Recovery of Facilities & Administrative Costs

Understanding F&A Costs

Facilities & Administrative (F&A) costs—also known as indirect costs—are a critical component of the total cost of conducting research at a world-class institution. While direct costs (such as lab supplies or project-specific salaries) are easy to attribute to individual projects, F&A costs support the broader infrastructure and services that make research possible, safe, and successful.

F&A costs cover essential expenses such as the construction and maintenance of cutting-edge research facilities, high-speed data infrastructure, security and compliance measures, patient safety protocols, hazardous waste disposal, and the administrative and regulatory personnel who keep everything running smoothly.

To support these foundational elements of research, the federal government reimburses a negotiated portion of an institution’s F&A costs based on agreed-upon rates. These rates are applied only when direct costs are charged to a federal project, and they’re reflected in grant budgets as part of the total cost of research.

F&A cost recovery is vital for sustaining the environment that allows researchers to thrive and innovate—ensuring that we can continue advancing knowledge in service to society.

See our current F&A Rate Agreement Letter

How is UVA’s F&A Rate Determined?

UVA’s F&A (Facilities & Administrative) cost reimbursement rates are determined through a rigorous process governed by federal guidelines. These rates are not arbitrary—they’re based on the University’s actual, documented expenses, as reflected in our financial statements and systems.

Rates are negotiated regularly with a lead federal agency and apply for a defined period. The basic formula for calculating the rate is:

(Facilities costs + Administrative costs) / Modified Total Direct Costs (MTDC)

To ensure fairness, certain large expenses—such as equipment, tuition remission, and most subaward costs—are excluded from the direct cost base. What’s left is the MTDC, which forms the foundation for determining an equitable share of F&A costs across projects.

By federal regulation, the administrative component of the rate is capped at 26% for institutions of higher education. So even if UVA incurs administrative costs beyond that, we cannot recover more than 26% through the F&A rate. For example, if UVA’s facilities costs are 24% and administrative costs are 30%, the total allowable rate is capped at 50%.

It’s also important to note that the F&A rate is not a percentage of the total project cost. If the F&A rate is 50% and the MTDC is $100,000, then $50,000 in F&A costs will be charged, making the total cost $150,000. In that case, F&A costs make up one-third of the total funding—not half.

Because some direct cost items are excluded from the MTDC, the actual proportion of F&A costs in a project’s total budget is often even lower.

UVA also uses different negotiated rates depending on the type of sponsored activity and where it takes place—such as on-campus vs. off-campus research, instruction, or other sponsored programs. This helps ensure that the rates charged are appropriate and reasonable for the nature of the work.

How Does UVA Use the F&A Funds It Recovers?

When UVA receives F&A (Facilities & Administrative) reimbursements from federal sponsors, these payments are not new revenue—they are reimbursements for real costs the University has already paid to support the research enterprise.

F&A reimbursements are not a profit center or a revenue stream. Instead, they help UVA recover some of the indirect costs associated with conducting federally sponsored research—costs such as utilities, facilities maintenance, libraries, and administrative services. These funds are only charged to sponsors after direct research expenditures are made.

The federal reimbursement process is carefully regulated, ensuring that only necessary and allowable expenses are recovered. Just as a travel reimbursement returns funds to an individual who’s already paid out-of-pocket, F&A reimbursements return funds to the University’s general operating budget where those research support costs were initially incurred.

It’s important to understand that UVA is not fully reimbursed for all of its F&A costs. The total institutional support required for research far exceeds the portion recovered through federal agreements.

Why Is There So Much Variation in F&A Rates Between Institutions?

F&A rates vary widely across institutions—and for good reason. The cost of supporting research is not uniform. Rates reflect real differences in what it takes to build, maintain, and operate the facilities and administrative infrastructure that make research possible.

