Research Administration Policies

RA21 Development of Proposal Budget

Policy Status: 

Active

Policy Steward: 

Vice President for Research and Corporate Controller

Contents:

PURPOSE:

To define general University policies that govern the development proposal budgets for sponsored projects.

DEFINITION AND PURPOSE FOR BUDGETS AND COST ESTIMATES:

Per the Uniform Guidance 2 CFR 200.8 Budget:

"Budget means the financial plan for the project or program that the Federal awarding agency or pass-through entity approves during the Federal award process or in subsequent amendments to the Federal award. It may include the Federal and non-Federal share or only the Federal share, as determined by the Federal awarding agency or pass-through entity."

To understand the government's basic philosophy on budget building and review, however, one must turn to the Federal Acquisition Regulations (FAR). Much of what the FAR states about cost estimating applies equally to grants as well as contracts. The FAR points out the following about cost estimates, their content and their purpose:

  • "When contracting on a cost-reimbursement basis, evaluations shall include a cost realism analysis to determine what the Government should realistically expect to pay for the proposed effort, the offeror's understanding of the work, and the offeror's ability to perform the contract." [FAR15.305(a)(1)]
  • "The objective of proposal analysis is to ensure that the final agreed-to price is fair and reasonable." [FAR 15-404-1(a)]
  • Proposal analysis by the Federal agency may also include "review to determine whether any cost data or pricing data, necessary to make the offer's proposal suitable for negotiation, have not been either submitted or identified in writing by the offeror. If there are such data, the contracting officer shall attempt to obtain and use them in the negotiations or make satisfactory allowance for the incomplete data. [FAR 15.404-1(c)(2)(iv)]

NOTE: If the budget is reduced by the agency, the PI should make corresponding reductions in the scope of work.

AGENCY-SPECIFIC GUIDANCE FOR PROPOSAL BUDGET PREPARATION:

Federal: The development of a proposal budget is generally governed by the application guidelines that are disseminated by the particular sponsoring agency. These are contained in the appropriate section of the Code of Federal Regulations (CFR) for the various Federal funding agencies.

Non-Federal: The application guidelines provided by the awarding organization govern the development of the proposal budget.

More detail

PROGRAM INCOME:

Program income is gross income earned as part of a sponsored award, such as registration fees paid for a conference conducted as part of a sponsored award. If a sponsored award will generate program income, this must be accounted for as part of the award. See RA66, Program Income.

GENERAL COST CATEGORIES:

The following represent general categories of budget items frequently proposed for externally funded sponsored awards. The specific order or placement within a budget is dependent upon the format requested by the sponsor.

There are certain types of costs which are assumed not to be direct costs and should not be included in a proposal. These are noted below under each category as appropriate.

 

1. Direct Labor (salaries and wages)

The budget justification should identify specific individuals to be working on the project (or if individuals are not known at the proposal stage, the justification should identify positions by title and give the number of individuals for each title), amount of time (normally a percent of effort or months of effort) to be devoted to the sponsored project and salary associated with that time. The basis for developing estimates begins with the salary of the individual (or an average rate for the position, if the individual is not known) for the current Penn State fiscal year. This amount should be multiplied by the percent of effort on the project being proposed for the individual to compute salaries to be applied to the current fiscal year. (See Projecting Cost Inflation Factors section below regarding cost projections for future periods.)

Minimum Faculty Effort: According to OMB memorandum M-01-06, dated January 5, 2001 (as referenced in Uniform Guidance 2 CFR 200.306(k)), most federally funded research programs should have some level of committed effort by faculty (or senior researchers) either paid (by the federal government) or unpaid (cost shared by the institution), unless there is a legitimate reason that there would be no effort on the agreement. In the following cases, it is considered legitimate for Penn State to show zero faculty effort:

  • Gifts
  • Instrumentation grants (where the sole purpose of the grant is to procure equipment or property)
  • Conference/workshop grants (where the sole purpose of the grant is to support a conference or workshop.

  • Training grants and other student-led projects where the PI is just supervising student effort
  • Industry membership agreements (as long as some source of funds is identified for covering the PI's administrative effort)
  • Non-federal projects < $50K as long as a percent of the PI's time is paid on general funds. (If a researcher is paid solely on external funds, then some percentage of his or her salary must be charged to every project on which he or she works.)

Penn State requires minimum faculty effort on both federal and non-federal projects. The rule applies not only to Principal Investigators but to all Senior Personnel on the project. (For the purpose of this policy, Penn State uses NSF's definition of Senior Personnel as defined here. For more information, see Penn State's Compensation FAQ.)

Administrative Salaries: Salaries of administrative and technical staff should normally be treated as indirect costs. Direct charging of these costs on federal funds may be appropriate only if all of the following conditions are met:

  1. Administrative or clerical services are integral to a project or activity;
  2. Individuals involved can be specifically identified with the project or activity;
  3. Such costs are explicitly included in the budget or have the prior written approval of the Federal awarding agency; and
  4. The costs are not also recovered as indirect costs (Uniform Guidance 2 CFR 200.413(c)).

