in the final budget agreement between the University and the sponsoring agency, and therefore, is not identified in the University's accounting and personnel records.

What is the Vice President's view of cost sharing?

Because most of the University's resources are distributed via the budgeting process and formula allocations to the deans and directors of academic units for management, the responsibility for cost sharing lies principally in the academic units.

The Vice President for Research has limited funds to assist in cost sharing when the amount needed exceeds unit resources and is required by the sponsor. By design, these funds are available primarily to help in acquiring major research infrastructure items (major equipment and facilities).

Obviously, this modest amount of central funds will not cover every request. The Vice President, therefore, must ration their use, taking into consideration the sponsor's requirement, the unit's contribution, the potential impact in leveraging external support, and unit and institutional priorities.

The Vice President believes that the University should not gratuitously offer cost sharing in the hope that it will make proposals "more competitive." Because the University's resources for cost sharing are extremely limited, they need to be used as strategically as possible. To the extent that U-M and other institutions offer more cost sharing than is necessary, sponsor expectations and requests for cost sharing will escalate as they try to accommodate increasing numbers of requests. In effect, any superfluous cost sharing on our part simply permits sponsors to support more work at other less generous institutions.

Some Frequently Asked Questions

1. Why is faculty time the preferred means of cost sharing?

First, fairness to others in the University community dictates that cost sharing should be borne, in the main, by the unit in which the sponsored project will be conducted, and a percentage of faculty time is generally the resource that the unit can most easily offer as cost sharing. Most faculty appointments include some time intended for research or scholarship, whether externally sponsored or not; thus contributing such time to a sponsored project does not usually dislocate a unit's budget as severely as would, say, taking funds away from an equipment account. Second, cost sharing by means of a percentage of faculty time is easier to track than cost sharing through other budget items such as supplies or computer costs. Supplies, for example, are typically bought in quantity for all needs of the department, and separately monitoring the use of supplies for an individual project would be a headache.

2. How can a faculty member account for the hours worked in addition to 40 per week?

The faculty member's appointment is given in terms of percentage, not hours. Assuming a full-time appointment, all the commitments must total 100%. The number of hours per week is not the appropriate measure.

3. Can a faculty member's total time commitments on various proposals add up to more than 100%?

It is possible that a person's proposed future time commitments could total more than 100%, including all proposals outstanding and all current appointments. The expectation in such a case is that not all of the proposals will be funded. If, by chance, they all are funded, the faculty member would have to reduce some of the commitments so that the total appointment is 100% (if full-time).

4. Why should a faculty member be held to a time clock when the hours worked are frequently an inseparable combination of research, instruction, and service?

This concern is frequently expressed by faculty members and has often been argued with federal auditors and other officials. The university world recognizes that it is extraordinarily difficult for faculty members to separate for accounting purposes what is essentially integral in the academic environment. The federal authorities maintain, however, that, in order to benefit from federal sponsorship, universities must devise some viable means to estimate and record allocations of faculty time to various functions. The alternative is not to accept federal support.

Actually, our effort reporting system is not as onerous as faculty members might fear. They are not required to hold a stopwatch on themselves.  They must make reasonable and defensible estimations of their effort and affirm once per year that they have actually divided their working time in accordance with the percentages of time indicated on their current appointment form.  If they at any time realize that they will not be able to so affirm, they are obligated to submit a Department Budget Earning (DBE) to change the appointment form.

5. What happens when a faculty member who has a 100% teaching appointment gets a sponsored research project requiring a 20% time commitment but receives no reduction in teaching load?

Actually, if the sponsored research project is funded, the teaching appointment will have to be reduced to 80% (to accommodate the 20% appointment on the sponsored project), and the department head agrees to this reduction by signing the Proposal Approval Form (PAF).

The real point of the question presumably is not merely whether the department head will reduce the stated percentage on the appointment form but whether he or she will also reduce the number of classes taught or other workload. This is a matter to be negotiated with the department head at the time the proposal is submitted.