Geography is a major factor. Construction, utilities, and labor costs vary significantly across regions, which directly impacts the cost of research. For example, the federal government's own salary schedules recognize wide differences in cost of living and wages from one region to another. A recent survey by the Council on Governmental Relations (COGR) found that while most private institutions in the U.S. are concentrated in the higher-cost Northeast and West, most public institutions are located in other regions like the Midwest, Southeast, and Southwest, where costs are typically lower.

The type of research conducted also matters. Institutions focused on fields like microelectronics or biomedical sciences often require high-tech, high-maintenance facilities—think clean rooms or vibration-resistant labs. These needs differ from institutions with research primarily in the humanities or social sciences, which have lower facility-related overhead costs.

Even the age and condition of research buildings can play a role. A new facility built in a seismically active urban area will have very different cost implications than an older facility in a rural location. F&A rates are calculated to reflect these realities, ensuring that institutions are fairly reimbursed for the support they provide to federally sponsored research.

How Is Accountability Built into the F&A Reimbursement System at UVA?

The F&A reimbursement process isn’t just a calculation—it’s a tightly regulated system designed to ensure transparency, fairness, and responsible stewardship of federal funds.

Each university’s F&A cost rate is set through a comprehensive review process by a designated federal agency—most often the Department of Defense’s Office of Naval Research or the Department of Health and Human Services. These agencies carefully evaluate the university’s rate proposal to ensure that all federal guidelines are followed, unallowable costs (like fundraising or unrelated activities) are excluded, and that the allocation methods used to determine costs are both reasonable and compliant with federal methodology.

If the reviewing agency identifies issues or deems a proposed rate increase unreasonable, it will require adjustments or even reduce the rate. This process ensures that rates are not only justified but kept in check over time.

Beyond rate negotiations, universities like UVA are also subject to regular audits—including annual independent financial and compliance audits conducted under Government Auditing Standards. These reviews confirm that the University has only requested reimbursement for eligible expenses and has not overcharged the federal government for indirect costs.

The result is a system where accountability is built in at every step—protecting taxpayer dollars while enabling institutions to continue supporting world-class research.

Are There Costs That UVA Does Not Recover?

Yes. Despite the structured system for F&A cost reimbursement, UVA—like all universities—absorbs many costs that are never fully recovered through federal funding.

One major limitation is the federal cap on administrative cost recovery for universities. Regardless of what it actually costs to manage research safely, securely, and effectively, universities are limited to recovering just 26% of Modified Total Direct Costs for administrative support. This cap applies only to universities and not to other federal contractors or grantees. A 2023 COGR survey showed that the actual average administrative cost component across 120 institutions was 35%—more than 9 percentage points above the allowed cap.

Additionally, certain federal agencies, such as the U.S. Department of Agriculture, are subject to statutory caps that further limit indirect cost payments. Other agencies may impose caps on specific programs, further reducing cost recovery potential.

UVA also invests heavily in people, facilities, and infrastructure that support research. These investments are only partially reimbursed, and often over long periods of time. For example, if UVA constructs a research building with a 30-year useful life, only 1/30th of the building’s cost is included in the F&A rate each year. Of that fraction, only the portion directly tied to externally funded research is eligible for partial reimbursement. UVA bears the cost of research that is internally funded or otherwise not reimbursable by federal sponsors.

The bottom line: F&A reimbursement helps, but it doesn’t cover everything. UVA continues to invest in the people, spaces, and systems necessary to advance research—even when those costs go unrecovered.

Current Rates for F&A and Fringe 

The current F&A rate agreement has been extended through FY2029.  View the latest rate agreement here:  Rate Agreement Letter

Fringe Benefit rates continue to be applicable through FY2026.  For a further breakdown of Academic Fringe Rates, click here. 

Certified Research Administrator

Planning on taking the Certified Research Administrator (CRA) exam?  Get a head start by looking at "Understanding F&A Rates" -- this handy document covers federal regulations, definitions, and concepts, plus sample calculation with explanations.

If you have any questions, please contact Andrew McGehee, ph: (434) 982-2373. 

F&A FAQs

Find answers to your questions here.