Direct charging of administrative salaries must be documented through the Cost Accounting Justification Form. In order to ensure that administrative salaries are allocable to the project (as defined in RA10 – Costing Principles for Sponsored Awards), such costs will not be approved as direct charges unless they constitute a level of support greater than the routine level of service normally provided by an administering department. Thus, Penn State will only permit such costs to be direct charged to a project when 10% of more of an individual's effort will be allocated to the sponsored award.

Technical Staff Salaries (including IT support personnel): Technical staff salaries are considered a subset of administrative salaries, subject to all the rules stipulated above. IT services normally provided as ongoing support for a unit, such as regular hardware and software maintenance, should be treated as F&A costs. Technical costs may be charged directly to sponsored projects when they are described in the project's scope of work and can be easily identified to a particular sponsored agreement. IT support which requires technical understanding of aspects of the specific project (e.g., knowledge of research data, design or calibration of test equipment, maintenance or repair in a remote off-site location) may be charged directly, but should be documented using the Cost Accounting Justification Form. Penn State will only permit such costs to be direct charged to a project when 10% of more of an individual's effort will be allocated to the sponsored award.

Retired Faculty: If retired faculty are participating on a sponsored award, Guideline RAG03, Retired Faculty Participation must be followed as well as Policy HR45 – Post-Retirement Appointments.

Salary Caps: Certain federal agencies have established reimbursement salary caps. If an individual whose salary exceeds the cap is performing effort on an account subject to a reimbursement salary cap, the amount charged to the account for each month must be calculated to account for the cap. See RA64 – Personnel Costs, and RAG64 – Salary Caps, for more detail.

 

2. Negotiated Rates - Fringe Benefits

The budget justification should include the current applicable fringe benefit rates and statements that these rates are reviewed and approved by the University's cognizant federal agency, the Office of Naval Research (ONR).

Application of Fringe Benefits - The actual negotiated fringe benefit rates will be charged regardless of whether such rates are higher or lower than the rates used in the applicable proposal. The fringe benefit rates will be adjusted each July 1 for projects overlapping fiscal years.

Rates to provide for recovery of fringe benefits as well as F&A are negotiated periodically with the ONR, based upon proposals submitted by the University and audited by the Defense Contract Audit Agency (DCAA). Current fringe benefit, F&A, and tuition remission rates are available on the Office of Sponsored Programs website.

 

3. Other Direct Costs:

a. Subcontracts - Identify individual subcontractors (if known) and the total estimated cost for each. When the subcontractor is known, the following items should accompany the budget justification:

  1. an itemized budget with appropriate detail presented on the sponsor's required forms,
  2. a statement of work to be performed by the subcontractor, and
  3. a commitment to perform as a subcontractor, as evidenced by a signature of an authorized official of the subcontractor. [Refer to Penn State's Policy RA80, Subawards and Subcontracts.]

b. Consultants - Identify consultants to be used, time to be spent on the project, and rates of pay. (Some federal agencies restrict the rate of pay, usually at a rate not to exceed the equivalent of the daily rate for GS-18 in Federal service, excluding expenses and University indirect costs.) The need for the consultant and the work to be performed must be identified in the proposal. See Penn State's Policy BS17, Use and Procurement of External Consultants.

c. Equipment - List separately items of equipment equal to or exceeding $5,000 and having a useful life of one (1) or more years. The basis for the cost estimates must be available to provide evidence to support the costs proposed. The need for the equipment and the purpose of the equipment must be identified in the proposal and/or within the budget justification.

Note: General purpose equipment usually is not allowable as a direct cost to Federal sponsored projects. If included in a proposal, a Cost Accounting Justification Form should be completed to document the justification for general purpose equipment to be included as a direct cost.

d. Supplies - Provide general categories of budgeted supplies and estimated cost. The basis for the cost estimates must be available to provide evidence to support the costs proposed. The need for the supplies must be addressed in the proposal.

Note: Office supplies usually are not allowable as a direct cost to Federal sponsored projects. If included in a proposal, a Cost Accounting Justification Form should be completed to document the justification for office supplies to be included as a direct cost.

e. Travel - List proposed trips individually, describe their purpose in relation to the grant and provide details that are known, such as dates, destinations, and number of travelers. Explain how the costs for each were derived (e.g., provide a breakdown of airfare, car rental, per diem, etc.). Be aware of any foreign travel restrictions which may impact the ability to travel. All foreign travel must also comply with Export Control Regulations – see RA40, Compliance With Export Regulations, and RAG40, Guidelines for Ensuring Compliance With Export Control Policy RA40.

f. Specialized Services or Institutional Service Operations - Use of specialized services (e.g., Animal Resource Program) or institutional service operations (e.g. Fleet Services, Chemistry stockroom) must be budgeted at the currently approved rates. Rates are reviewed and approved by the Controller's Office, and can be obtained from Cost Analysis. See Policy AD15, Fees and Rates for Facilities and Services.

g. Tuition Remission - Tuition remission rates for graduate assistants are set by the University each fiscal year and are available here.

h. Participant Support Costs - These are direct costs for items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees in connection with conferences or training projects. See Policy RA22.

i. Other - Enter the total of any other direct costs not covered by 2.a. through 2.f. Include in the budget justification a list explaining the relationship of each to the proposed project and the basis for the estimate.

