PAD Seminar – October, 2012 Gail L. Ryan, Assistant Vice President Sponsored Program Administration

 High level understanding of the following:  Cost-sharing on sponsored projects  Sub-contracts on sponsored projects  OMB Circular A-21 Basics  Uses of Indirect Cost Recovery

 Definition (reference OMB Circular A-110):  Project costs not borne by the sponsor but supported by contributions from the recipient and/or third parties, both cash and in-kind.

 Portion of research costs that are not borne by the sponsor  Primarily required by federal sponsors  Pledge can be a % of total project costs or a fixed amount  Obligation must come from non federal funds  Obligation must not come from federal flow through

 Mandatory – explicit in award document and/or explicit in program announcement or guidelines.  Voluntary Committed – defined and quantified in either dollars or narrative in proposal.  Voluntary Uncommitted – occurs in course of project, was not planned or anticipated.  Cost overruns fall into this category

 Committed cost-sharing  Regardless of mandatory or voluntary, once committed becomes true obligation to the institution.  Must be documented in financial system  Proposal commitments = Award requirements  Voluntary Uncommitted cost-sharing  Treated differently than committed cost-sharing.  Not included in organized research base for F&A rate purposes.  Excluded from effort reporting requirements of A-21, Section J-8.  Does NOT need to be documented

 Personnel – time/effort of PI or other staff  Per OMB A-110, rates for volunteer services shall be consistent with those paid for similar work in the recipient’s organization.  Equipment – sometimes a required match for a new piece of equipment to be provided by the University.  Use of existing equipment is usually not allowable as cost-sharing.  Operational costs – supplies, travel, etc.  “In-kind” cost sharing – donations by third parties.  Quantifiable  Certification/documentation of actual  F&A – reduction in recovery can often be claimed

PI will spend 20% effort for the project at no cost to the agency PI will be available to provide advice PI will use general budget to purchase the $500K laser interferometer PI has access to laser interferometer As opposed to

 How should salary amount in excess of the agency (e.g. NIH) salary cap be handled?  Salary cap is considered voluntary committed, and must therefore be documented and identifiable within the financial records of the institution.

 Current NIH salary cap = $179,700  Dr. Smith’s salary is $250,000/year  Proposed effort on project -10% = $25,000/yr  Max to be charged to grant is $17,970 17,970 = 7.188% = ~7% 250,000  Charge 7% to project and 3% to cost-sharing

 Cost-sharing requirements may be passed along to sub-recipients.  Prime awardee retains ultimate responsibility for the commitment.  Therefore, if sub-recipient does not meet their match requirement, the prime awardee may need to scramble at the end of the project.  Important to monitor as part of invoicing approval process, etc.

 In order to be claimed as c/s, must meet all the same criteria to be allowable on the award:  Incurred during award period  Allowable expenditure to the project  Necessary and reasonable for accomplishing project goals and objectives  Must be auditable

 Items normally treated as indirect costs (e.g. office supplies, clerical salaries, etc.)  Specifically unallowable costs  Cost sharing used on another project

 Funding sources should be identified at the time of proposal submission to ensure that commitments are in place.  In other words, “don’t put it in the proposal if you aren’t willing and able to cover the cost!”

 Some agencies may require c/s expenditures to occur at same pace as sponsored award.  Consider total cost to the institution – hidden costs of c/s include:  Loss of fringe benefits and indirect cost recovery  Increase in research base for F&A calculations  Staff time at both departmental and central level for accounting and reporting of c/s

 Cash – those outlays that involve an actual outlay of cash by the institution (personnel, supplies, equipment, etc.)  In-kind – non-cash contributions provided by non-federal third parties, e.g.  Volunteer services  Donated supplies/equipment – must use current fair market value  Either type must be identifiable and able to be documented.

