I haz indirects, and so can you!

Jul 11 2011 Published by under academia, jr faculty, lab management, on the job training

This post was inspired by BiochemBelle, who started a discussion on the Twitterz the other day about indirects. One of the things that you get to do (a lot) as a new PI is fucking with accounting deal with your lab budgets. This means that you will learn all sorts of uninteresting things about how the money gets spent. Here is (to the best of my knowledge) how indirects work.

Indirects are the money that your institution uses to "support" your grant.  I don't really know what this money is supposed to do, but I assume that it helps pay the rent, keep the AC running and the lights on, and other shit like that. Indirect rates are negotiated by each institution with the granting agencies. But, since every grant given to a specific MRU I really don't know who is negotiating with who. But whatever, I digress.

Indirects are charged to your grant based on what you use the money for. For most NIH grants, you are awarded a sum of money, the direct costs, and the university gets their indirects on top of that amount. The direct costs are the money that your lab actually gets to spend on salaries, supplies and equipment. If your indirect rate is 50% and you get a grant for $100,000 (direct), the institute will actually get $150K (yes, the numbers were chosen for easy math). Your lab spends 100K, MRU takes $50K. Win-win. But, SOME agencies (and even some NIH grants-like the K99/R00) award TOTAL costs. This means that if you get a $100K grant, MRU takes 50K and you get 50K direct. See, that is a lot different! So, make sure you know if you have been awarded TOTAL costs or DIRECT costs.

Indirect rates can vary a lot. The lowest I've heard is around 50%, the highest can be over 100%. YOU READ THAT RIGHT. There are institutions in which if you get awarded a 100K total costs grant that you will have to pay the institute indirects from another source. How cool is that?

There are some other awesome subtleties. For instance, you do not pay indirect costs for equipment. At least at my MRU, equipment is anything that is not a consumable, is expected to last the duration of the grant and costs more than 5K. Most everything else is supplies or salaries, and is charged overhead. There are also crazy rules about office supplies, computers and software that I don't understand yet. So I'm not going to try to explain it. It is an advanced accounting maneuver.

Another interesting tidbit: if you buy equipment off an NIH grant and then you leave to go somewhere else you may be able to take your equipment with you. HOWEVER, if you use your startup funds then it is the property of the MRU and you could be forced to leave it behind. I know that none of us n00bs on the TT want to think we will have to go on the job market again soon, but still. Now you know.

There you go, a primer for indirects. Please not that this is based on my experience at my MRU. YMMV. I hope you took notes. This WILL be on the exam.


Leave your answers in the comments. Don't bother showing your work. Nothing matters except the correct answer.

Practice Question 1: you want to buy a box of pipet tips for your lab, which costs $10. Your indirect rate is 70%. How much do you pay in indirects?

Practice Question 2: you also wanted to buy a pipeting robot (those exist, right? please tell me those exist) that costs $10K. Your indirect rate is 70%. How much do you pay in indirects?

52 responses so far

  • DrugMonkey says:

    Equipment bought with direct costs is as assuredly the property of the University as that bought with startup. In either case it is up to the University what they will choose to let a departing PI put on the U-Haul. Find a case where the University is mad at the PI and you will see this in action.

  • DrLizzyMoore says:

    Agree with DM. I just got a fancy, lovely centrifuge with grant $$, and it is on the U inventory. They have an arbitrary rule about all things over $5K automatically get inventoried by the U. If I had to do a purchase do over, I probably would have put the centrifuge on the start-up.....but my start-up never goes away, so as far as mistakes go, it probably isn't that horrible.

  • SciCommenter says:

    Nice coverage.

    My understanding on office supplies/computers/etc. is that they are items that should be supplied by the MRU using the indirects they are receiving for general support. If you have a particular need for these type of supplies that is above and beyond the norm (say you're doing a large scale paper-based survey and need several thousand reams of paper, envelopes, etc.) then you have to justify it in the budget -- then its treated as regular supplies. I recently had to do this for a computer for data analysis.

    I'm very lucky to have a brilliant and awesome Grants and Contracts manager at our research center that makes sure all of this is accounted for correctly in my budgets. Of course, she greatly appreciates that I at least try to follow along and understand what is going on.

