Direct vs Indirect Costs
Apples and oranges. Direct and indirect. There are two kinds of costs but sometimes it is hard to determine when elements of expense are able to be directly charged to a project and when the costs are contained in the indirect base for the university. The following information will help you determine which elements of your proposed budget may be directly charged to the project and which must be considered part of the "indirect".
Identification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from F&A costs of sponsored agreements. Typical costs charged directly to a sponsored agreement are the compensation of employees for performance of work under the sponsored agreement, including related fringe benefit costs to the extent they are consistently treated, in like circumstances, by the institution as direct rather than F&A costs; the costs of materials consumed or expended in the performance of the work; and other items of expense incurred for the sponsored agreement, including extraordinary utility consumption. The cost of materials supplied from stock or services rendered by specialized facilities or other institutional service operations may be included as direct costs of sponsored agreements, provided such items are consistently treated, in like circumstances, by the institution as direct rather than F&A costs, and are charged under a recognized method of computing actual costs, and conform to generally accepted cost accounting practices consistently followed by the institution.
Direct costs generally include:
Section J of OMB Circular A21 (2 CFR 220) describes how certain cost elements should be considered when preparing a proposal budget.
Sections 1 through 54 provide principles to be applied in establishing the allowability of certain items involved in determining cost. These principles should apply irrespective of whether a particular item of cost is properly treated as direct cost or F&A cost. Failure to mention a particular item of cost is not intended to imply that it is either allowable or unallowable; rather, determination as to allowability in each case should be based on the treatment provided for similar or related items of cost. In case of a discrepancy between the provisions of a specific sponsored agreement and the provisions below, the agreement should govern.
Indirect costs are those costs that are not classified as direct. Examples of indirect costs are :
Effective July 1, 1997, OMB Circular A-21 stated that salaries and fringe benefits of administrative and clerical staff and certain general administrative expenses, such as office supplies, postage, local telephone costs, and memberships, should be charged as F&A costs (formerly known as "indirect costs") when they are associated with general University functions that do not result from specifically identifiable requirements.
However OMB Circular A-21 does allow these expenses to be charged directly to a sponsored project in certain circumstances. "Direct charging may be appropriate where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. "Major project" is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments." (Section F.6.b(2))
OMB Circular A-21 (Exhibit C) provides examples of "major projects:"
The DS-2 Statement for UAA has been submitted to DCAA for review. It has not yet been accepted. It details how UAA will classify all elements of expense. We are required to have a consistent treatment of costs in like circumstances.
If a proposal has a scope of work or circumstances that require direct charging of items of expense that are normally considered part of the F&A Pools, a Cost Accounting Standards (CAS) Exemption Form is required at the time of OSP (pre-award) review. Adequate documentation of the costs that are being treated differently due to unlike circumstances must accompany this form. The final signature on this form is the University of Alaska Controller who is the arbiter of who will and who will not be granted an exemption.