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Much of the research activity (and other scholarly activity in the areas of instruction, public service and outreach, cooperative extension) at any university is funded by sponsors (federal agencies, private foundations, professional societies, etc.) who provide money (through a grant or contract) to the university to be spent on the direct costs of a specific project. Direct costs are defined as any costs that can be specifically related to the project; they can include personnel costs, supplies & expenses, etc.
On the other hand, universities could not carry out sponsored projects without providing the environment to support these activities. The university is expected to provide laboratory space, infrastructure like water, lights, and electricity, and many other support structures, all of which cost money, but cannot be associated with any specific project; these are termed indirect costs. Generally, in support of a given project, sponsors will contribute additional funds, beyond those to be spent on direct costs, to pay for these additional expenses. This additional money is now called Facilities & Administrative Reimbursement (often abbreviated F&A) to indicate that it reimburses the university for the real (indirect) costs of providing facilities for and administration of the environment required for the project.
The amount of F&A reimbursement is generally calculated as a percentage of direct costs (often excepting equipment costs), but varies depending on the type and location of the activity and the sponsor. There are current maximum rates, but some sponsors cap the amount they will provide. For federal agency sponsors, the federal government provides a set of principles (embodied in Circular A-21, published by the Cost Accounting Standards Board of the Office of Management and Budget,) and each university undergoes a rigorous periodic accounting review with government auditors (e.g., from the Department of Health and Human Services or the Office of Naval Research) to use these principles in establishing its particular rates.
F&A is called "reimbursement" for a reason; UGA incurs very real expenses associated with being able to support sponsored projects and F&A is meant to reimburse these expenses. These expenses are incurred in many areas and at many levels of university administration, and UGA has developed a system for distributing the F&A reimbursement to handle them. Generally, 80% of all F&A reimbursement stays in institutional-level budgets, while 20% is passed through to the unit (department, college, center, institute) or units where some of these expenses are incurred. This 20% component of the F&A reimbursement is often referred to as F&A return; it has come to represent an important part of unit operating budgets.
In a little more detail, the figures below show how F&A reimbursement is distributed on this campus. For sponsored projects involving research, the F&A is distributed first between the general budget and the research budget of UGA; about 78% of F&A is deposited into the UGA Resident Instruction budget (this is the major general operating budget of UGA), while about 22% is deposited in the UGA Research Foundation, Inc. (UGARF) budget (Figure 1). (UGARF is the independent organization that helps support research on campus.) From each of these budgets, 10% (of the original F&A reimbursement total) is transferred to the "generating unit."
Figure 1. Disposition of Facilities & Administrative Reimbursement from research grants/contracts. F&A is initially distributed between UGARF and UGA RI budgets, from which components form the 20% returned to the generating unit(s).
F & A reimbursement is slightly different for sponsored projects that support activities other than research. These include projects in instruction or public service and outreach, for example. In this case, UGARF is not involved. All of the F&A reimbursement starts in the Resident Instruction budget and 20% is transferred to the "generating unit" (Figure 2).
Figure 2. Disposition of Facilities & Administrative Reimbursement from nonresearch grants/contracts. All F&A is placed in the UGA RI budget, from which 20% is returned to the generating unit(s).
Regardless of the type of sponsored project, 20% of the F&A reimbursement is transferred to the "generating unit." Any component of this return that came from UGARF can be carried over from one fiscal year to the next, a flexibility that units really value. A fraction of the return transferred from the Resident Instruction budget can be carried over, with appropriate justification.
In many cases, the identity of the "generating unit" is straightforward; the principal investigator is a member of a department and that department receives all the F&A returned. However, in an increasing fraction of projects, principal investigators have appointments in more than one department or are members of centers or institutes in addition to being members of departments. Also, many projects are collaborations among several investigators, who may be members of multiple departments, centers, and institutes. UGA has not established a policy for how to share F&A return among these "generating units," but has designed the standard proposal transmittal form to allow investigators to specify how this F&A return distribution should occur. These decisions must be approved by the heads, deans, and/or directors of the units involved and should be discussed with the appropriate leaders well in advance of proposal submission; these approvals are validated by signatures on the transmittal form.
With the increasing number of interdisciplinary centers and institutes and their involvement in multi-investigator projects, the Office of the Vice President for Research (OVPR) recently initiated a discussion about the appropriate sharing of F&A return among the various units involved in a given project. This is especially important for major, active centers and institutes that, unlike departments and schools/colleges, usually have no state-funded operating budgets, but like departments often incur some of the same costs associated with conducting sponsored projects. A task force developed a set of guidelines that are contained in a report available here. The task force recommended that units should agree to sharing F&A return based on the distribution of legitimate costs incurred from conducting the sponsored project. The task force developed a worksheet (contained in its report) that provides a rational framework for how to do the cost accounting that would lead to a fair sharing of F&A return. The principles in this report form a set of guidelines that the OVPR uses to help units develop sharing arrangements.