  • Anon says:

    To make a slight correction to your accounting: if you have 50% indirect cost rate and you get a total cost grant of $100K, $66.66K will go to you and $33.33K will go to the institution as indirect costs. I.e. the 50% indirect cost rate is 50% of direct costs, not 50% of total costs.

  • Neuro-conservative says:

    I think you are making this sound more complicated than it really is. You don't pay the indirects --- the granting agency does. You make it sound like it is coming out of your pocket, but your institutional grants manager should be handling this aspect transparently for you.

    Yes, it does suck if the grant mechanism has a cap on total costs and your institution has a high indirect rate, but it doesn't mean you have to somehow pay back your institution. If the total costs are $100K, even if your institution had a 200% indirect rate, it just means that you would only have $33.33K to spend on directs (assuming no equipment, etc). Let's say you spend that $33.33K on salary for a tech. As the MRU draws down the grant money to cover the salary paid, it will also draw down its indirects, so that your dean can have more Benjamins with which to light his cigars.

    • gerty-z says:

      good point again. thanks!

      • gerty-z says:

        Though I have heard of some institutions that do not let jr faculty apply for the named fellowships (Searle, Beckman, Ellison, Pew, etc.), ostensibly because of high IDC rates. So I don't know what is up with that

        • Neuro-conservative says:

          These fellowships actually pay low indirect rates, usually around 8% or so. If an institution disallows these, it is because they do not pay the high rates to which the institution has become accustomed. This is incredibly obnoxious, and shows a real lack of support for junior faculty. I would run away from such a place.

          I am familiar with some institutions that design contracts with their faculty that include an expectation of certain total indirects to be brought in. In essence, the faculty is treated as a deadbeat tenant who not only has to pay for core facilities, etc. out of directs, but also has to (in essence) pay for their own lab out of indirects. Again, I would not take such a deal, although I think these are increasingly common these days.

        • DrugMonkey says:

          Yes, I field questions now and again from people who are in institutions that have no real way to cover what is called "unfunded overhead", i.e. the difference between the Federally-negotiated rate and what the smaller foundations are willing to pay. Not just fellowships, either, research grants too.

          My understanding is that Universities need to be careful about their accounting. If they accept awards from smaller foundations with less overhead, presumably the Fed is smart enough to ask during negotiations why the Federal govt should be paying a clearly exorbitant rate. Remember, the University is supposedly proving to the Fed that the IDC is needed to support the research, not just asking for whatever they want...

  • Anon says:

    Sorry, but I think your calculations about total costs are not quite correct.

    I.e. if you get 50% indirect costs rate and if you get 100K in total costs, then this sum should be split between 100% of Direct costs (i.e. x) and 50% on indirect costs (i.e. x/2), so:
    direct costs + indirect costs = x + x/2 =3x/2 = 100K =>
    x=2*100/3=about 67K (66.66)
    So you get 67K in direct costs, 33K are indirect costs (50% of direct costs) and this adds up to 100K total costs.

    Also, if the rate for indirect costs is 100% as in your next example, then direct costs (x) equal indirect costs and you get the following:
    direct costs + indirect costs =x + x = 2x = 100 K => x=50K
    So you don't have to pay anything, but you do get half of what the total costs were.

    At least this is how it works at my institution...

  • DrugMonkey says:

    Your "arbitrary rule" sounds exactly like the cutoff for deciding what is "equipment" and therefore IDC-free, DrLizzyMoore...

    • DrLizzyMoore says:

      True. I misused 'arbitrary'. I was shocked that even though I bought this major piece of equipment that the U still OWNS it (as you said on twitter). If I stay here forever and ever, then it is a moot point. If I move, then it is not a given this piece of equipment goes with, despite the fact that I bought it with external funds.

      • DrugMonkey says:

        This is because you are not fully internalizing the fact that (all together now) the grant is awarded to the University, not the PI.

        • FunkDoctorX says:

          Pardon my naivete, but if the PI moved, wouldn't the grant move with them? So the grant is actually awarded (at least in part) to the PI?

          • gerty-z says:

            The grant only moves with the PI if the institution to which it was awarded agrees to let it go. If they want to hold on to it and have someone else do the work that is their call.

