The total cost of performing research consists of both: 1. Direct costs, which are costs that are directly identifiable to a specific project (effort, supplies, travel), and indirect cost, which are costs that cannot be attributed to any specific project (space, utilities, departmental and central administration labor. Indirect costs, also referred to as “overhead’ or “facilities & administration (F&A) costs, are funded primarily from a rate that is applied to the direct costs of each project. UM negotiates this rate with the Michigan Department of health and Human Services based on the proposed costs of providing research facilities and research administration for the forthcoming fiscal year. This rate also includes adjustments for prior year variances of the proposed costs to the actual costs.
Overhead recovery is essential to maintaining a dynamic research program for any institution. However, despite the real costs behind the overhead rate applied to research awards, many non-federal sponsors place limits on the amount of indirect cost recovery. Accepting these underfunded research awards imposes a financial burden on the university. Therefore, the University of Michigan is implementing the process described in the Indirect Cost Policy.