Proposal Budget Development

James WadeAssistant Director, OSPRA

Penny WeaverAssistant Director, OSPRA

Budget DevelopmentGeneral 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) CostsCosts 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 CostsA-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 RatesFringe 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

ConsultantsExternal: 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 DevelopmentPurchase 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 DevelopmentSubaward 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 DevelopmentConsulting 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 DevelopmentConsulting 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?Subawardee Vendor

Performs part of the “scope” of the project

Provides goods and services

Specialized activities Provides 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 DevelopmentCost-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 onmore than one project?

– Do we recover cost sharing expendituresthrough 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 DevelopmentTypes of F&A Rate BasesTotal 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 websitehttp://www.ospra.uiuc.edu/

OBFS Manual, Section 16.1.5 - Sponsored Projects Administrationhttp://www.obfs.uillinois.edu/manual/urbana/se16-1-5.html

FY10 Indirect Cost and Fringe Benefit Rates http://www.obfs.uillinois.edu/grantsp/documents/rates09U_081508.pdf

Questions?