  • DrugMonkey says:

    And for those that are curious about the range of IDC agreements....


  • Mistered says:

    This is a helpful description of a somewhat opaque process. However, I think you have a couple of points wrong in your calculations. My understanding is that the amount of indirects is always a function of the direct costs awarded. So when you have a "total award" of 100K, and an indirect rate of 50%, then the indirects plus directs must add to 100K, and the indirects are 50% 0f the directs (D+0.5D=100). Thus directs are 66.6K and indirects are 33.3K. In your 100% rate example, a grant of 100K yields 50K direct, 50K indirect (D+1D=100). If indirects were 150%, then the same grant would be 40K direct, 60K indirect (D+1.5D=100). Unless I am seriously mistaken, you never have to supplement a grant from outside sources to pay the indirect rate specified by the grant.

    One piece of very useful arcana is that when the government makes a grant award, it typically grants the TOTAL amount (D+I) for the funding period to your institution based on the preapproved formula. The total is predetermined for the period of the award, meaning that the indirect funds are calulated from the initial budgeting and are not based on what you actually spent the money on at the end of the budget period. If you initially did not budget for equipment, but realize that you need to buy a new toy that costs over 5K, you can rebudget for this item through your grants office. However the institution is not allowed to withhold indirect costs for equipment purchases. Therefore they will charge your grant proportionately from directs and indirects for the purchase. The net effect is that you, as PI, will see the cost as impacting your available direct funds at less than the full purchase price of the equipment. An example: a 15K purchase from a grant with a 50% indirect rate will be charged to your grant at 10K D + 5K I, which will appear to you as 10K. Free money! However bear in mind that your dean or chairman or whoever it is that spends the indirects will see her budget hit by the indirect amount, so tread lightly when using this mechanism.

    Finally, the governmental department that negotiates the rate varies with institution and time period. If you really care (typically because you have to add it into some piece of boilerplate) this should be available from your institutional grants office.

  • gerty-z says:

    Thank you awesome blog readers and tweeters. Based on the conversation ALREADY I have learned a lot about the voodoo that is PI accounting. FIRST. I failed my own pop quiz. I totally fucked the math in the main post, as several of you have pointed out. This is why I have a spreadsheet and why I shouldn't do math after 8 pm. My apologies. SECOND. based on the twitter conversation, my understanding was that if you purchased equipment from a grant (and not your startup) you could take it with you if you moved. This is probably not accurate-thank you DrugMonkey, Dr. Zen, et al. Since grants (at least NIH/NSF) are awarded to the MRU, the equipment bought is bought by and therefore owned by MRU. In other words, I have over-generalized an anecdote. I made this comment based on my experience at my MRU (which may be similar to how Namnezia's MRU functions). Like I said, YMMV. THIRD. Just to try to clarify, you don't have to spend "more" to get things because of indirects. Things cost what they cost. The university takes money from the granting agency based on how much you spend. At my MRU, the indirects are calculated each month and taken from the total money (directs+indirects) that was awarded. This is just how they do the budget reports.

    If this is still not making sense, ask questions! There are some folks around that have way more experience than me 🙂

    • gerty-z says:

      One more thing: there are some instances where the grant will require that the MRU let you take equipment. IME, I was only allowed to buy equipment on the K99 part of my K99/R00 if postdoc institution agreed in writing to allow me to take it when I moved to my own gig. So there can be situations where equipment moves with you.

  • pinus says:


    1) nothing
    2) nothing

  • DrugMonkey says:

    I have a new post up, see name link, but the real point is that the NIH has a nice little FAQ dealing with equipment policy.


  • Tideliar says:

    And of course the one thing no one talks about: Because NIH indirects are so high, Faculty getting R01s are a cash cow for the MRU. Thus, you prove your worth as a scientist by getting an R01 to do your research, and you prove to the MRU that you are a sound investment.

    At the end of the day, the bean counters don't care that you're covering your costs via NSF, AHRQ etc. money. You don't have an R01, you don't get tenure.

    • DrugMonkey says:

      "no one talks about"? Are you barking mad? this is one of the favorite cries of the critics. Like ol' Sol Rivlin and folks of that ilk.

      and you'll catch me identifying it when it comes to the creation of soft-money jobs and the abandonment of what I see as the Universities' part of the bargain, i.e., creating hard money jobs.

