Proposal Budget Development James Wade Assistant Director, OSPRA Penny Weaver Assistant Director, OSPRA

Budget Development General Considerations  The proposal budget should be directly derived from the project plan.  Budgets are generally computed on a 12-month basis. Cost estimates are generally required for each year of the project, although the level of detail may vary by sponsor.  Follow the sponsor guidelines for format.  Determine what costs the sponsor allows.  If required, include matching or cost-sharing (if cost-sharing is proposed it should be proportional between direct and F&A costs).  Include direct and F&A costs.

Budget Development General Considerations (cont’d)  Request enough funds to cover anticipated cost increases (3% inflation for personnel costs and 4% inflation for non-personnel costs is typically considered to be reasonable).  If cost sharing is included, each budget period should include a column for both sponsor and non- sponsor costs.

Budget Development  Direct Costs: “Reasonable and Allocable” Costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity; or that can be directly assigned to such activities relatively easily with a high degree of accuracy

Budget Development  Facilities and Administrative (F&A) Costs Costs that are incurred for common or joint objectives, and, therefore, cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. Examples of F&A Costs: –Salary of Department Administrator –Building utility and maintenance costs –Purchasing, Comptrollers’ offices –Secretarial costs

Budget Development  Composition of Total Costs A-21, section C.1. –The cost of a sponsored agreement is comprised of the allocable direct costs incident to its performance, plus the allocable portion of the allowable F&A costs of the institution… –Therefore, Federal sponsors reimburse the institution for the allowable costs of a project, including direct costs and F&A costs…. – F&A costs are not optional!

Budget Development  Elements of Direct Costs –Salaries and Wages –Fringe Benefits (FB) –Equipment ($5,000 and over) –Expendable Supplies and Materials –Travel –Subcontracts –Consultants –External –Interdepartmental (should be included in personnel section of the budget) –Other

Budget Development  Salaries and Wages –Summer Salary – Postdoctoral Research Associates –Undergraduate & Graduate Students –Technical and Clerical Support - may be charged to projects under circumstances enumerated by the Office of Management and Budget. – Use Percent of Effort, Not Hourly Wage –Include Increases for COLA and Merit- based Adjustments

FY2010 Provisional Fringe Benefit Rates  Fringe Benefits

Budget Development  Equipment –The Federal government defines equipment as Equipment is defined as an item of property that has an acquisition cost of $5,000 or more. –Equipment not capitalized but with a value of less than $5,000 and greater than or equal to $500 is assessed F&A and should be included in the supplies line item and described in the budget justification. –General purpose equipment is not allowable as a direct cost unless programmatically necessary and used exclusively/primarily for research.

Budget Development  Expendable Materials/Supplies –Must be programmatically necessary; general office supplies should be treated as an F&A cost – unless a major program.  Travel – Adhere to Institutional Policy and Agency Guidelines –Distinguish between Domestic and Foreign Travel –Foreign Travel may require prior approval from sponsor prior to trip (even if in original budget/proposal)  Subawards – Proposed costs should be Reasonable and Allowable (however, keep in the mind the sub-contractor may be under different cost principles, i.e., industry subcontractors)

Budget Development  Consultants External: required expertise needed for the project which cannot be provided by faculty or staff at the institution; rate must be reasonable; in most instances, consultants’ level of effort and participation should not rise to the level of “key personnel” – that would imply substantive programmatic work Interdepartmental: in some instances, a faculty or staff member may serve on a project as a consultant, but only if the expertise required is not part of this person appointment or job function: “same or similar duties” Interdepartmental consultants are paid through the University payroll system and should be included in the budget under personnel costs.

Budget Development  Other Direct Costs –Communications-cell phone charges are unallowable –Publications –Animal Care Costs –Human Subject Costs –Shop Charges –Maintenance/Service Contracts –Computer Costs –Graphic Arts/Photographic Services –Rental/Lease of Facilities –Tuition Remission –Construction/Renovation/Remodeling Costs All of the above must be programmatically necessary!

Budget Development  What Does “Allowable” Mean? An allowable cost must be: –REASONABLE: A prudent business person would have purchased this item and paid this price. –ALLOCABLE: It can be assigned to the activity on some reasonable basis. –CONSISTENTLY TREATED: Like costs must be treated the same in like circumstances, as either direct or F&A costs. If a cost cannot meet the above criteria, it is unallowable, no matter what it is for.

Budget Development  What Does “Allowable” Mean? An “allowable” cost is one that is eligible for reimbursement by the federal government. Contrast with : –PERMISSIBLE BY INSTITUTION: A cost is permitted by institution, as outlined in its various administrative policies or procedures. –ALLOWABLE BY AGENCY: A cost is permitted by the policies of the sponsoring agency or the terms of an award.

Budget Development  Assessing Whether a Cost Is Allowable or Unallowable –A cost may be “expressly” unallowable, i.e., it is always unallowable as either a direct or indirect.  Unallowable activities: Fund raising, alumni relations, lobbying, etc.  Unallowable transactions: Alcohol, entertainment, fines, etc. –A cost may be allowable but only as an indirect/F&A cost, not a direct charge, e.g., proposal preparation

“Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper, there to be read by his spouse, children, and friends.” --- Warren E.Buffet The Front Page of the Newspaper Test

Budget Development Third Party Agreements  Types of third party agreements: – Purchase Order –Subaward/Subgrant/ –Subagreement/Subcontract –Consulting Agreement

Budget Development Purchase Order  A particular kind of agreement issued to enter into a legally-binding commitment with an outside vendor or the acquisition of goods and services.  Issued to an organization that provides the goods or services to many different purchasers as part of its normal business operations within a competitive environment.  These subcontracts (or purchase orders) are not subject to compliance requirements of the Federal award (per A-133).  Normally the purchasing department is responsible for purchase orders, and for their negotiation or revision where necessary.  Subject to State of Illinois Procurement regulations.

