How are Indirect Costs applied to contracts and grants?
When the University performs work for others such as the federal government through contracts, grants and other agreements, Regents’ policy requires it to recover the “full cost” associated with such projects, including all direct and indirect costs. Direct costs are the costs directly identifiable to individual projects. Indirect costs are assigned to projects as a percentage of direct costs. Thus if a campus uses an indirect cost rate of 50%, and if $1,000 of direct cost is incurred on a project, the campus would assign an indirect cost of $500 (50% of $1,000) and invoice the project sponsor for $1,500. The indirect costs paid to the University by project sponsors in this fashion are referred to as “indirect cost or overhead recovery”, and represent the recovery of costs incurred by the University to provide the facilities and operational support for the project.
