Facilities and Administrative Costs
Facilities and Administrative (F&A) costs (also known as "overhead" or "indirect costs") means “those costs incurred for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved” (2 CFR §200.56). Examples of such costs include research facilities, utilities, administrative salaries, and general office expenses. Since it would be difficult or impossible to allocate such costs to each individual project, federal cost principles allow universities to negotiate an F&A rate with their cognizant federal agency. By charging this rate to each project, universities are able to recover the costs associated with these vital functions.
Penn State's current rate agreement can be found here. F&A is calculated by multiplying the Modified Total Direct Costs (MTDC) by the negotiated rate. MTDC is the sum of the total direct costs minus graduate tuition remission, capital equipment (defined as having an expected life of two years or more and an acquisition cost of at least $5,000), plant construction, building amortization, the portion of each subaward and subcontract in excess of $25,000, and patient care costs.