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What are Indirect Costs (Overhead)?

Indirect costs are costs that cannot be attributed directly or easily to a specific research project, but they are nevertheless just as real and necessary for conducting research. They include such items as building space and utilities, university libraries, hazardous waste disposal, radiation safety, occupational safety, campus security, liability insurance, compliance with government policies, legal and administrative services. These costs are also called “overhead”.

SFU's policy on Indirect Costs requires a minimum of 25% overhead on total direct costs in order to account for a portion of the costs of running research at SFU. Any external funding for research, or accessing research equipment, regardless if it is through a grant, research contract, service contract, sub-award or a donation, must apply the 25% overhead. 

The terms "indirect costs" and "overhead" mean the same thing and are used interchangeably at SFU.

At SFU, indirect costs of research include

  • Maintaining high quality research infrastructure through the renovation and maintenance of research facilities, upgrades to equipment and the operating costs of research space e.g. building upkeep, power, communications network
  • Providing in-house technical expertise for ongoing and daily support to research facilities e.g. common equipment depreciation, life cycle costs
  • Acquiring research resources including library holdings and datasets
  • Environmental and safety monitoring, security, hazardous waste disposal
  • Facilitating research through institutional support for the completion of grant applications and proposals, financial administration and reporting, and research planning and promotion
  • Ensuring the requirements of regulatory bodies are met, including the Tri-Council & Canadian Council on Animal Care, ethical review, biohazard or radiation safety, environmental assessments, provincial and/or municipal regulations and by-laws
  • Managing the licensing of university technologies, contract and agreement

 

SFU Indirect Costs (Overhead) Rates

With regard to indirect costs on research grants and contracts, the Vice-Presidents of the four research universities in BC have pre-negotiated indirect costs rates with various organizations, to ensure consistency within the Province. It should be noted that funds from overheads not only provide research support to the Faculties, who receive 50% of the indirect costs, but also fund the services offered by the Research Services.  Fair overhead rate benefits researchers and improves the services that can be offered.

The Principal Investigator is responsible for ensuring that direct and indirect costs are included in all proposed research budgets. Indirect costs can be applied as a 25% lump sum based on all direct costs or by adding 25% to each budget item. Some funders have published policies that may override SFU policy, please see the table below for examples.

  • To be transparent and to avoid difficult conversations with funders at later stages of the funding relationship, indirect costs should always be included in the initial budget ask. (e.g. If Salaries, Equipment, Services and other direct costs add up to $100,000, the first ask to the funder should be $125,000 to reflect the full cost of research.) This way the funder can avoid having to get approval for the deficit later and SFU can avoid damaging the research relationship.
  • Sometimes funders have an upper limit for a research budget. In these cases, it is the responsibility of the researcher to propose a scope that fits within the maximum allowed budget including all costs of the research, direct as well as indirect.
  • If overhead is not allowed as a single line, it can be applied to individual budget items similarly, to indirect costs included in the price of goods and services worldwide. SFU will calculate the total overhead and account for it accordingly. If you forget to apply your budget for direct costs will be automatically reduced potentially posing risk to the project.

There are variations to this process due to special circumstances with the sponsor:

Tri-Agency grants: The Tri-Agency (TA) covers SFU’s indirect costs outside of individual grants so we do not add the 25% to individual TA budgets unless the funding opportunity states otherwise (e.g. NFRF specifically states that 25% is eligible on top of the maximum ask).

Industry match on TA grants need to include overhead and the overhead portion is not matched by the TA so it is important to include the proper amount in the first ask from the industry partner to avoid significant shortfalls later.

Sponsor limits overhead: Some grants (e.g. Innovate BC) have policy for overhead limitation for their portion of the funding, but the industry match should carry the full 25% SFU overhead. Unlike the Tri Agency, Innovate BC matches the full partner contribution, including overhead.

Non-profit prohibits overhead: Some non-profit sponsors are not allowed to pay for indirect costs as part of their mandate. These funders have specific, published policies available on their website. In this case SFU cannot recover the institutional portion of the cost of research. The published policy needs to be linked to the signature sheet for reference. Industry sponsors are only exempt if they provide funding by a competitive process through a Request for Proposals (RFP) or Request for Applications (RFA) that has specific terms and conditions for overhead.

Sponsor variability: Some sponsors have a different indirect cost rate in their published funding opportunity or as a general policy (NIH only allows 8%; The US Government allows 58.9% for on-campus research). Please note that not all policies apply to the overhead as a percentage of direct costs. In these cases, we follow sponsor policy and make a note of it so it is fair and consistent. (e.g. In accordance with the agreement between SFU and the US Government, SFU is allowed to charge overhead only on salaries and benefits.)

Pre-negotiation: Some sponsors have pre-negotiated rates with SFU. (E.g. Health Canada limits overhead to 10% on direct costs or allows line item charges to recover legal, accounting and other costs.) In these cases, we follow the pre-negotiated process and make a note of it.