 There are several “not so obvious” negative impacts of voluntary cost-sharing.  Negative impacts:  Lowers F&A rate  Complicates effort reporting system  Increases administrative costs for tracking/reporting cost-share

 If there is no documentation (i.e. in the payroll distribution system) of the time devoted to research, an agency may factor in additional dollars into the research base.  This may hurt your rate negotiation process!  Better to be able to bury them in documentation.

 Basics of the F&A rate:  Pooled expenditures – those that cannot be allocated to a particular project (i.e. indirect costs)  Base expenditures – those direct expenses that make up an institution’s MTDC base  Rate = Pool Base  Goal is to keep the pool high and the base low.  Where does cost-sharing fit in?

Indirect Expenses (pooled costs) = 100,000 MTDC Base = 200,000 Rate = 100,000 = 50% 200,000 Add 20,000 of cost sharing expenses to base. Indirect Expenses (pooled costs) = 100,000 MTDC Base = 220,000 Rate = 100,000 = 45.45% 220,000

 Only commit to cost-sharing when required.  Only commit to the level of the amount required.  Only commit what you are prepared to deliver.  DOCUMENT, DOCUMENT, DOCUMENT!

Differentiation between a subcontractor and a vendor is the first step:  Subcontract: An agreement written under the authority of and consistent with the terms of the Prime Award (grant or contract) that transfers a portion of the research or substantive effort to another organization.  A subcontract is normally signed by both parties.

 Personal Services Contract: A written agreement that transfers a specialized service not available through a routine service provider.  The contractor requires a specialized knowledge in a particular field and often requires originality, creativity, and decision- making abilities.  The agreement is intellectual and professional in nature, and is normally signed by both parties.

 Purchased Services: Are orders to procure goods and services that are normally routine in nature.  They are normally signed only by the Purchasing party.

 A subcontract is an appropriate procurement mechanism when:  1. The collaboration is substantive programmatic work which is beyond mere analytical work-for- hire normally conducted by a routine service provider.  2. The collaboration is substantial enough that the collaborating individual or organization will participate in preparation of results, publication, presentation or other collaborative participation beyond routine analytical work.  3. The collaborator will maintain control of the work to be performed under the subcontract.

 Subcontracts are typically identified in the proposal and/or approved by the sponsor.  SPA has a team dedicated to preparation and administration of subcontracts.  Approval of invoices from subrecipients is a shared responsibility:  PI responsible for verifying work proceeding at an expected pace, and expenses are reasonable based on work completed.  SPA responsible for verifying budget, allowability of expenses, etc.

 Approve scope of work and related budget  Ensure receipt of required deliverables and/or progress reports and review for appropriateness  Align deliverables/progress reports with invoices submitted for payment  Coordinate any modifications with the SPA contracts team (e.g. change in scope, rebudget request, etc.)

 Federal awards – OMB Circular A21 outlines allowability for certain types of expenditures.  A21 = “Cost Principles for Educational Institutions”  Guidance on what should be direct charged to projects vs. what we recover via our indirect cost rate  Specifically, costs of a clerical or administrative nature are considered “sensitive” and care must be taken if direct charged (typically recovered via indirects)

 The following items are considered sensitive, and require extra justification to directly charge to federal projects:  Clerical and administrative salaries  Office supplies (includes computers by definition of equipment threshold)  Telephone line costs (local)  Postage  Other

 Certain criteria need to be met in order to allow these types of expenses as direct charges:  Must be able to identify the costs specifically to the project with a high degree of accuracy  Costs must be incurred for a different purpose or circumstance (how the item is used, not “what it is”) OR part of a “major project” as defined in the circular.  Costs must have been explicitly budgeted, with justification, and awarded.

 ICR funds are set up in the general fund range, and must follow the “rules” for the general fund.  Typical expenditures include items necessary to the research, but which might be considered questionable, or unallowable, if charged directly to a sponsored project.

 Examples of expenditures include:  Office supplies, toner, computers, etc. (those items which we discussed as being A21 sensitive)  Travel  Memberships, dues  Books, journals  Miscellaneous items which are not easily identifiable to a particular project (e.g. shared by multiple projects)