1. F&A Proposal Preparation & Negotiation, and Application of Negotiated F&A Rates An Introduction to the Process Pre-Conference October 12, 2015

2. 2 Presenters  Jim Carter  Managing Director  Huron Consulting Group  Mike Legrand  Director, Costing Policy and Analysis  University of California, Davis

3. Where to Start?

4. 4 Not Just Colleges & Universities  Not-for-profit Organizations  Hospitals  State And Local Governments

5. 5 Regulations  Uniform Guidance (2 CFR Part 200)  Colleges And Universities (Old circular: A-21)  Not-for-profits (Old circular: A-122)  State & Local Governments (Old circular: A-87)  Not covered in this presentation  Hospitals – OASC-3  For-profits – FARS  Uniform Guidance and OASC-3 are part of the Code of Federal Regulations (CFR)

6. 6 Different Terminology – Same Concept  Facilities And Administrative (F&A) Rates  Colleges and Universities  Indirect Costs  Non-profit  State and Local governments  Hospitals (OASC-3)  CAS  Burden Rates  Overhead Rates

7. Cost Reimbursement

8. 8 Not a New Idea  Most grants are cost reimbursement  You spend the money  The Sponsor pays you back what you already have spent

9. 9 Reimbursement is Easy for Some Costs  Salaries  Animals  Supplies Directly Benefit the Grant

10. 10 Reimbursement is Harder for Other Costs  Buildings  Equipment  Utilities and Maintenance  Writing pay checks  Top quality grant administration  Top quality department support Benefit Many Grants and Activities Indirect Costs

11. 11 What is Indirect Cost? An indirect cost is a cost that benefits different activities and cannot be easily identified to benefit any one activity.

12. 12 Direct Cost Indirect CostTotal Cost

13. 13 Work the Equation Total Cost Direct Cost??????

14. 14 Work It Further Indirect Cost Direct Cost Indirect Cost Rate

15. 15 How It Works  Indirect Costs are NOT reimbursed on specific identification  Indirect Cost Rate is applied to a Direct Cost Base Indirect Cost Rate Direct Cost Base Indirect Cost Recovery

16. 16 Is It That Simple?

17. 17 Of Course Not  Exclusions  Allowable Costs  Unallowable Costs  Allowances  Limitations – Caps  Multiple Rates  Multiple Rate Bases  Multiple Rate Types

18. How to Prepare a Facilities and Administrative Cost Proposal

19. 19 How To Prepare An F&A Proposal – At a Glance Start with Financial Statement Adjust to Modified Total Cost Assign expenditures to cost pools Remove unallowable costs from pools* Allocate pool costs to major functions (bases) Calculate Rates: Indirect / Modified Total Direct Costs Calculate Rates: Indirect / Modified Total Direct Costs 1 1 2 2 3 3 4 4 5 5 6 6

20. 20 Start with Financial Statement, Expenditures Example of Major Functions in Higher Education* Instruction Organized Research Other Sponsored Activities Other Institutional Activities *Classification of major functions for F&A proposals may differ depending on types of institutions 1 1

21. 21 Adjust to Modified Total Costs  Adjust To Modified Total Cost  Minus Non-MTDC Items  Student Financial Aid  Capital Expenditures  Double Counted Items  Patient Care  Participant Support  Add Allocations  State Wide Cost Allocations  Parent University Allocations  University System Allocations 2 2

22. 22 Costs are classified as Direct vs. Indirect (F&A)  Direct costs: PI Salary, Lab Supplies, Fringe Benefits, Animals, Post- Doc Salaries, Travel, etc.  Indirect costs: Admin Salary, General support, Office computer, Library, Building, Custodial Services, etc. 3 3 F&A Costs Buildi ng Office Compu ter Admin Salary Direct Costs PI Salary Lab Suppli es Fringe Benefi ts

23. 23 Facilities Related Costs  Building Depreciation/ Use Allowance  Equipment Depreciation/ Use Allowance  Interest  Operations & Maintenance  Library Administrative Related Costs  General Administration (GA)*  Department Administration (DA)*  Sponsored Projects Administration (SPA)*  Student Services Assign Expenditures to Cost Pools  Identify Indirect Costs and Put in Pools 3 3

24. 24 Remove Unallowable Costs from Pools  Identify Unallowable Indirect Costs  Fund Raising  Entertainment  Alcohol  Royalties  Judgments  Fines  Taxes  Eliminate From Indirect Cost  Leave In Direct Cost 4 4

25. 25 Allocate Pool Costs to Major Functions  Identify Direct Costs and allocate to Bases (major functions)  Instruction, Organized Research, etc.  Remember Formula Modified Total Costs - Indirect Cost =Modified Total Direct Costs 5 5

26. 26 Allocation F&A Allowable Facilities Related Indirect Costs Allowable Facilities Related Indirect Costs Allowable Administrative Indirect Costs Allowable Administrative Indirect Costs Organized Research MTDC Instruction MTDC Instruction MTDC Other Sponsored Activities MTDC Other Sponsored Activities MTDC Other Institutional Activities MTDC Other Institutional Activities MTDC Bases: Pools: 5 5

