Lesson 83 · The Grant Architect

83. Calculating F & A Rates

30 min

By the end you'll be able to

Identify the rate (NICRA or de minimis) applicable to a given proposal.
Build the Modified Total Direct Costs (MTDC) base correctly.
Apply the exclusions to MTDC before calculating indirect recovery.
Reconcile the indirect line back to the total budget.

Calculating indirect cost recovery on a federal budget requires three things in order: the correct rate, the correct base, and the correct exclusions. Most budget errors live in step two and three, not step one. You will learn to identify which rate applies (NICRA versus de minimis), which base the rate is applied to (Modified Total Direct Costs, total direct costs, salaries and wages), and which costs are excluded from the base before the multiplication happens.

You will work through the standard Modified Total Direct Costs (MTDC) base. MTDC includes salaries and wages, fringe, materials and supplies, services, travel, and the first $25, 000 o f e a c h s u ba w a r d . I t e x c l u d ese q u i p m e n t, c a p i t a l e x p e n d i t u r es, c ha r g es f or p a t i e n t c a r e, r e n t a l cos t s, t u i t i o n r e mi ss i o n, sc h o l a r s hi p s an df e l l o w s hi p s, p a r t i c i p an t s u pp or t cos t s, an d t h e p or t i o n o f e a c h s u ba w a r d o v er$ 25,000. Applying your rate to total direct costs instead of MTDC overstates recovery and is a frequent audit finding. Applying it to salaries and wages only (when the NICRA actually specifies MTDC) understates recovery and donates money to the federal government you were entitled to keep.

By the end you should be able to take a draft budget, identify the rate and base from the NICRA (or default to de minimis on MTDC), strip the excluded categories, calculate the indirect line, and reconcile it back to the budget total. When the math comes out clean and the base is defensible, you have built a budget that survives review.

Common mistakes

These are the traps learners hit most often on this topic. Knowing them in advance is half the fix.

Including the full subaward in the base.
Only the first $25,000 of each subaward sits inside MTDC. The remainder is excluded, which most teams forget when copying a prior year's spreadsheet.
Multiplying by the wrong rate when the NICRA has multiple rates.
NICRAs often specify different rates for on-campus versus off-campus, organized research versus instruction versus other sponsored activity. Using the wrong rate on a multi-rate agreement is a finding even when the math is otherwise clean.

Practice problems

Try each on paper first. Click Show solution only after you've made a real attempt.

Problem 1
Calculate indirect recovery for a project with a 30 percent NICRA on MTDC. Direct costs include $150, 000 p er so nn e l,$ 30,000 fringe, $15, 000 s u ppl i es,$ 20,000 project travel, $40, 000 e q u i p m e n t,$ 60,000 subaward (one subaward, full amount).
Show solution
MTDC = personnel $150, 000 + f r in g e$ 30,000 + supplies $15, 000 + t r a v e l$ 20,000 + first $25, 000 o f t h es u ba w a r d =$ 240,000. Equipment ( $40, 000) i se x c l u d e d in f u l l . T h e p or t i o n o f t h es u ba w a r d o v er$ 25,000 ( $35, 000) i se x c l u d e d . I n d i r ec t r eco v er y = 30 p er ce n t o f$ 240,000 = $72, 000. T o t a l b u d g e t =$ 315,000 direct + $72, 000 in d i r ec t =$ 387,000.

Practice quiz

Question 1
Which costs are excluded from the Modified Total Direct Costs (MTDC) base?
- Personnel and fringe.
- Materials, supplies, and project travel.
- Equipment, capital expenditures, patient care, rental costs, tuition, participant support, and subaward amounts over $25,000.
- The first $25,000 of each subaward.
Question 2
An organization on a 35 percent NICRA (MTDC base) has $200, 000 in M T D C - e l i g ib l e d i r ec t cos t s an d$ 80,000 in equipment. What is the correct indirect recovery?
- $98, 000 (35 p er ce n t o f$ 280,000).
- $70, 000 (35 p er ce n t o f$ 200,000).
- $28, 000 (35 p er ce n t o f$ 80,000).
- $35, 000 (a f l a t 35 p er ce n t o f e v er y$ 100,000).
Reflection 3
In one or two sentences, explain why applying the indirect rate to total direct costs (instead of MTDC) is a common audit finding.

Lesson 83 recap

Indirect recovery is rate times base, with the base correctly defined and the exclusions correctly applied. MTDC mistakes are the most common source of audit findings on the indirect line.

Coming next: Lesson 84 — Personnel Costs

With the structural rules in place, we move to the largest category in most budgets: personnel costs.

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By the end you'll be able to

⚠️Common mistakes

Including the full subaward in the base.

Multiplying by the wrong rate when the NICRA has multiple rates.

Practice problems

Practice quiz

Lesson 83 recap

Coming next: Lesson 84 — Personnel Costs

Common mistakes