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Guidelines for the use of Indirect Costs of Externally Funded Research

Category Research
Type Guideline
Approved by
Date Guideline Took Effect 15 June 2020
Last Approved Revision
Sponsor Deputy Vice-Chancellor (Research and Enterprise)
Responsible Officer Senior Research Analyst, Research and Enterprise
Review Date 15 June 2022

Please note that compliance with University Guidelines is expected in normal circumstances, and any deviation from Guidelines – which should only be in exceptional circumstances – needs to be justifiable.

Purpose

To provide guidance for the administration and use of revenues related to the indirect costs of externally funded research at the University of Otago.

The two main budgeted types of indirect cost recoveries from externally funded research are indirect salary recoveries and overhead recoveries, and the guidelines in Sections 2 and 3 should be followed to meet university and funder expectations.

Organisational Scope

These guidelines apply to University of Otago Heads of Departments and staff engaged with or with financial oversight of externally funded research; and to University of Otago Heads of School, Heads of Programmes, Deans, Divisional Pro Vice-Chancellors and professional staff engaged in the support of externally funded research.

The guidelines support or supplement the information contained in the Administration of Externally Funded Research Policy and the Administration of Externally Funded Research Procedures, and are to be read in conjunction with those documents.

Definitions

Costing and Consents Worksheet (CCW)
A document or on-line worksheet used to develop the budget and outline ethical and regulatory consents (including consultation with Māori) for a research project.
Direct Costs
Costs that are expended directly through the project account within the Cost Centre with responsibility for the project, which will typically include: direct salaries for employing dedicated staff; costs for supporting students; expenditure on travel, subcontracted services, consumables and general costs directly attributable to the research activity.
Head of Department
The head of an academic department, school, programme or other Cost Centre that has the direct line management responsibility for the Lead Principal Investigator or other researcher(s) involved in the externally-funded research activity.
Indirect Costs
Costs that are budgeted to allow the full cost of the activity to be met, but are not expended directly through project account within the Cost Centre with responsibility for the project. This will typically include indirect salary costs and overhead costs, but may also include equipment depreciation charges for shared infrastructure.
Indirect Salary Costs
Salary costs for a specified number of hours or fraction of their full-time equivalent work effort for investigators who are employed on continuing employment agreements that include research activity.
Lead Principal Investigator
The University of Otago employee who signs the CCW and/or who is the primary research contact in the application and the Agreement.
Overhead Costs
Infrastructure and operational costs borne by the University not covered by the direct costs specified in the project. For example: library, cleaning services, space and heating costs, human resources and payroll, purchasing, financial services, and other forms of support within the cost centre and wider University. Overhead costs are calculated by applying an agreed multiplier to the labour cost.
Cost Drivers
University financial calculation methodology used to allocate costs. Examples of a cost driver include full time equivalent staff, research labour costs, equivalent full time students, externally-funded research income, and square meters.
Research
As defined by the Tertiary Education Commission for the purposes of the PBRF (September 2017), research is original, independent investigation undertaken to contribute to knowledge and understanding and, in the case of some disciplines, cultural innovation or aesthetic refinement.

Content

1. General Principles

  1. Indirect costs, most generally for indirect salaries and overheads represent costs borne by the University in paying salaries, infrastructure and operational costs necessary to support the research activities for which external funding has been supplied.
  2. The Research and Enterprise Office is responsible for communicating the cost of overhead recoveries to funding bodies, and the University is accountable for the ways in which the funding is disbursed within the University in order to support the project(s) for which the funding was received.
  3. Research proposals should be costed as accurately and comprehensively as possible. Salary and overhead costs are real and amounts received to meet these costs should not be redeployed to directly support research activities that were not costed in the original research grant application.
  4. According to current University financial management principles, all revenue is recognised within the Cost Centre where it is generated, including the indirect cost recoveries for externally funded research.
  5. It is acknowledged that externally-funded research that does not contribute overheads within a Cost Centre is still important. It can help to support the wider strategic objectives of the Cost Centre and University, including enhancing the reputation of the University, supporting postgraduate research, and allowing pilot data to be generated for fully-costed research grant applications.
  6. Externally-funded research should not compromise academic freedom or critic-and-conscience responsibilities of our staff or students.
  7. Maintaining strategic funds within Cost Centre budgets is encouraged, and can help contribute to seeding or supporting research activities at departmental and divisional levels.
  8. Allocation of strategic funds within a Cost Centre or division, some of which may be derived from externally-funded research activities, should follow fair and transparent processes that are aligned with the strategic priorities of the Cost Centre, Division and University. Hence grant holders should not expect to receive direct funds from overheads or indirect salary recoveries.

