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Majors & Degrees

Indirect Cost Rate and Recovery

Policy 6.1
Approved by: President
Responsible Officer: Vice President for Business & Administrative services
Responsible Office: business & administrative services
Originally Issued: 07/21/1988
Last Revision: 08/24/2020
Category: finance, business, and auxiliary services
Related Policy
SDBOR Policy 5.2 Externally-Sponsored Programs


DSU supports the sponsored research activities of its faculty and staff to further the pursuit of knowledge, the improvement of student learning, and the advancement of the common good. To support these efforts, this policy clarifies recovering indirect and direct costs associated with conducting research and scholarly activity through grants and other sponsored agreements.  State appropriated funds and student tuition are not used to pay these costs, so it is the responsibility of the University to recover the indirect costs associated with these activities.

II. Definitions

  1. Direct Costs. Costs that can be identified specifically with a project, activity or any other institutional activity or that can be directly assigned to these activities relatively easily with a  high degree of accuracy.  Direct costs may include, but are not limited to, faculty, technical and student salaries, travel, scientific supplies, equipment, and consultant fees.
  2. Facilities and Administration (F&A) Rate. Sometimes referred to as Indirect Cost Rate or Overhead Rate. A percentage that represents actual costs incurred (overhead) to conduct the normal business activities of an institution and are not readily identified with or directly charged to a specific sponsored project award but recouped from an overhead rate.
  3. Facilities and Administration (F&A) Rate Agreement. The approved agreement between the cognizant agency (U.S. Department of Health and Human Services) and DSU that describes the types of F&A rates, effective period, and distribution base.
  4. Indirect Costs. Costs incurred for purposes common to a number of (or all) projects, programs, or activities of DSU and therefore cannot be identified readily with a high degree of accuracy or specifically for a specific sponsored project, instructional or institutional activity.  Indirect costs are often referred to as overhead. 
  5. Principal Investigator (PIs). Primary person (project director) who has the appropriate level of authority and responsibility to direct a project supported by a grant. The PI generally prepares, conducts, and administers a research grant.
  6. Sponsor. The entity providing funding for the research project.
  7. Sponsored Research. Projects paid for by an organization through a proposal-driven, competitive process with the intent to carry out a public purpose or provide a direct benefit to the sponsor.


  1. Grant/Contract Proposals to Federal and Other Agencies.
    1. Grant/contract proposals submitted to federal agencies shall include the negotiated indirect cost rate established between DSU and the federal government.
    2. In the event legislation governing a specific federal funding stream has statutory limitations on indirect cost recover or the funding agency has special authority to limit indirect cost recovery, the statutory or agency-specific rate shall be used.
  2. Grant/Contract Proposals to State Agencies.
    1. Grant/contract proposals submitted to state agencies is limited to 60% of the current University F&A rate schedule.  This rate adjustment does not apply to grants/contracts involving federal or other non-state funds such as federal flow through.
    2. In unusual circumstances, the rate used can be negotiated with approval from the VP of Research and Economic Development and/or the VP of Business and Administrative Services.
  3. Use of Indirect Cost Recovery Funds. DSU shall use indirect cost reimbursement funds for any of the following purposes pursuant to SDBOR policy 5:2(C)(2.2):
    1. Directly in matching support of organized research or distributed on a departmental basis to promote research-related activities.
    2. For administrative and audit costs related to research undertakings.
    3. For physical plant improvements that support or foster research.
    4. For graduate research assistant and fellow-related student aid in accordance with BOR Policy 3:15:9.
    5. To support research in departments where outside grant funding is not available.
    6. Indirect Recovery funds cannot be used to augment or replace employee salary or wages.
  4. Financial Management of Indirect Costs Implementation.  The Vice President for Finance and Administrative Services shall be responsible for implementation of the financial management procedures of this policy.



IV. Procedures (MAJOR)

  1. DSU F&A Rate.  Indirect costs charged to grants and contracts are determined by the rate(s) negotiated by the University with the Division of Cost Allocation of the U.S. Department of Health and Human Services unless the rate is capped by the sponsor. Credible evidence of the capped rate must be provided to the Grants & Contracts Office and be approved prior to submission of any proposal. Current negotiated rates are available from the Office of Sponsored Programs and/or The Grants and Contracts Office.
  2. Recovered Indirect Cost Distribution. The University shall distribute indirect cost recovered funds as follows:  70% will retained by the University, 25% distributed to the College responsible for the grant/sponsored project, 5% to the principal investigator in charge of the sponsored project.  Exceptions to this can be made if the indirect rate used is less than the full negotiated rate or if other exigent circumstances arise. Exceptions are determined between the VP of Research and Economic Development and the VP of Business and Administrative Services.
  3. Compliance Enforcement.
    1. Compliance with the rate used is the responsibility of the Office of Sponsored Programs and Grants and Contracts Office. 
    2. Compliance with the use of the recovered funds is achieved by justification of the expense submitted by responsible departments along with the payment to DSU Accounts Payable and reviewed/approved by the Grants and Contracts Office.


DSU Negotiates Rate Agreement


Effective Date: 07/21/1988, Revised 05/23/2017, Revised 08/24/2020