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Indirect Costs Practice

What are Indirect Costs?

The total cost of research includes a combination of both direct and indirect costs (also sometimes referred to as overhead or facilities/administrative costs). These costs are integral to the ability of post-secondary institutions to support innovative and cutting-edge research. 

Direct costs include expenditures that are specifically attributed to research, scholarship or creative activities of a particular project that are recoverable from sponsor funding. Some examples of direct costs include:

• Salaries and benefits for highly qualified personnel (HQP);
• Materials and supplies;
• Equipment and maintenance; and
• Project related travel.

Indirect costs (IDCs) are costs incurred by university operations in supporting research. They are not commonly connected to a specific project but involve the research enterprise as a whole. These include, as example:

• Facilities and infrastructure (e.g., space, upgrades & maintenance, security, utilities);
• Academic services (e.g., libraries, computing infrastructure);
• Administrative support (e.g., legal, procurement, finance, human resources, research office); and
• Regulatory compliance (e.g., ethics, animal care, health and environmental safety).

For research activities to be sustainable, it is important that indirect costs are recovered as an ongoing and necessary operating expense.

The Fundamental Science Review estimates actual indirect costs of funded projects range from 40-60 per cent. A recent assessment by the University of Toronto puts the figure at 61.7 per cent for their institution.

Even with support from the Government of Canada’s Research Support Fund – which covers indirect costs at a rate of approximately 22 per cent of the value of Tri-Agency grants – there remains a significant shortfall for the various indirect costs of research at Western.

Indirect Costs at Western are regulated through MAPP 7.7 – Overhead on Contract Research.

Western's Indirect Cost Practice

To ensure Western continues to support world-class research and facilities, the University has established a standard indirect cost rate of 40 per cent to be applied to each research project budget.

Indirect Costs in Open Research Calls

An open call is generally described as a publicly posted, external funding opportunity with published program guidelines and application criteria that is awarded on a competitive basis.

For all research grants and agreements that stem from an open call, research project budgets must include eligible expenses as determined by a sponsor or funding agency. Where indirect costs are an eligible expense, Western University requires project budgets to include both direct costs and indirect costs. Eligible expenses are specified through publicly available program guidelines. The overhead rate to be used in the project budget will be determined by the maximum rate allowed by a sponsor. If a maximum rate is not stipulated in writing by a sponsor, Western Research will confirm with the sponsor the applicable rate to be included in the project budget. If the sponsor does not provide any guidance, a rate of 40 per cent will be applied.

When an application is submitted to Western Research for review, the accompanying ROLA Proposal will reflect the maximum overhead rate to be included in the proposal budget as allowed by the sponsor. If your application budget does not match your ROLA proposal budget, please contact your Faculty Research Office and/or rolahelp@uwo.ca for assistance.

Some examples of established indirect cost rates for open calls are below:

Private Funding Opportunities

Private funding opportunities are offered to a specific principal investigator for a specific research project (i.e., industry-sponsored contract research, technical services/fee-for-service). When a budget is developed for a private funding opportunity, the standard rate for indirect costs at Western is 40 per cent of the total direct costs. This includes industry matches to government sponsored partnership programs such as NSERC Alliance or ORF-RE.

For these private funding opportunities, contact researchcontracts@uwo.ca, who will discuss your specific project and will initiate a ROLA proposal for your funding opportunity.

Only in rare and exceptional circumstances will an exemption be considered. Specifically, if the total budget contribution is less than $25,000, and where the sponsor is a community group (e.g., Indigenous communities), small not-for-profit organizations (i.e., 1–99 employees) or for-profit micro-businesses (i.e., 1–4 employees), these projects will be reviewed on a case-by-case basis and inquiries can be directed to Lisa Cechetto, Executive Director, Western Research.

Sub-Grants

Subgrants are subject to the indirect cost policy.

Where Western is not the lead institution, the rate is set per the applicable funding sponsor guidelines.

Where Western is the lead institution, it is the responsibility of the Principal Investigator to include the indirect cost amount in the budget and to allow for sufficient funds to be included in the transfer to the sub-recipient organization.

Matching Government Funds

A rate of 40 per cent indirect costs applies to an external sponsor’s matching contribution to a government program that specifies there is a requirement for leveraging external sponsor cash (e.g., Ontario Research Fund – Research Excellence, NSERC Alliance, etc.).  If you have further questions, please contact researchoffice@uwo.ca for assistance.

Indirect Costs Distribution

Where applicable, the ROLA proposal budget will display the indirect cost distribution. The distribution of any earned IDC monies on grants or contracts is determined by a Principal Investigator’s research eligible appointment(s) and affiliate membership appointment(s) per MAPP 7.7. When there are multiple eligible appointments, a Principal Investigator can select where they wish to administer the grant/contract on the ROLA Proposal, based on research activity and appropriate lab/staff resourcing on the funded project.

Projects will see the dollar value of the total indirect cost proportionally attributed to each of Central Administration, the Faculty, the Department and the PI.

When a project is successfully funded, the indirect budget is applied as a factor of incurred expenses at the end of each month and is based on the indirect rate. For example, a contract with a 40 per cent indirect cost rate that has incurred $2,500 in expenses in July, will have a $1,000 indirect charge applied to the project on July 31 ($2,500 X 0.40).

Indirect Costs Calculation

Indirect costs are typically applied as a percentage of the eligible direct costs. If the direct research costs are $25,000 and the indirect cost rate is 15 per cent, then $25,000 x 0.15 = $3,750. The total eligible project costs (direct and indirect) provided by the sponsor would be: $25,000 + $3,750 = $28,750

• Total direct cost budget x External sponsor’s indirect rate (per cent) = Indirect cost amount
• Total direct cost budget + Indirect cost amount = Total budget

The direct and indirect costs can be calculated using the total project cost value. Given a total project cost of $50,000 and an overhead rate of 40 per cent, the direct research costs are calculated by: $50,000/1.40 = $35,714.29. The indirect research costs would then be $50,000 - $35,714.29 = $14,285.71

• Total budget / indirect rate ((.40) + 1) = Total direct costs
• Total budget – Total direct costs = Total indirect costs 

On rare occasions, a sponsor may require that indirect costs are calculated as a percentage of the total budget, rather than as a percentage of total direct costs. In this case, please contact researchoffice@uwo.ca for assistance.

Indirect Costs Calculator

To aid you in finding your project's expected indirect costs, Western Research has created this simple online tool, below.

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