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Direct vs. Indirect Costs

The total cost of federally sponsored research includes a combination of both direct and facilities and administrative (F&A) costs. Both types of expenditures are key to an institution's ability to conduct cutting-edge research. F&A consists of the construction and maintenance costs of laboratories and high-tech facilities; energy and utility expenses; and safety, security, and other government-mandated expenses. These costs are real and research cannot be conducted without them. 

Direct Costs 

Direct costs are costs that can be specifically attributed to a particular sponsored project, a particular university-funded research project, an instructional activity (including departmental research), any other institutional activity, or that can be directly assigned to such activities relatively easily and with a high degree of accuracy, without exceptions or "unless" statements.

These activities are direct costs to the University of Michigan:

  1. Instruction/Departmental Research
  2. Sponsored Projects and related Cost Sharing
  3. Specialized Service Facilities
  4. Other Institutional Activities

Examples of Direct Costs:

  • Alterations, repairs, and maintenance costs of equipment used exclusively for the activity or program
  • Assistantships, including stipends and tuition remission
  • Computer costs and services directly identifiable with the activity or program Consultants
  • Direct materials and supplies (e.g., lab supplies, chemicals, biological supplies, electronics)
  • Equipment used exclusively for the activity or program
  • Patient care costs
  • Recharges from service units
  • Salaries/wages & related benefits of faculty and staff who are an integral part of the activity or project
  • Subcontracts
  • Trainee/participant costs, such as stipends, tuition & fees, travel
  • Travel costs (e.g., airfare, meals, lodging, conference fees)

Facilities & Administrative (F&A) or Indirect Costs

Facilities & Administrative (F&A) costs (also referred to as Indirect Costs and/or IDC) may not be directly charged to a project, but exist as real costs of university operations. Sponsored projects can budget a percentage of the total project costs to cover these expenses. That percentage is determined by University of Michigan's F&A rates (or indirect cost rates), which are established through an agreement with the federal government and the University of Michigan, in accordance with the federal Uniform Guidance. Costs incurred for common or joint objectives, AND cannot be identified readily and specifically with a particular sponsored project, a particular university-funded research project, an instructional activity (including departmental research), any other institutional activity,

These activities are F&A or indirect costs to U-M:

  1. Departmental Administration
  2. Plant Operations and Maintenance
  3. Space Related Costs (Utilities, Depreciation)
  4. Network Costs Definition: Hardware, software, personnel services and other related costs to enable University personnel to share software or data, or communicate with other individuals electronically.

Examples of Network Costs: Servers and their operating software Routers, wiring, and all other components to allow users to hook into and use the network General software available to all users of the network, such as email, word processing, and spreadsheet applications All personnel and other maintenance costs for the server, general software on the server, and other components of the backbone (to the wall or access point for users)

Excludes: Individual workstations and specialized hardware and software attached to the network, which is not available to all users. 

Examples of Indirect Costs:

  • Salaries/wages and related benefits of support personnel, clerical staff and administrators
  • General office supplies: pencils, pens, paper clips, etc.
  • Basic telephone instrument rental costs
  • Photo duplication for general departmental files
  • Network charges for e-mail and other general purpose software
  • Repairs and maintenance of general purpose equipment 

Sponsored Project Telephones and Office Equipment Unallowable as Direct Cost except with prior, written approval

The funding and responsibility for the provision of telephones and office equipment required by sponsored projects has been delegated to our schools, colleges, units, departments, institutes and centers, consistent with the University's overall management incentives program. Project Directors should contact their dean, director, or department administrator for information concerning procedures established for the handling of requests for such equipment.

According to federal regulations (the Uniform Guidance or Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards in 2 CFR 200), the purchase of general purpose equipment (e.g., office equipment and furnishings, modular offices, telephone networks, information technology equipment and systems, air conditioning equipment, reproduction and printing equipment, and motor vehicles) is unallowable as a direct charge to grant budgets except with the prior written approval of the Federal awarding agency. Specific advance approval of telephone toll charges as a direct cost generally is not required by the sponsoring agency.