Faculty members sometimes begin participating in sponsored research without reductions in the number of assigned classes. The additional load may seem unfair at first view, but one should remember that appointments in academic departments are intended to include some time for scholarship and research. Moreover, the department may assume in some cases that, with increasing experience, the faculty member will need less time to prepare for classes, or that the needed extra time for the project can be found mainly in the summer months. In any event, the faculty member should reach an understanding with the department head in advance and redefine his or her commitments so that the agreed-upon time (over the total project budget period) can be devoted to the project.

6. Is outside consulting permitted when a faculty member is paid entirely from sponsored funds?

Sponsors rarely raise objections to project directors following University policies and practices as long as these policies and practices are followed consistently and across the board. Thus project directors may engage in outside consulting as long as it is permitted by the faculty member's unit (most academic units permit up to four days per month for consulting) and as long as the consulting does not unduly interfere with performance on the sponsored project.

Consulting within the University is another matter. Sponsors generally will not permit a project to employ a faculty member from the same University as a consultant. All such faculty contributions to the project are to be included as personnel costs and paid at the faculty member's regular salary rate.

7. How does UMOR make decisions on requests for cost sharing?

See: Cost Sharing Support for details about applying to the Office of Research for cost-sharing support. The highlights are as follows:

1. For Amounts up to $10,000: Cost sharing of direct costs up to a limit of $10,000 should normally be addressed by the department or school/college and are authorized by ORSP on the Proposal Approval Form (PAF) at the time the proposal is submitted.

2. For Amounts over $10,000: Requests for cost sharing of direct costs of more than $10,000 are reviewed by UMOR on a competitive basis. UMOR reviews requests for cost sharing with the appropriate ORSP project representative and the relevant research dean when necessary. In reaching a decision, UMOR takes into account whether the cost sharing is required by the sponsor, as well as the unit contribution, the potential impact on leveraging external support, and unit and institutional priorities. UMOR expects that requests will be submitted at least one week in advance of proposal submission to ORSP.

8. How much money does UMOR have for cost sharing?

About $3 million in the Vice President's annual budget is specifically designated for cost sharing. Most of the requests are for amounts in the range of $10,000 to $50,000. When requests for very large amounts of cost sharing appear justifiable, the Vice President consults with the other executive officers to determine if other University funds can be made available for the requested purpose.

9. Will UMOR automatically match the funds contributed by a faculty member's unit for cost sharing?

No. This is an often-heard misconception. The unit's cost sharing is determined before the UMOR review takes place. Although the end result may be that the unit and UMOR each contribute the same amount toward the cost sharing, matching is not automatic.

10. Rumor has it that the best strategy for obtaining cost-sharing support from UMOR is to make the request at the last minute just as the proposal is due. Comments?

Rumor is mistaken. Last-minute requests, except in emergencies outside the control of the requestor, may simply not be able to be handled in time, leaving the applicant unable to specify an institutional commitment in the proposal. Although some agencies permit the submission of supplemental information to the original proposal, they cannot guarantee that it will be considered fully. If an emergency commitment is made, it is likely to be less than can be provided with full consideration. UMOR has developed a streamlined system for fair review of requests for the limited funds available and appreciates the cooperation from applicants and their units in following the guidelines set forth.

When proposals must be prepared at the last moment, owing to circumstances beyond the investigator's control, UMOR provides two alternatives for required cost sharing: (1) the proposal can state that University cost sharing has been requested and is being reviewed; (2) the proposal can include a commitment for the cost sharing that has been requested of UMOR with the agreement of the requestor's unit that it will provide the funds if UMOR turns down the request during the subsequent review. These procedures are spelled out in the process for applying for funds from UMOR (see Cost Sharing Support).

11. In a case where cost sharing is requested for necessary equipment and a sponsor cuts back the total budget, if UMOR also cuts back its cost sharing, doesn't this severely penalize the investigator? The equipment cost remains the same regardless.

Because the University's funds for cost sharing are severely limited, it is reasonable that University cost sharing be tied to some extent to the amount of funding provided by the sponsor. Thus, when a proposed project budget is significantly reduced by the sponsor, we would expect in the negotiation with the sponsor to reduce the University's cost sharing also. Such cases, however, are decided individually; there may be circumstances when a project must have an expensive piece of equipment if it is to be undertaken at all. In the usual case, negotiation with the sponsor can arrive at reasonable compromises when significant cutbacks are necessary.

