Office of Research and Project Administration

Good afternoon,

As you may have heard, the Appropriations Bill for the Department of Defense (DoD) for Fiscal Year 2008 includes a limitation on the amount of F & A (indirect) costs that can be assessed on any basic research awards from DOD.  The Council on Governmental Relations (COGR) has been following this closely and has recently issued some guidance that has been helpful in determining how to manage this cap, however, there remains some areas of confusion.  DoD has indicated that they will post a website offering more guidance but until they do and until we receive our first award that implements the cap, it will be difficult for us to fully understand how and when this will be implemented.  This email is being sent strictly to make you aware of the cap and to provide some preliminary information on how this might affect the University of Rochester.  Section 8115 of the Appropriations Bill, which was signed by the President on November 13, 2007, and is now law,  reads as follows:

"Notwithstanding any other provision of law, none of the funds made available in this Act may be used to pay negotiated indirect cost rates on a contract, grant, or cooperative agreement (or similar arrangement ) entered into by the Department of Defense and an entity in excess of 35 percent of the total costs of the contract, grant, or agreement (or similar arrangement):  Provided, that this limitation shall apply only to contracts, grants or cooperative agreements entered into after the date of the enactment of this Act using funds made available in this Act for fiscal year 2008 for basic research." 

The first point to remember is that while this language indicates that the cap applies to contracts, grants and cooperative agreements, it also indicates that the cap is applicable to only "basic research".  This includes funds from "Budget Activity 1" (i.e., 6.1 funds).  Awards made from DoD budget activities 6.2 (applied research) and 6.3 (development) are not affected.  Many of the Congressionally Directed Medical Research Programs (CDMRP) (programs that encompass breast, prostate, and ovarian cancers, neurofibromatosis, military health and other specified medical research areas) are funded from the DoD "operations and maintenance" account, funds are not subject to the cap.  However, a small portion of these programs (those awards funded from Budget Activity 1) will be subject to the cap.  We will need to carefully review DoD award notices to confirm any terms or conditions associated with the cap.

The second point to remember is that grant renewals are not affected by this cap.  For example, an award continuation made from FY08 DoD funds is not subject to the cap.  Only new awards which are classified as "basic research" made on or after November 14, 2007 will be subject to the cap.

The third point to remember is that when creating a budget for a proposal to be submitted to DoD, you should calculate the F & A costs as you always have, on the Modified Total Direct Costs and at 54%.  Upon award, the awarding DoD agency will be responsible for any adjustments to the budget proposal.  In those situations where the budget proposal included F & A costs that exceed the cap, the agency may adjust the award, accordingly.  In situations where the award was not adjusted, the institution will still be responsible for managing the cap.  Subsequently, the institution may be allowed to rebudget F & A costs in excess of the cap to an allowable direct cost category.  We should not however, expect to DoD to automatically allow us to rebudget those dollars into direct costs.  Approval to do so will undoubtedly require prior approval and may or may not be granted dependent on the DoD Agency making the award.

The fourth point to remember is that the cap is applicable to the prime award recipient only and does not flow down to subrecipients.  Therefore, if you have a DoD award that is subject to the cap and you subcontract a portion of the work , the F & A cap will not apply to the subcontracting institution's budget.

The fifth point to remember is that institutions must have a system in place to monitor charges, on an award-by-award basis, to ensure that the 35 percent cap has not been exceeded.

In an effort to help you understand how we anticipate DoD might implement the cap, we have created a spreadsheet with two budget examples.  Budget example #1, indicates a budget with no F & A cost exclusions.  Budget example #2, indicates a  budget with F & A exclusions.    We hope you find this spreadsheet a helpful tool should you receive an award to which the cap applies.  However, until further guidance from DoD is posted on their website, even these examples are subject to change. 

If you have any questions or concerns, please feel free to contact me.  Thank you.
 

DOD F & A Cap examples.xls

Brenda Kavanaugh
Research Administrator
Office of Research and Project Administration
University of Rochester
518 Hylan Building
Rochester, NY  14627
585-275-1504
FAX:  585-275-9492
bkavanaugh@orpa.rochester.edu