27. 27 Allocation 5 5 F&A PoolAllocation Method Building DepreciationSpace Study – Functionalized ASF Equipment DepreciationSpace Study – Functionalized ASF Capital InterestSpecific identification / Space Study – Functionalized ASF Operations & MaintenanceSpace Study – Functionalized ASF, plus utility cost adjustment LibraryUser FTE’s & S&W or Special use survey General AdminMTDC of functions receiving services Departmental AdminComplex: Pool for each department / formula driven based on faculty salaries and charging of support staff Sponsored Projects AdminMTDC of functions receiving SPA services Student Services100% to instruction

28. 28 Calculate Rates  Calculate Rate per Major Function 6 6

29. Exercise

30. 30 Reconciliation Schedule 1

31. 31 Reconciliation Schedule 2

32. 32 Reconciliation Schedule 3

33. 33 Reconciliation Schedule 4

34. 34 Reconciliation Schedule 5

35. 35

36. Quiz -Complete the Instruction Rate Schedule

37. Comparative Anatomy

38. 38 Comparative Anatomy  Colleges and Universities (Uniform Guidance)  Short-Form  Long-Form  Non-profit (Uniform Guidance)  Free Form  Isolate Fund Raising  Hospitals (OASC – 3 http://rates.psc.gov/fms/dca/cfr45_pt74_appx_e.html )  Follow Medicare Cost Plan  State and Local Governments (Uniform Guidance)  Follows Cost Elements

39. 39 Comparative Anatomy  Short Form  One Rate  S&W or MTDC  Weak Departmental Allowance  O&M Carve Out For Auxiliaries  Low Rates  Easy To Review  S&W Adds Insult To Injury

40. 40 Comparative Anatomy  Long-Form  Organized Research  Requires Detailed Space Survey  Requires Detailed Cost-Sharing Data  Formula Departmental Administration  Faculty Administrative Allowance  Capped Administration  Incorporates Cost Accounting Standards  Mandated Reporting Format

41. 41 Comparative Anatomy  A-122 Not-Profits  Depends Upon Organization Structure  Separate Fund Raising  Separate Public Service  Isolate Federally Funded Activities  No Definition Of Departmental Administration  No Definition Of Sponsored Projects Administration

42. Exercise

43. 43 Indirect Cost Rate Proposal – Salaries and Wages Base

44. Quiz

45. Negotiation and Strategic Planning

46. 46 Negotiating an F&A Rate  Step One – Find A Cognizant Agency  Predominant Funding  Only HHS Or DOD-ONR For Higher Education  Can Be Any Agency For Others

47. 47 Negotiating an F&A Rate  Cognizant Agency  Sole Federal agency responsible for negotiating rates  Same negotiated rates across all agencies  Doesn’t mean they will be paid  Effort to align with funding  Can cause problems  May be different for audit

48. 48 Negotiating an F&A Rate  Step Two – Determine Type of Rate  Predetermined  Most Common  Requires History  Can Be For Up To Five Years  Not For Hospitals  Fixed With Carry-Forward  Provisional/Final

49. 49 Negotiating an F&A Rate  Step Three – Submit the Rate Proposal  Appropriate Cognizant Agency  Appropriate Office

50. 50 Negotiating an F&A Rate  Step Four – Wait

51. 51 Negotiating an F&A Rate  Next Steps - HHS  Wait  Desk Review  Questions  Site Visit  Questions  Negotiations

52. 52 Negotiating an F&A Rate  Next Steps - HHS  Desk Review  Takes place at HHS office  May involve phone calls  Could result in rate offer  Usually results in written questions and data requests

53. 53 Negotiating an F&A Rate  Next Steps - HHS  Questions  Usually very detailed  Sometimes hard to understand  Usually requires a lot of work to comply  Best to answer thoroughly  Just answer the questions

54. 54 Negotiating an F&A Rate  Next Steps - HHS  Site Visit  1-3 Days  Have an Entrance Meeting to set the Ground Rules  Walk space  Meet department heads/Principal Investigators  Ask more questions  Get away from the office

55. 55 Negotiating an F&A Rate  Next Steps - HHS  Questions  If no negotiations  Should address specific questions  Must be taken seriously  Keep copies of all responses  Do not show shock  Respond Quickly

56. 56 Negotiating an F&A Rate  Next Steps - HHS  Negotiations  Not always based on facts  What is best for institution  Live to fight again  Hard to judge success

57. 57 Negotiating an F&A Rate  Other Agencies  DOD/ONR

58. 58 So what you basically are saying is that our proposal is what….too high? William J. Tisch, University of Arizona

59. 59 Other Useful Information  You Must Have An Award Paying Full Indirect Cost to Get a Rate from HHS  Do Not Expect to Get Respect  You Are Always Wrong  Your Rate Is Always Too High  You Are Always In The Middle

60. 60 Strategic Planning  Rate calculation  Reconciliation is critical  Accuracy is important  Remember your audience  Should you get help?  Proposal preparation  Mandatory format  Creativity not appreciated  Tie it out

61. 61 Strategic Planning  Timing  No good answer  All things being equal, be on time  Requested rate  Sometimes you need to tip your hand  Do not ask for the rate you must negotiate  Negotiation is a downward process

62. 62 Strategic Planning  Rate period  Go long when your rate is going down  Go short when your rate is going up  How much pain can you stand  Negotiation process  Who should participate  Who will baby-sit  Prep the departments  What rate is acceptable

63. 63 How to Collect Indirect Cost  Put it in the proposal budget  8%  Off-campus  Full Rate  Discounted Rate  Get it awarded  Spend the direct costs  Bill the indirect costs