12. Many investigators have the view that they are required to spend undue time and energy "putting together a cost-sharing package" by playing off one administrator against another, gradually ratcheting up the cost-sharing commitments. Comments?

This view, unfortunately, reflects a situation that has too often occurred and that naturally develops when the procedures for negotiating cost sharing are not thoroughly spelled out. The UMOR policies and procedures detailed in the Cost Sharing Support are intended to reduce time-consuming bargaining and gamesmanship and to ensure that requests for cost sharing are handled in an efficient and equitable manner. In general, the procedure calls for the requestor to settle the question of the cost sharing available from his or her unit(s) before applying for cost sharing from UMOR.

13. What are the requirements for cost sharing under the Uniform Guidance (2 CFR 200)?

The University is required to handle cost-sharing costs consistently and in accordance with the Uniform Guidance (2 CFR 200), which states that:

“For all Federal awards, any shared costs or matching funds and all contributions, including cash and third party in-kind contributions, must be accepted as part of the non-Federal entity's cost sharing or matching when such contributions meet all of the following criteria:

(1) Are verifiable from the non-Federal entity's records;

(2) Are not included as contributions for any other Federal award;

(3) Are necessary and reasonable for accomplishment of project or program objectives;

(4) Are allowable under Subpart E—Cost Principles of this part;

(5) Are not paid by the Federal government under another Federal award, except where the Federal statute authorizing a program specifically provides that Federal funds made available for such program can be applied to matching or cost sharing requirements of other Federal programs;

(6) Are provided for in the approved budget when required by the Federal awarding agency; and

(7) Conform to other provisions of this part, as applicable.”

In short, cost-sharing commitments offered by the University in support of a sponsored project must be treated in the same manner as are the direct costs charged to the sponsors of the project.

14. What about "voluntary" or informal cost-sharing?

Voluntary or informal cost-sharing is better known as “voluntary uncommitted cost sharing."  These are commitments that are neither quantified in the proposal nor required as a condition of the award. These commitments will not need to be reflected in the final budget agreement between the University and the sponsoring agency, and therefore, are not identified in the University's accounting and personnel records.

A good example of a "voluntary uncommitted cost share" would be a statement in the proposal narrative that indicated it is the practice of the University to provide out-of-state tuition remission for those GSRA’s who meet certain qualifications. No money is put into the project account to cover this tuition remission, and therefore, the Principal Investigator cannot elect to spend this "voluntary uncommitted cost share" on other direct costs.

15. How are increases in cost-shared compensation costs treated?

The procedure for estimating increases in cost shared salaries and benefits in the out-years of a multi-year project is no different than if they were direct costs. If the cost-sharing commitment is a percentage of effort (e.g., 20% of the Principal Investigator's academic year salary plus benefits), then it really should not matter to the sponsor if the Principal Investigator's salary increases by 4% rather than by the 5% figure shown in the proposed budget. However, if the budget proposes a $20,000 cost-sharing commitment, and this commitment is predicated on a 5% salary increase across-the-board for certain project personnel, then the University is obligated to document $20,000 in cost-sharing regardless of what the actual percentage increases are for these individual's salaries.  Thus, it is better to underestimate the annual percent increases for cost shared salaries and benefits.

16. Can waived indirect costs be used to meet cost-sharing requirements?

Yes, but do note the restriction on applying unrecovered indirect costs as cost-sharing for federal awards.  The Uniform Guidance (2 CFR 200) states in section 200.306(c):

“Unrecovered indirect costs, including indirect costs on cost sharing or matching may be included as part of cost sharing or matching only with the prior approval of the Federal awarding agency. Unrecovered indirect cost means the difference between the amount charged to the Federal award and the amount which could have been to the Federal award under the non-Federal entity's approved negotiated indirect cost rate.”  

 

Questions?

Please contact ORSP Project Representatives for further detailed information about University policies and practices concerning cost sharing.