    • gerty-z says:

      Seriously, no one talks about it? Cause I hear it a LOT. No R01=no tenure.

      • namnezia says:

        I actually know a couple of people in biomed departments that got tenure without R01s. Including one at my institution.

      • martini says:

        No R01=No tenure is the question you need to ask during interviews. You will figure out very quick if this is true of your institution or not. It is important that you know expectations and that your research program can viably meet expectations. Most tenure failures I have seen are ~75% due to joining a department with unrealistic expectations and ~25% a post-doc not really ready to be a PI (usually problems managing people effectively).

        Overly generalizing here but:

        1) If you department is in a med school or or at a private university or at a private research institute, you can almost count on no R01=no tenure, especially if the institute is well known. If you are at an elite program you can count on <2 R01=No tenure.

        2) Departments in Arts and Sciences or Natural Sciences colleges at top ~200 universities are typically some version of "self-sustain" your research program. This ranges from small state grants to NSF.

        3) Applied departments usually will substitute R01 for industry contracts.

        Obviously there are a whole spectrum of departments, but before you sign that contact know the expectations and get them in writing if possible!

    • Zen Faulkes says:

      "NIH indirects are so high(.)"

      My understanding is that indirect costs are the same for all federal agencies; at least, a quick peek at my university's Facilities and Administrative Costs factsheet said they were the same for all federal agencies. Certain programs and agencies vary limit those indirect costs, but they are more alike then unlike.

      "You don't have an R01, you don't get tenure."

      Not every department is a biomedical department.

      • gerty-z says:

        I also was under the impression that IDC rates were the same for all grants at a institute. And you make a valid point about the R01 and biomedical departments.

        • SciCommenter says:

          Generally, IDC rates are the same across all grants. However, there can be exceptions. If the research is performed off-campus, there may be another IDC rate that is usually much lower.

          There are also IDC rates for non-research activities that you may be helpful to know. Instructional rates are often used for workshop hosting and there's often a catch-all "Other sponsored activities" rate. Those both have on- and off-campus rates at my MRU.

          I've used off-campus research rates in a collaboration before when almost all of the data collection was being done in the field. I've also used the "Other" rate for an unusual circumstance in collaboration with local law enforcement. The off-campus rates can be useful when the grant is a "total costs" award but your university won't necessarily like losing the overhead.

      • Tideliar says:

        I work at an AMC. I'm not putting a goddamn YMMV disclaimer on every comment.

  • JaySeeDub says:

    Wait, so, MRU gets your asset at no-cost, and the tax break on depreciation of said asset? And since there's a good chance it's a Section 115 Organization and 501(c) Organization, it doesn't pay taxes on the grant anyway? And if our twitter conversation was even partially on track, MRU gets a tax break for any non-salaried compensation - healthcare, 401(k), IRA, etc.

    So going back to your $100,000 grant, where MRU gets $50,000. It no longer has to pay out $12,500 (25%) in FIT. It can claim a match on whatever you contribute to salaries + 20%, health costs + 20%, retirement + 50% and begin calculating depreciation on any and all equipment in your lab.

    Hell, fuck MedSchool. I'm going back into Finance. With that kind of creative accounting, that's a bigger racket than bundling high risk mortgage securities.

  • Btw - not all agencies allow IDCs as high as Teh Government. There are several non-federal disease-specific funding agencies for which IDCs are as low as 10-15% and some that do not allow any at all.

    • gerty-z says:

      Thanks for the tip, PiT.

    • Zen Faulkes says:

      Even the federal government doesn't always have indirect costs as high as the federal government. By which I mean that specific programs can often limit indirect costs to some amount below the usual negotiated rate.

      We have seen confusion at the proposal stage because either the research office or the PI didn’t realize that the specific program didn’t allow the usual indirect costs.

      While I'm here, I might as well point out that beside being known as
      “indirect costs” or “overhead,” you might also see references to “F&A” costs (Facilities and Administrative Costs).

    • We have seen confusion at the proposal stage because either the research office or the PI didn’t realize that the specific program didn’t allow the usual indirect costs.

