JCPSG | TRAC Guidance

Part IV - Charge-out rates

Section D: Indirect cost rate

1. Indirect costs are not directly related to any one project or activity. However, they are a necessary part of the costs of undertaking an activity. Their costs therefore need to be attributed to projects in order to calculate a fEC. This is done through a proxy – staff and student FTEs. An indirect cost rate for Research is calculated by taking the total indirect costs for Research, and dividing it by Research FTEs. The resulting rate is quoted as a  £ per FTE. This is then applied to the number of FTEs on each project, to provide the indirect cost charge for that project.
2. This method of calculating an indirect cost rate acknowledges that the number of people – academics, research staff and students – is one of the key drivers of indirect costs. Methods other than a £/FTE should not be used (for example, a percentage of direct staff salaries).
3. This section focuses on the indirect cost rate for Research. Full robustness in the data and calculations should be achieved by the beginning of August 2007 (2006/07 data, applied to research projects from February 2008). In particular this requires FTE numbers to be calculated robustly.
4. The indirect cost rate should be historically based. For example, data from the 2004/05 year (included in the annual TRAC report submitted at 31 January 2006) is used to produce the rates applied from 1 February 2006 to 31 January 2007.
5. Rates should be calculated once a year, and apply from the 1 February of a year for the following 12 months. Institutions that are unable to calculate updated rates on 1 February of a year can continue to use their previous year’s rates (but without further indexing). When their new rates are available these would be applied to research projects until the following 31 January. The fEC-based price calculated on projects already being reviewed by sponsors will not, however, be changed. Therefore, it is not a TRAC requirement to re-cost these projects with the latest rates, although this is good practice. If new rates are not available by 31 July of Year 2 (i.e. 18 months after 1 February of Year 1 when they first were applied) then the non-compliant rates apply, until the rates are recalculated.

Chapter D.1  Indirect cost total

1. Indirect cost totals for Teaching, Research and Other should be established. The indirect cost total should not include any Research cost that:
   • was charged directly to projects in the prior year as a directly incurred or directly allocated cost; or
   • is covered by the estates charges; or
   • is contained in a charge-out rate (equipment or laboratory technicians); or
   • is a scholarship, bursary or fee remission for PGR students.
2. The indirect costs that should be included in the rates are therefore those that are currently defined as Support costs within annual TRAC, with the following exceptions. The following should not be included in the indirect cost rate:
   • the estates costs of academic departments;
   • laboratory technicians’ costs;
   • the costs of equipment in academic departments;
   • scholarships/bursaries.
3. The indirect cost totals should therefore include:
   • the Support time (cost) of academics
   • clerical and administrative staff in academic departments*
   • non-staff costs in academic departments*
   • central services including academic services such as the library and learning resources
   • the estates cost for central service departments
   • the gross cost of capital employed, incorporating interest and restructuring costs.

     * These costs exclude any that have been directly charged to a project.

4. By definition, the Support time/cost of academic staff already excludes time/cost that has been charged to a project or is otherwise a direct Teaching, Research or Other activity. Clerical staff and non-staff costs in academic departments that have been charged to a research project as a directly incurred cost should be excluded.
5. Indirect costs could include generic IT costs (or these could be directly allocated, or included in the estates charge).
6. Indirect costs used to calculate the indirect cost rates should include the indirect costs of PGR students.
7. Indirect costs that have been charged to projects during the year (e.g. during 2004/05) are not relevant to the calculation of subsequent indirect cost rate calculations (e.g. rates calculated on 2004/05 costs, applied from 1 February 2006 should be based on total indirect costs actually incurred in 2004/05, irrespective of any recovery in 2004/05).

Chapter D.2 Calculating rates

1. Indirect cost totals for Research are divided by FTEs to produce an indirect cost rate for Research.
2. FTEs – of academic staff, research staff, and PGRs – were defined in Chapter C.1. This will not be the same FTE total that is used in the calculation of the estates charges as:
   1. PGR numbers are weighted at 0.2 (weightings in the estates charges are different from this);
   2. some FTEs that are included in the indirect cost rate may not be in the estates rate, in particular where staff are working wholly off-campus;
   3. in the estates calculations, FTEs are shown as a total for laboratory departments, and a total for non-laboratory departments, as two different estates charges are calculated. For indirect costs, only one rate is calculated, therefore there is no distinction between laboratory and non-laboratory departments.
3. Technical and clerical staff FTEs should not be included in the denominator.
4. Only one generic institutional rate per academic/researcher need be calculated but institutions can introduce additional rates if they wish.   This rate, when applied to PGR students, should be multiplied by 0.2 (the same weighting used on PGR student numbers in the original calculation).
5. The £/FTE should be converted from/to £ per day and £ per hour, on the basis of 1650 standard working hours in a year (e.g. 220 standard working days; 7.5 hours in a day).

