The Research Office fields many questions. One frequently heard concern comes from practically every level within OSU – from the newly minted junior faculty member through senior academic administrators: ‘What happens to all that Facilities and Administration (aka F&A, overhead, or indirect costs) money we bring in via grants and contracts?”

In order to provide a broader context, allow me to explain very briefly what F&A funds are, where they come from, how they really contribute to OSU’s overall financial health, and, most importantly, how they are distributed.

F&A funds are collected as a percentage of grant/contract expenditures. The University gets F&A based on actual direct grant expenditures. If you, as researchers, don’t spend it, OSU doesn’t get it.

The F&A funds are used to help defray the costs of activities that are essential for the conduct of research, but which cannot be charged directly to a grant. For example a laboratory may host multiple, separately funded research projects. It would be unrealistic to allocate space and meter utility usage for each project, so such expenses are “lumped” under the F&A rate. Similarly, the administrative costs associated with obtaining and managing grants are incurred at every level of the university, from departments and colleges, through the Business Centers and into the central administration.

So, why bother collect F&A at all? Don’t they just run up the costs of a grant and make us less competitive, and how can such a “small” amount of money contribute to the financial health of the university in any event?  Well, actually, F&A funds are a significant contributor to OSU’s budget. For the fiscal year ending June 30, 2011, faculty research activities generated $36,358,254 of F&A funds. This is equal to almost half of the non-targeted, state-appropriated funds received from the legislature for fiscal year 2011.  In other words, the money recovered from F&A has a huge impact on our ability to serve all of the varied missions to which OSU is committed!

Next, how are F&A rates determined? The federal F&A rates are based on what we have actually spent to support federally funded research. The process: In conjunction with our federal oversight agency, the U.S Department of Health and Human Services (DHHS), a base fiscal year is identified. Upon closing of the base year’s books, OSU goes through a detailed analysis of research-related expenditures not attributable directly to grants or contracts.  This is done according to a strict set of rules and accounting principles; the university does not have much flexibility about what can be included. This analysis takes 4-6 months.  The results are submitted to DHHS, which reviews them for inappropriately included expenses. There is a negotiation to settle differences; then the agency tells OSU what our rate will be for the following 3 to 5 years. Typically, we end up with a rate that is one or two percentage points below what we believe is a reflection of our true costs.

If the grant/contract’s sponsor is a private corporation, the university tacks an additional 5% surcharge onto the F&A rate. This 5% supports the Office for Commercialization and Corporate Development, and is being used to develop a more robust campus-wide program of industry collaboration. This effort supports both the university’s Strategic Plan and our recently deployed Research Agenda. A more thorough discussion of this effort will be presented later this year.

So, focusing on just the federally negotiated F&A, how does it get distributed? The basic structure of the distribution has been in place for more than a decade, as outlined in the table below. The model for distribution is stable for the first four entries, but there is a bit of fluidity among the other categories from year to year.


Percentage Allocation of F&A Recipient Notes
4% Chancellor’s Office Centralized Services provided by OUS
8% Research Equipment Reserve Fund (RERF) Mandated in our federally negotiated rate package.
4% Building Use Credits (BUC) Mandated in our federally negotiated rate package.
~31% F&A returned to the college generating the F&A 26% is returned to most colleges in addition to special arrangements made with depts. and colleges
~2.3% University libraries Actually a fixed dollar amount: $768,000
~6.9% Special Initiatives Determined by the Provost. In addition, if F&A earning exceed the budgeted amount, 53% of the overage goes into this category.
~34.2% Education and General Funds Discretionary state dollars
~8.6% Centers and Institutes Actually a fixed dollar amount: $3,125,000
1% Audit Disallowances Based on actual audit results
100% Total


The first cut taken out of the “F&A pie” goes to the Chancellor’s office – 4% of all of the F&A recovered by OSU. Each of the seven institutions in the Oregon University System pays the same percentage; however, OSU contributes more to this fund than all of the other OUS institutions combined. Those funds are used to support mandated federal and state reporting requirements among the other services provided by the system.