Budget Development Subawards/Subcontracts/Subgrants/ Subagreements Whatever you call them… –Subrecipient Subawards: used to procure substantive programmatic (scope) work under a grant or contract. –The sub-recipient has responsibility for programmatic decision making and measurable performance requirements related directly to the award. –Sub-recipients must adhere to federal compliance requirements.

Budget Development Subaward Process Requirements –what OSPRA needs at the time of proposal submission: – Letter of Intent signed by authorized official –Statement of Work –Period of Performance Budget Other Documentation – F&A Cost Agreement –Cost Justification –Statement of Work Approval –Certifications/Assurances (these are usually part of the subaward agreement)

Budget Development Consulting Agreement –A form of subcontract –An agreement issued for services too urgent, temporary, specialized, or highly technical to be provided by existing university personnel. –Consulting agreements are typically not issued to procure “substantive programmatic work.” –Consultants operate as independent contractors without detailed supervision, like subcontractors. –Unlike subcontractors, they most often participate on a “work-for-hire” basis.

Budget Development Consulting Agreements – Remember – a “consultant” is not an “employee.” –If an employee is misclassified as an “consultant,” the institution is subject to fines and penalties. –Employer/employee relationships imply:  More discretion to direct or control the contents of work and results to be accomplished and means by which accomplished  Continuing relationship whether full-time, part- time, seasonal, or short duration.

Subawardee or Vendor? SubawardeeVendor Performs part of the “scope” of the project Provides goods and services Specialized activitiesProvides similar services to many different purchasers Provides goods and services that are ancillary Selected for intellectual merits or related research Operates in a competitive market Subject to compliance issues in the same way as the University Not subject to compliance issues Has responsibility for programmatic decisions Responds to specifications Co-author or peer Retains title to intellectual property rights Work-for-Hire – Rights belong to Buyer

Budget Development Cost-Sharing/Matching Costs  Cost sharing is defined as the portion of the cost of a project not borne by the sponsoring agency  Types of cost sharing: –Mandatory-required by the agency for award –Voluntary Committed-not required for the award but committed in the budget –Voluntary Uncommitted-not required by the agency as a condition for the award, not committed by the faculty, but effort may be recorded.

Budget Development Cost-Sharing/Matching Costs  What Can be Used to Meet Cost Sharing? –Contributed effort by the PI/co-PI (preferred) –Cash –Third Party Contributions (however, federal funds cannot be used as cost sharing on federal funds) –Unrecovered F&A costs (can be used if agency has approved) –If cost sharing is included anywhere in the proposal, it is auditable and requires tracking and may require reporting.

Budget Development Cost Sharing Considerations  Must meet all of the following criteria: –Are verifiable from the recipient’s records –Cannot be used as cost sharing on other federal projects –Are necessary and reasonable for accomplishment of project objectives –Are allowable under the cost principles –Are not paid by the Federal government under another award –Are provided for in the approved budget when required by Federal agency –Conform to other provisions of A-110, as applicable –Are incurred within the project period of performance.

Budget Development Potential Problems Associated with Cost Sharing –Can we demonstrate to the funding agency that the cost sharing commitment has been fulfilled? –Do we track cost sharing on a project-by- project basis? –Do effort reports capture contributed effort (both mandatory and voluntarily committed)? –Are the same cost sharing funds used to meet the matching requirements on more than one project? –Do we recover cost sharing expenditures through our F&A rate?

Budget Development  Facilities and Administrative Costs Points to Consider: –F&A costs are REAL COSTS! –F&A cost recovery is the reimbursement for actual costs incurred by the institution in support of sponsored projects –F&A costs are incurred on all institutional activities, not just sponsored research –A significant portion of F&A cost not recovered –When an external sponsor pays less than the full F&A rate, the unrecovered F&A costs must be absorbed by the institution (it’s an institutional decision)

Budget Development Types of F&A Rate Bases Total Direct Costs (TDC) –All direct costs of research, excluding tuition remission Modified Total Direct Costs (MTDC) –All direct cost of research less:  Equipment $5,000 and over  Subcontracts in excess of $25,000  Tuition Remission  Patient Care  Capital Expenditures  Rental Costs  Scholarships & Fellowships  Other items may be excluded where necessary to avoid a serious inequity in the distribution of F&A

Budget Development  On-Campus Research Rate –Applied to on-campus organized research activities –Most frequently used rate; may be the only rate negotiated  Off-Campus Research Rate –Performance at the off-campus site must be on a continuous basis; intermittent performance is not sufficient; –The University personnel working or engaged on the project must be physically located at an off-campus site; and –The off-campus performance must be of sufficient duration; normally a full semester, summer term, or the period of performance of the sponsored agreement

FY10 Final F&A and Tuition Remission Rates

Helpful Links  OSPRA website  OBFS Manual, Section Sponsored Projects Administration 5.html  FY10 Indirect Cost and Fringe Benefit Rates 9U_ pdf

Questions?