Chapter D.3 Applying the rate

1. The £/hour or £/FTE indirect cost rate should then be applied to the academic hours/FTEs and research staff FTEs which are estimated for a research project. It should also be applied to the FTE of PGR students, where they are formally recognised as part of the research team by the sponsor (the project studentships) and if the institution wishes to include their costs in the project cost totals. When applied to a PGR FTE the indirect cost rate should be weighted by 0.2.
2. Institutional rates would be applied as part of the project costing (estimating) process carried out pre-application. They should then be recorded against each project during its life. These costs would be charged to sponsors on cost-based price grants and contracts.
3. Under TRAC, no updating for actual indirect costs or rates need be recorded during the project life – this would not be recognised for cost-based pricing for PF sponsors. However, when cost-based pricing, indirect costs charged to a project should be reviewed and updated (for latest estimates) if there is a substantial change to the programme of work.
4. Initially based on a prior year’s cost totals, indirect cost rates should be indexed to current price levels.   Therefore rates based on historical costs should be indexed (by two years’ price levels) to provide a reasonable estimate of first year (‘base year’) costs for research projects. Further indexing of these base year costs should then be done throughout the life of the project.
5. There will be an over or under-recovery of indirect costs in any one year. This should not be taken into account in the calculation of the indirect cost rate based on that particular year’s figures.
6. When applying a rate to the time of an academic or member of research staff on a project:
   • if an academic has allocated time to a project, then the indirect cost rate should be applied to that time, irrespective of whether there is a salary also allocated to the project (e.g. visiting academic);
   • the rate calculated for the academic/research staff’s own discipline group/institution should be applied, irrespective of whether the project is being led by or taking place in another institution or off-campus. Where an academic is allocating time to a project but no salary is paid by the HEI (e.g. for some visiting professors), then an indirect cost should still be allocated;
   • on collaborative projects between institutions, or where there is a visiting academic on a project, indirect costs might be charged from the collaborator to the lead institution. This recharge can be based on either the collaborator's rate; or alternatively, the indirect cost rate for the employer of the majority of the staff could be used for all staff. Where costs are recharged:
     - the indirect cost rate applied to the collaborating institution's FTEs on the project should reflect the costs being recharged, and
     - the visiting staff FTEs should not be included in the denominator when calculating the lead institution's indirect cost rates.
     
     Where costs are not being recharged from the collaborator to the lead institution, the lead institution's own rates should be charged. In this case the FTEs would be included in the denominator when calculating the lead institution's indirect cost rates;
   • where a research fellow or RA is working on the project, but their time has already been wholly (100%) included in another single fellowship or research project (from the research councils, charities or OGDs), then no time will have been allocated to the new project. No indirect cost rate will then be applied in respect of that researcher (their ‘share of indirect costs’ would have been included on the initial fellowship or research project). This is irrespective of how the initial fellowship or research project was funded.

Chapter D.4 Alternative methods

1. Whilst only one generic institutional rate (£ per academic/research staff) need be calculated, different rates could be used for different types of staff, or for different departments. If so, institutions should ensure that:
2. the size of these differentials reflects appropriately the real drivers of the costs;
   • the FTE data, and the costs, should be robust at these lower levels (rather than for all academic staff working for each research sponsor type for each discipline group);
   • a single £/academic FTE indirect cost rate for Research is calculated for benchmarking (part of the external quality assurance process).
3. The two main options are:

   Grade of staff

   • The indirect costs on a project are unlikely to be affected materially by the grade of staff. (Even Support time, which does vary according to salary level, is mainly comprised of the costs of management and administration that should be spread across all projects, not just the one that the individual is working on).

     Institutions might therefore feel that it is not material to calculate and apply a different rate for each grade of staff. This would be more complex than a single grade rate, and require higher levels of robustness in the annual time allocation process.

   Clinical medicine and dentistry

   • However, staff in some departments may be more productive than others (their direct time is significantly higher, and their Support time is significantly lower). This may be the case particularly in clinical departments, reflecting the different working arrangements. It is good practice for institutions with clinical medical or dentistry departments to review this and, if appropriate, to calculate a separate indirect cost rate for those departments.
4. However, when doing so, it is good practice to ensure that the treatment of O(CS) will result in full recovery of indirect costs. Two types of recharges to Research can be made from: O(CS), reflecting Research services received from clinicians; or O(CS)(R) reflecting the Research work carried out by academic clinicians at the same time as clinical services. 
5. Institutions should only include any of this time as direct Research time (for the purposes of calculating the FTEs, and thus the indirect cost rate) if they are sure that this type of time is the same as might potentially be entered on project costing forms for Research projects – either by clinical academics or by clinicians (under knock-for-knock).

Chapter D.5 Justification

1. If an institution’s indirect cost rate falls above the upper quartile of the sector rates, then they should be prepared to justify this higher rate, or use a lower non-compliant indirect cost rate (specified by the Office of Science & Technology/ Research Councils) if lower than their rate.
2. This decision should apply for one year, across all projects in that institution. Part of the reason for a higher rate might, for example, include definitional issues where fewer costs are being claimed as direct; part might relate to efficiency or a wide range of historical or other reasons.
3. An acceptable method for justifying a higher rate is described under external quality assurance.

Chapter D.6 Application to T and O

1. Indirect cost rates can also be established, using the above techniques, for Teaching and Other activities. The indirect cost totals for each of these, by department, would have been calculated using the same method as that for the indirect cost total for Research.
2. The indirect cost total for Teaching could then be described in terms of a £ per student (for all Taught students, or by discipline group, or by department). This would then facilitate the use of an indirect cost rate in course costing, using the same methodology as for Research.
3. The indirect cost total for Other would include costs for residences and catering. Excluding these, the costs of Other activities in academic departments could also be described in terms of a £ per staff FTE.
4. There are no mandatory requirements in this area – see Part VI.