Faculty members and Deans should not negotiate overhead rates with sponsors. Please contact Research Services (ors@sfu.ca) to find out what rates have already been negotiated. If Research Services has not had prior dealings with an organization, it will negotiate overhead rates after it has been apprised of the nature of the grant or contract.

If and when in doubt, the researcher needs to contact the Director of Research Services to identify the proper action.

The following table describes SFU indirect costs (overhead) rate based on funding category:

Funding category Indirect costs (overhead) rate
Tri-Agency Grants Please do not apply overhead budgets, SFU is recovering indirect costs centrally

Grants from government and not-for-profit organizations

Contracts with government and not-for-profit organizations

Contracts with business and industry

Matching funds on Tri-Agency grants

25% on total direct costs unless a competitive RFA/RFP process has a different policy or SFU has a specific pre-negotiated rate with the funder

 

Examples of Sponsors Specific Rates

Funding category Indirect costs (overhead) rate
Canadian Space Agency FAST program Administrative costs not to exceed 10% of grant value
MITACS, MSFHR, Genome BC No overhead allowed on sponsor portion
National Institute of Health (NIH) 8% of modified total direct costs, exclusive of tuition and related fees, direct expenditures for equipment and subawards in excess of $25,000
US Government (Pre-negotiated for Colleges and Universities including SFU for use on grants, contacts and other agreements) 58.9% for on-campus research work and 19.3% for off-campus research work based on direct salaries and wages including all fringe benefits


Overhead on Tri-Agency Grants

For Tri-Agency grants (i.e., SSHRC, NSERC, and CIHR), please do not include overhead in your research budget. Overhead is received by SFU through the federal Research Support Fund grant.

The Canadian federal government supports the indirect costs of research funded by the National Granting Councils (Tri-Agencies) and Networks of Centres of Excellence (NCE).  Canadian universities receive an annual grant to contribute towards their indirect costs of research based on the average level of funding attributed to SFU investigators over the previous three years from those sources. The annual Research Support Fund grant at SFU has historically been approximately 25% of the total grants attributed to SFU investigators. Therefore, indirect costs should not be included in individual grant applications to the Tri-Agencies.

 

Overhead on Matching Funds

Please go to the Budget Development page for the definitions of in-kind contribution and matching funds.

SFU does require to recover overhead on grants used to match Tri-Agency or other non-Tri-Agency grants or contracts. Examples of these programs include NSERC Alliance, NSERC Idea to Innovation Grants, SSHRC Partnership Grants, CIHR Industry Partnered Collaborative Research Program, CIHR Proof of Principle Grants, Genome BC Grants, Innovate BC Grants, etc. In these cases, an indirect cost recovery rate of 25% must be applied to the matching funds provided by the industry partner. Please pay special attention to terms describing whether the overhead portion of the matching fund is included or excluded in the sponsor's match and adjust your ask accordingly. 

Please note that matching funds in the form of in-kind contribution will not have to include overhead. See the following examples with and without in-kind contribution.

Example 1: If your budget does not include in-kind contribution from sponsor does not match overhead

Industry matching contribution

$100,000 toward direct costs

$25,000 toward indirect costs (@25%)

Total industry contribution $125,000
NSERC contribution $100,000 toward direct costs (1:1 match of Industry $)
Total direct costs of research $200,000 (NSERC + Industry cash toward direct costs)
Total budget (direct + indirect costs) $225,000
Note: If the indirect cost is not negotiated up front with the industry sponsor, and the sponsor agrees to contribute $100,000 total toward your budget, your total budget available for research (direct costs) will only be $160,000 instead of $200,000. In this case, $20,000 is deducted after applying 25% indirect costs rate to the remaining $80,000 cash contribution from the sponsor’s $100,000 and another $20,000 is deducted from the NSERC contribution.
   

Example 2: If your budget includes in-kind contribution from the sponsor

Industry cash contribution

$100,000 toward direct costs

$25,000 toward indirect costs (@25%)

Total Industry Contribution
$125, 000

Industry in-kind contribution $100,000 toward direct costs (no overhead on in-kind)
NSERC matching contribution

$100,000 to match industry cash contribution to direct costs

$100, 000 to match industry in-kind contribution to direct costs

Total NSERC matching contribution $200,000 (2:1 match of industry where 50% of industry funds are in cash

Total direct costs of research $300,000 (Industry cash toward direct costs + Funder)
Total Budget (Direct + Indirect) $325,000
Note: If indirect cost is not negotiated into the industry cash contribution, funds for total direct costs of research will be reduced to $260,000 instead of $300,000. In this case, $20,000 is deducted after applying 25% indirect costs rate to the remaining $80,000 cash contribution from the industry sponsor’s $100,000 and another $20,000 is deducted from the NSERC contribution.

In these two examples, NSERC contributes to the university's indirect costs of research through the federal Research Support Fund grant.

Last updated: May 18, 2021