Note: Certain other costs such as postage, local telephone costs, express mailing and memberships usually are not allowable as a direct cost to Federal sponsored projects, except where approved in advance by the sponsoring agency. If included in a proposal, a Cost Accounting Justification Form should be completed to document the justification for other costs to be included as a direct cost. See Penn State's Cost Accounting Standards FAQ for further details regarding these and other budget items.

 

4. Facilities and Administration (F&A) Costs:

The appropriate F&A rate must be applied with the proposed budget to recover costs which are indirectly associated with the sponsored award. Indirect costs are real costs which are applied through a percentage rate established based on federal costing policies. Rates are available here.

See RA30, Facilities and Administrative (F&A) Costs for more detail on these costs, including policy regarding on and off-campus rates.

Application of F&A Costs - The negotiated rates in effect at the time of the initial award will establish the rates for the life of the award or each competitive segment thereof. Awards which involve units subject to different F&A rates (e.g., College of Health and Human Development and College of Medicine) require separate accounts linked by fund number. The Principal Investigator (and appropriate administrative personnel) should be given access to all accounts associated with the award, so they can maintain proper oversight of the award as a whole.

Base Determination - F&A will be applied to Modified Total Direct Costs (MTDC). Modified Total Direct Costs are all costs excluding equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $25,000. (Uniform Guidance 2 CFR 200.68).

PROJECTING COST-INFLATION FACTORS:

Estimates of personnel and other direct costs for out years should be proposed using reasonable percentage increases as defined annually by the University Corporate Controller. Variation from the approved rates is allowable when:

a. the agency requires the use of a lower factor;

b. documented historical data supports the use of a higher rate; or

c. other significant changes that affect cost can be anticipated with accuracy, e.g., faculty promotions in rank.

Up-to-date information regarding current inflation factors.

SUPPORTING DOCUMENTATION:

Supporting documentation must be available to provide evidence that the cost estimates are reasonable, accurate, and current as of the time of the proposal or negotiations. This documentation may include catalog prices, telephone or written quotes or institutional records such as Purchase Orders.

FURTHER INFORMATION:

For questions, additional detail, or to request changes to this policy, please contact the Office of the Vice President for Research or the Office of the Corporate Controller.

CROSS REFERENCES:

Other sources in GURU may also apply, especially:

AD15 - Fees and Rates for Facilities and Services

AD89 - University Export Compliance Policy

ADG09 - Export Compliance Definitions, Procedures and Implementation Guidelines

RA10 - Costing Principles for Sponsored Awards

RA22 - Participant Support Costs

RA30 - Facilities and Administrative (F&A) Costs (Formerly RAG06)

RA40 - Compliance with Federal Export Regulations (Formerly RA18)

RA50 - Cost Sharing

RA64 - Personnel Costs

RA65 - Non-Personnel Costs

RA66 – Program Income

RA80 – Subawards and Subcontracts

RAG03 - Retired Faculty Participation

RAG40 - Guidelines for Ensuring Compliance With Export Control Policy RA40

RAG64 – Salary Caps (Formerly RA08)

Effective Date: July 5, 2017
Date Approved: July 5, 2017
Date Published: July 5, 2017

Most Recent Changes

  • July 5, 2017 - Information pertaining to Conference/workshop grants was added to the bulleted list under the "Minimum Faculty Effort" section.

Revision History (and effective dates):

  • February 26, 2016 - This new policy (incorporating parts of old RA03) has been created as part of the policy reorganization brought about by implementation of the Uniform Guidance (2 CFR 200).
  • March 19, 2013 - Editorial changes made, correcting links to OMB Circulars A-21 and A-110 that are cross referenced throughout the document.
  • February 23, 2010 - Editorial changes made, correcting the names and links of related policy guidelines and FAR regulations that are cross referenced.
  • August 14, 2006 - Reference to RAG03 added; minor editorial changes made.
  • March 7, 2005 - Editorial changes to correct links.
  • May 24, 2002:
    • Under Guideline 1 - Direct Labor - added that a clarification of A-21 issued by the OMB states that most federally funded research programs should have some level of committed effort by faculty (or senior researchers).
    • Changed the footnote under Guideline 1 regarding salaries of administrative and clerical staff normally being treated as F&A costs, from "except where approved in advance by the sponsoring agency" to "where it meets the standards of Exhibit C to A-21, and such costs are treated in accordance with RAG01".
  • December 5, 2000 - Title of cross- referenced policy RAG02 changed from "Requesting Equipment Matching Funds" to "Equipment Matching Funds Program".
  • February 20, 1998 - Reformatted for GURU from OSP Policy dated September 1994.