2. Indirect Salary Recoveries

Indirect salary recovery (ISR) revenues account for the time spent on specific externally-funded research activities for staff who are in continuing employment in roles that require research. This will include, for example, academic staff with duties that include teaching, research and service, as well as those employed on research-only contracts. The use of revenues derived from indirect salary recoveries shall follow the following principles:

  1. As Indirect Salary Recoveries are cost-recovery for salaries already committed, funding should not to go directly to the individual staff member, including as additional salary.
  2. Indirect salary recoveries are recognised as revenue in the Cost Centre where the staff member is employed, with an expectation that such revenue is a necessary component of full-cost-recovery research required to sustain a productive research environment in the unit (department, centre, school, division etc.). Direct ‘buy out’ from other activities for the funded staff member should therefore not be the first call on these funds when the staff member has capacity within their normal workload to undertake the research.
  3. When the total indirect salary recovery for an individual staff member exceeds their normal research time allocation, indirect salary recoveries should be used for direct ‘buy out’ of time from an allied activity. In such cases, the buy-out plan should be agreed and recorded with the Head of Department before applying for external funding.
  4. It may be strategic for the Cost Centre to ‘buy in’ additional teaching or support for a staff member or team’s allied activities, allowing the particular time needed to undertake an externally funded research project to be dedicated. For example, ‘buy in’ may be used to support routine marking or assessment activities, or help with routine course coordination or administrative activities, to free up time to dedicate to fulfilling the contract with the research funder. Such arrangements need to be specified in writing and approved by the HoD prior to the application for research funding.
  5. At the discretion of the Head of Department, other ‘buy in’ or ‘buy out’ arrangements may be required to allow the externally-funded research to proceed, for example: if the research requires commitment at times that were incompatible with delivery of certain components of normal teaching (e.g. requiring a semester free of teaching commitments for fieldwork or other time-sensitive activities on the externally-funded project); if time needs to be protected for other necessary research activities outside the externally-funded project (e.g. maintaining long-term discipline-focused research or scholarship); and/or buy-out is required for the reallocation of teaching or other duties within the department’s workload model to allow the externally-funded research to proceed.

3. Overhead Recoveries

  1. The overhead recovery components of externally-funded research projects are calculated using a methodology that globally accounts for the real costs to the University of providing infrastructure, staffing and other support that is not directly costed to the project.
  2. Overhead recoveries are revenues earned principally to cover additional participation fees allocated through university and divisional cost drivers to the Cost Centre from the research activity itself. For example, some cost drivers are related to staff or student numbers, so additional staff or students funded through the activity will result in additional participation fees. Some other cost drivers are also directly related to the amount of external research funding received by a Cost Centre.
  3. Overhead recoveries also account for costs borne within a Cost Centre that are not directly allocated through internal cost drivers, as well as to contributing to the revenue needed to support indirect costs of research supported by funding received without overheads (such as funding received from charitable organisations).
  4. For commercial research or research that is funded with a profit margin built into the overhead recovery rate, the net profit after the application of overheads for internal cost drivers, is available for use at the discretion of the Cost Centre head, with any such use being subject to all other University financial policies and procedures.
  5. For large-scale activities (such as CoREs, NSCs, HRC and MBIE programmes) the overheads may be of such a nature that application to directly support staff or costs that would otherwise be allocated through cost drivers may be permissible (e.g. direct payment of space charges, facilities costs or the contribution to salaries of dedicated administrative staff allocated to support the activity through the relevant shared service), but will require agreement by the relevant Academic Divisional PVC and the Deputy Vice-Chancellor (Research and Enterprise) at the time of application for the funding.

4. Strategic Funds to Support Research

  1. Many forms of university revenue, in addition to externally-funded research revenue, contribute to support research activity; this includes PBRF revenues, philanthropic donations, student tuition fees (to support the research-informed nature of the teaching) and student achievement component (SAC) funding from government. All of these income sources contribute to strategic funds that should be maintained over and above the direct- or indirectly-attributable costs of the activities themselves.
  2. Principles that should be considered when applying strategic funds to seed and support research are:
    1. All strategic research funds should be allocated through an open, fair and transparent process within the Cost Centre, School or Division. Allocation processes can be a mix of mechanisms that reward successful grant recipients, encourage early-career researchers to establish themselves for future grant applications, enhance Māori or Pacific research and seeding new collaborative or community-engaged research activities.
    2. Strategic fund allocation mechanisms must always link to departmental, school, divisional and university strategic imperatives. Strategic fund allocation policies, procedures must include diverse perspectives and decisions must be recorded and available for dissemination to Heads of Department, PVCs, Divisional and University Research Committees.

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