On federal grants and cooperative agreements, total project costs consist of direct costs (expenses that can be identified specifically with a particular final cost objective, under 2 CFR 200.413) and indirect (Facilities and Administrative, or F&A) costs (costs incurred for common or joint objectives that cannot be readily identified with a specific project without disproportionate effort, under 2 CFR 200.414).
Facilities vs. Administration (2 CFR 200.414(a) and Appendix III)
For institutions of higher education (IHEs), 2 CFR 200.414(a) and Appendix III divide indirect costs into two broad categories—and knowing which cost pools belong to Facilities versus Administration is a classic exam distinction:
1. Facilities ("F")
Defined broadly as depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, operations and maintenance expenses, and library expenses:
- Depreciation on buildings, equipment, and capital improvements
- Interest on debt associated with certain buildings, equipment, and capital improvements
- Operation and maintenance (O&M) expenses (utilities, janitorial, facility upkeep, environmental health and safety)
- Library expenses
(Watch out for the common trap: Library expenses are classified under Facilities, not Administration!)
2. Administration ("A")
Defined as general administration and general expenses, departmental administration, sponsored projects administration, and student administration and services:
- General administration and general expenses (central executive, accounting, payroll, personnel)
- Departmental administration (deans' and academic department offices; note that since 1991, the total Administration component of an IHE research F&A rate has been subject to the 26% of MTDC administrative cap under Appendix III, Section C.8)
- Sponsored projects administration (the dedicated pre- and post-award grant administration office)
- Student administration and services
The Modified Total Direct Cost (MTDC) Base (2 CFR 200.1)
Most university and nonprofit negotiated indirect cost rates are applied to a Modified Total Direct Cost (MTDC) base (though other bases—such as Total Direct Costs or Direct Salaries and Wages—exist in specific rate agreements or programs).
Under the 2024 revision of 2 CFR 200.1, MTDC means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award). MTDC excludes:
- Equipment (tangible personal property with a useful life of more than one year and a per-unit acquisition cost that equals or exceeds the lesser of the recipient's capitalization threshold or $10,000 under the 2024 Uniform Guidance, or $5,000 under legacy terms/policies)
- Capital expenditures
- Charges for patient care
- Rental costs (note: the definition in 2 CFR 200.1 excludes rental costs generally, not merely off-site facility rent)
- Tuition remission
- Scholarships and fellowships
- Participant support costs
- The portion of each subaward in excess of $50,000 (or $25,000 under pre-2024 rate agreements/award terms)
You can test multi-subaward and equipment exclusions interactively with the MTDC & F&A Calculator.
Five Types of Indirect Cost Rates
| Rate type | How it works |
|---|---|
| Predetermined rate | An indirect cost rate, applicable to a specified current or future period, usually the organization's fiscal year. A predetermined rate is not subject to adjustment (except under very limited circumstances). |
| Fixed rate (with carry-forward) | Has the same characteristics as a predetermined rate, except that the difference between estimated costs and actual costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period. |
| Provisional (or billing) rate | A temporary indirect cost rate applicable to a specified period which is used for funding, interim reimbursement, and reporting indirect costs on federal awards pending the establishment of a final rate for the period. |
| Final rate | An indirect cost rate applicable to a specified past period which is based on the actual costs of the period. A final rate is not subject to adjustment. |
| De minimis rate (up to 15% of MTDC) | Under 2 CFR 200.414(f), any recipient or subrecipient that does not have a current federal negotiated indirect cost rate (including a provisional rate) may elect to charge a de minimis rate of up to 15% of MTDC without negotiating a rate. |
Sponsor-Specific Indirect Cost Caps (NIH Examples)
Under 2 CFR 200.414(c), a federal awarding agency must accept an organization's negotiated indirect cost rate unless a different rate is required by a federal statute or regulation, or approved by a federal awarding agency head based on documented deviations. Common NIH program exceptions in NIH GPS Section 7.4 include:
- Institutional Research Training Grants (e.g., T32), Career Development Awards (K awards), and certain Research Education Grants (R25): Indirect costs are capped at 8% of Modified Total Direct Costs (specifically, 8% of total direct costs less equipment, tuition and fees, and subaward amounts in excess of the MTDC cap, per NIH GPS rules).
- Foreign organizations and international organizations: Also generally limited to 8% of MTDC on NIH awards for compliance costs.
- Fellowships (e.g., F31, F32): Do not pay F&A; instead, they provide an institutional allowance.