      Every time I submit a grant that has less than NIH IDCs, I have to tell the grants office why and send them the application instructions with the IDC highlighted. Even then, I've had them call me wanting to know why I've only added 10% instead of the ELEVENTY!1!!!!!% they consider to be standard.

  • European Assistant Professor says:

    Very useful post and discussion.

    What surprises me though is that you have such high rates of indirects. Here on the other side of the Atlantic I've never seen overheads being more than 30%, be it from national agencies of EU and even that is considered a lot. I wonder how come that American universities require so much more (i.e. in 50-100% range as everyone says)?

    • Namnezia says:

      People are better paid? Certainly faculty are better paid here compared to Europe.

    • gerty-z says:

      Do EU institutions rely on indirects for all the same things? Maybe in the US the MRUs use the money for things that the EU covers differently?

      • European Assistant Professor says:

        AFAIK, in Europe we mostly have some version of the following breakdown of costs:

        Direct costs:
        - salaries for postdocs + respective social contributions and pension
        - stipends or salaries for PhD students (depending on which country you are in, in UK/Ireland, PhD students get tax free stipends, in most other countries, PhD students are employees with salaries+social contr+pension)
        - salaries for tech/admin/support staff, if that is required (this is normally only allowable for larger projects with 20+ employees)
        - to some grants (EU ones typically) you can charge some of your time (e.g. 20% - one day a week), to others not (national ones don't allow it)
        - equipment - only once off, in the first year, usually (e.g. buy everything you need at the start of the project)
        - travel
        - consumables

        Indirect costs: as far as I know, this covers everything that supports the above - paying rent for space, paying for utilities (electricity, water, heating, phone, internet connection), support (computer centre), cleaning/maintenance, etc. But you are not allowed to use this for anything directly related to research and also in practice never see this money - it goes straight to main university administration, not to your department.

        I do not think any of the indirect costs actually cover our base salaries, as that comes from the core funding by the national Higher Education Authority and/or can be partly covered by direct grant costs, as I mentioned above.

        How does the break down look in US/Canada/other places?

      • gerty-z says:

        this sort of goes back to what indirects ACTUALLY do in our system. It is my perception (which may admittedly be flawed) that the more indirects a MRU can negotiate the more administrators there will be. Without some leverage to keep these costs down - like NIH saying they won't pay them - then they will balloon.

        Good ol' market forces and all. 🙂

        • European Assistant Professor says:

          See, that also seems different: here each funding agency has a fixed indirect costs rate for ALL institutions, regardless of what type of institution you are at. I've never before heard of a university actually negotiating the rate with an agency, but rates do vary across agencies. For example, the foundation that we mostly get grants from, which supports ICT/biotech/energy development, gives 30%. The equivalent of NSF here gives 25%. The agency for humanities and social sciences gives less that that (I think it's 10%, but not too sure, since I've never applied for funding there).

          Anyway, this is all very interesting and good to know if I ever decide to move to the other side of Atlantic. 🙂

  • SciCommenter says:

    We're around 40%. As for how that rate is determined, I have no idea. Googling 'negotiating indirect rates' resulted in some interesting links but no real answer. I know that our cognizant agency is Dept. Health and Human Services, but I don't know what data the university supplies when negotiating the rate.

  • SciCommenter says:

    Something that hasn't been mentioned about indirects... You can find out generally how the funds are distributed at your MRU. For example, I know that the Provost's office receives the biggest piece of my overhead. My college gets the next largest piece. And the office of research gets some. I assume that somehow some gets to sponsored programs administration.

    The college takes a cut of their piece then the remaining amount trickles down to our department and/or research center. The department head/center director can then use the overhead funds at their discretion. I know people who have and I have personally asked the department head/center director for a portion of the overhead from my project to support lab improvements, undergraduate student support, and supplies. And since these funds are discretionary the request doesn't have to be directly relevant to the funded project but just things you need to develop your lab/research/teaching/service/etc.

    Obviously, YMMV.

  • Eli Rabett says:


    All schools and research institutions negotiate indirect costs with either DOD or NIH depending on where the bulk of their money comes from.

    There is a formal agreement with a date and a period for which it is effective. It is not uncommon for the period to expire before a new agreement is signed in which case the old one is generally accepted by the agency. Some proposals and agencies ask for the dates and who negotiated on the federal side.

