Requesting an Indirect Cost Waiver
Recovery of full Indirect Cost
The Regents' policy on full cost recovery imposes a duty on all University administrators and Principal Investigators to perform sponsored projects on a full cost recovery basis. Administrators and Principal Investigators are obligated to ask for and recover indirect costs from all sponsors. Full cost recovery is necessary to support the University's physical and administrative capacity to perform extramural projects.
Researchers are neither authorized to negotiate reduced indirect cost rates with sponsors, nor to submit proposals that do not include the applicable full indirect cost rate as part of the budget.
When funding flows from the prime sponsor through an intermediary sponsor, as in the case of federal flow-through awards, then the indirect cost rate applicable to the prime sponsor will apply.
Exceptions to Recovery of full Indirect Cost
Regents' Standing Order 100.4(m), which authorizes the President to negotiate and approve all indirect cost rates, also incorporates the authority to approve exceptions to the approved rates. Thus, University policy allows for indirect cost rate exceptions to be granted under certain circumstances, as described below.
Authority to approve exceptions to negotiated indirect cost rates is at The Office of The President (UCOP), and has not been redelegated to Chancellors or Laboratory Directors. Therefore all requests for exceptions to the policy of application of full applicable indirect cost rate must be approved by the Office of the President.
Each approved exception reduces revenue to the University and to each campus.
Requests for exceptions to indirect cost recovery must balance local campus interests with University-wide institutional interests. Without full indirect cost recovery, the University is subsidizing the cost of the project for the sponsor.
Reasons to seek Exceptions to Recovery of full Indirect Cost
1. Sponsor Policy
Non-Profit Sponsors sometimes restrict reimbursement of indirect cost to less than the full applicable rate. Sponsor restrictions may be by statute, bylaws or policy of non-profit entities. For governmental sponsors, it may also be by codified agency regulations or program terms published in the sponsor's solicitation or announcement.
The above generally neither applies to for-profit corporations/organizations nor to foreign governmental entities. The Attorney General of The State of California has ruled that reductions of indirect cost rates for such sponsors are improper gift of public funds for private benefit.
Under certain rare circumstances, an exception based on sponsor policy may be considered for a legitimate, general University community service, scholars' or fellowship program sponsored by a for-profit corporation. The criteria for considering a sponsor policy exception for such a program would include all of the following: 1) the sponsor has published an announcement calling for proposals under which grants would be awarded; 2) exceptions to University policies for the subject program, such as intellectual property language, are carefully considered and justified, specifically in light of the indirect cost rate exception, and approved by the appropriate University authority; and 3) the announcement does not require a specific deliverable to the corporation other than technical/final and financial reports. Such a program would have to be clearly distinguishable from research contracts which state anticipated outcomes in specific areas of corporate interest solicited by the corporation, and provides the sponsor for certain rights to the resulting intellectual property.
Campus Vital Interest
Please note that due to current budgetary concerns, approval of this type of exception is extremely rare.
In rare situations the development of campus research, training or public service programs or infrastructure may best be served by accepting a sponsored award at less than the applicable indirect cost rate. These situations may include, but are not limited to: small seed grants which may attract future larger awards; awards which include contributions of major equipment, or building renovation funds; awards for a community relations interest vital to the campus; supplements for a student services activity which the campus must provide; or other types of supplemental funding for an established campus program such as for library holdings, performances, or exhibits.
Such interests must be viewed as vital to a campus, by campus officials, to the extent that funding the proposed project at a loss, by not collecting full indirect, is more important to the campus than recovering the full indirect costs.
In the case of equipment contributions in lieu of indirect costs, the value of the equipment must be at least equal the indirect costs lost through waiver. Further, the subject equipment must not be required for performance of the proposed work, because if it were required, it should be purchased as part of the direct cost funding for that project. Additionally, title to the equipment must be retained by the University so that the value from the use of the equipment continues beyond the period of the award.
Procedure to Seek Exceptions to Recovery of full Indirect Cost
If there are justifications as stated above to seek an exception to the policy to apply less than full indirect cost rate to a proposal, please contact Office of Research, Sponsored Programs, prior to submission of the proposal.
If the Director of Sponsored Programs (and the Vice Chancellor for Research for those based on vital programs) endorses the request, it will be forwarded to the Office of the President for further consideration. The UCOP will approve or deny the request and the Principal Investigator will be notified of the decision. Because this process could take several weeks, it is recommended that requests be forwarded to the SPO at the earliest convenient time so that proposals can be forwarded to sponsors in time to meet their deadlines. If the request is not received by the Sponsored Programs Office in time to process the request before the proposal has to be submitted to the sponsor, the budget must reflect the applicable Federally-negotiated indirect cost rate. The proposal may contain a cover letter stating that a waiver has been requested from the Office of the President, and if approved a revised budget will be forwarded.
Questions regarding indirect cost waivers should be directed to the members of Sponsored Programs assigned to the requesting researcher’s department/unit.