The next two categories of money, 8% for Research Equipment (RERF) and 4% for Building Use Credits (BUC), are mandated in our federal negotiation. While the university gets to depreciate capital equipment and facility expenses, we are not allowed to amortize the costs for federally funded equipment (i.e., we cannot charge equipment depreciation to a grant if that equipment was purchased using federal money). These allocations in the indirect cost rate are to help offset that depreciation.

A large allocation of F&A resources goes directly to colleges as Returned Overhead (ROH). Except for COAS and a few special cases, colleges receive 26% of the F&A earned from grant/contract indices assigned to each college’s organization code (Note: our financial system allows for distinct indices to be set up for different component parts of grants, and these indices can be aligned with different academic units.)  Deans have discretion about how to disperse the funds within their units. Some reserve all of it for strategic investments, some take a small slice and return the majority to the department or school that generated the grants, and some have more finely tuned distribution models. Check with your dean about how your college distributes its returned overhead.

The University library gets a flat amount out of the F&A pool, which amounts to about 2.3% of the F&A earning expected for FY2012.

Research centers and institutes draw on a percentage of the F&A. The majority of this is used to cover federal matching requirements, for example with our Sea Grant and Space Grant Programs, or to cover maintenance and safety costs associated with major facilities such as the Hatfield Marine Science Center that the university does not otherwise support.

A small percentage of our F&A, about 1%, is set aside to cover disallowed costs, i.e., items charged directly to grants or contracts that, upon review/audit, are determined to fall outside appropriate or allowable expenditures.  Thankfully, this is usually a pretty small amount.

In the last several years, the Provost has made strategic investments in the research enterprise. For example, the Provost funded multi-year transdisciplinary initiatives in six areas a few years ago, and, more recently, he has made significant investments in new faculty hires. More broadly, the Provost has provided ongoing support for major multi-college user facilities such as interdepartmental mass spectrometry, electron beam instruments, and laboratory animal resources. These are all large investments that benefit a broad spectrum of high impact, multi-user research facilities across campus.

The balance of F&A resources, about a third, are combined with the non-targeted, state-appropriated and tuition dollars; these are distributed as part of the base budget for units at OSU.

The bottom line here is that the majority of F&A dollars gets reinvested into academic units and the broader research enterprise, either directly through the ~31% allocation, or less directly through the distribution of RERF, BUC, Provost Initiatives, Centers and Institutes, and the university’s resource allocation model.  The F&A resources do not actually cover the costs OSU incurs for supporting research, but the money does make many things possible that would otherwise go undone.

OSU’s research enterprise collectively is a vibrant and high impact endeavor, all of which is made possible by the dedication and hard of each and every one of you, the members of our faculty. A great faculty is the first and most critical requirement for a great university, and you all play a huge role in that!  Thank you.

Rich Holdren
Associate Vice President for Research

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2 thoughts on “Where does all the F&A go?

  1. Rich,
    Thanks for putting this together — it is great. I think it is helpful to have the data since there is this feeling of a black hole. This sheds light on how the dollars are spent. One thing you didn’t address is why the ROH is so low if we bring in over $250M. It would be interesting to see the research dollars brought in by college and then the overhead dollars generated. Thanks again the facts are very helpful!
    Terri Fiez

  2. Terri,

    Thank you for the comment.

    Information about the research funding earned by individual colleges and the sources of that funding can be found on our web site at: . One word of caution: These are award data, not expenditure data, and, they include a much broader range of research revenues than simply the sponsored programs, the category from which F&A funds are collected.

    The reasons for the apparently low amount of F&A earned are complex. First, the direct expenditure base upon which the F&A is calculated is roughly $160.5 million, not the value of the total research awards of $261 million. Second, many sponsors either have policies against paying for overhead and/or pay a reduced rate of F&A by agreement (e.g., the State of Oregon agencies mostly pay only 26%). Third, no F&A is collected on capital equipment, tuition, participant expenses, etc. All this adds up to reduce the amount of F&A collected.

    The bottom line here is that our net F&A earnings were equal to about 22.6% of direct, sponsored research expenditures last year – still substantially less than the negotiated rate of 46%.

    I hope this helps to clarify the situation.

    Rich H

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