    The rate(s) are accepted by all federal agencies as a general rule except those that have specific policies setting uniform rates (USDA) and for some exceptional programs (usually postdoctoral/graduate support) which have uniform in lieu of rules in the call for proposal.

    The first rule is RTFCFP and talk to your research office to see which rate applies to your project. There are generally on and off campus rates. Less common is special rates for educational programs.

    The rate for non-federal funding is not set and is a negotiation btw your SRO and the non-federal agency, but the SRO will insist that it be the policy followed by the granting body. IP issues are also negotiation. Federal IP issues follow Bayh-Dole (you can look that up).

    The usual basis for overhead rates is Modified Direct Costs (MDC) which is everything EXCEPT instrumentation (>$5K or as defined in the F&A agreement - didn't Eli tell you that it is no longer overhead or indirect but facilities and administrative costs) and student costs which are always tuition.

    Depending on the policy of where you are, students are either paid as wage employees (bad, as fringes and overhead are charged on the wages) or as stipends which are not subject to overhead. The technical distinction is that a stipend is for learning and a wage is for doing something related to the grant or contract. If there is no policy. . .

    If charged as a wage, a grad student costs as much as a post doc because they also have to pay tuition. Policies on tuition are completely local. Full for X years, part time, worry about visa issues and more.

    Subcontracts pay F&A only on the first $25K at the off campus rate for the total period of the grant at your institution to cover the cost of writing the subcontract and monitoring it and full F&A at the subcontractor's institution.

    F&A on MDC usually costs about 20-30% of the total grant because of the exclusions.

    The other common basis of F&A is salaries. This is common at research factories such as SRI International or DRI. Something like 100-125% of salaries. Since these places have to balance the books, that is a quick way of figuring out what grant research actually costs the university (of course you have to include your total salary).

    YMMV but not too much. You REALLY need to know all of the local rules, but the problem is that they always change.

    • gerty-z says:

      yeah, simple 🙂

      • Bertal Aktas says:

        What is missing in all this discussion is the difference between what a institution tells NIH the overhead will be used for and what it is in actuality used for. For example all institutions will claim overhead pays for equipment maintenance, printing costs, dish washing etc. For that very reason these expenses cannot be requested in the direct budget. But when it comes to providing services the institution is almost always AWOL, missing in action etc.
        Other place where they take NIH for a walk is in fringe and benefits. I recently changed my home institution, my F and benefit rate went from 27 to 36%, I am paying more for my health care and not getting any retirement benefit (10% of my salary in old institution).
        I am not a lawyer but as a lay person I would think many institutions are actually defrauding federal government. It is a shame that no one at NIH is looking at this. In a market economy those who could charge less for the same service will get more grants. Here is a simple solution. Grant monies to PI (direct and indirect in all) and let the PI shop for institution. The whole problem will sort itself in no time at all.
        In my estimate if NIH standardize indirect rate and fringe benefit rates it could save nearly 3 billion dollars that could fund 2500 additional RO1s. That will be money well spent.

        • gerty-z says:

          This comment seems a little over-simplified. Every institution negotiates its indirect rate with the federal government. I have never seen one of these agreements, so I don't know exactly what the institutions "say" they are using the money for. I really doubt that every MRU out there is actively defrauding the US government. I'm not sure that mobilizing everyone to deal with these problems would actually save that much $. Also, as a PI, I really don't want to have to shop around to find someone to take care of things such as benefits, janitorial work, paying the electric bills, and fsm knows what else that my dept. and institution deals with now. I have enough to do as it is running my lab.

  • […] Not so much explanation as warning, really. The intricacies of indirect costs in grant funding, explained. […]

  • Bertal Aktas says:

    I do not want to shop for dishwasher either. What I am saying is NIH should make the grant to PI rather than institution and let PI work with the same total dollar amount if s/he changes institution. In this case every grant will have (as an example) 60% IDC so if PI finds a university with 40% IDC then s/he will get to use more for research. I will venture a guess that very few will bother with universities with 8-100% overhead (in which case they need help). Because most PIs will look for a good university with lower overhead the universities will try to reduce overhead to attract PIs with \($. That will free more \)$ for actual research

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