Indirect costs refer to expenses incurred that cannot easily be directly associated with a particular project or activity. Also known as overhead costs or facilities and administrative costs, these costs are real costs associated with conducting business, including research.

Indirect costs are not unique to sponsored research or to institutions of higher education. For-profit and non-profit entities incur indirect costs as well. For example, let’s say you are the owner of a Windsor business, like the Mighty River Brewing Co. While it’s easy to identify costs directly associated with brewing and bottling beer (e.g., personnel, ingredients, bottles, labels, etc.), you might notice a number of additional costs as you review your monthly expenses. For example, you may have advertising costs and costs for heating, cooling, water, and electricity in addition to things like coasters and sanitizer. While these expenses are not directly tied to brewing and bottling beer, they are critical to conducting business.

Because indirect costs cannot readily be identified with a specific project or activity, these costs are grouped into common pools like buildings and equipment (facilities), and student administration and services (administration), and charged to benefiting projects through a negotiated indirect cost rate.

It’s important to remember that indirect costs are a form of cost recovery. Businesses and institutions of higher education spend a lot of money to offer their services. We build, rent, and maintain buildings and equipment, we hire administrative staff to process payroll and sponsored projects, and we provide telephone service and IT infrastructure. These costs are fact, not fiction; real, not taxes.

Because institution’s rarely recover their fully negotiated F&A rate, only in unusual circumstances will the University agree to waive F&A. Current CSU rates for conducting sponsored research, instructional projects, and other sponsored activities can be found on the Office of Sponsored Programs website.

Business owners, institutions of higher education and even sponsors are keenly aware that indirect costs are a sizeable portion of the total costs related to conducting business. In fact, it was the U.S. federal government (ONR- Office of Naval Research) who first recognized the need for F&A cost recovery. Learn more here, and remember that indirect costs extend beyond sponsored research.