With the proposed changes to the Indirect Recovery Rate (ICR), it is a good time to review it. FM:Systems is a trusted partner in higher education for indirect cost recovery and reporting compliance. For more than 30 years, we have helped universities simplify and automate their annual space and NSF surveys. We also help them increase their indirect cost recovery.
Today, let’s look at ICR more closely. We will see how technology helps drive ICR.
What is Indirect Cost Recovery?
Universities incur indirect costs when they provide grant funded research. These costs support federally-funded research, but they do not link directly to the research itself.
The US government gives money to qualifying universities for their infrastructure costs. This funding relies on different allocations and the productivity of those activities. It comes in the form of indirect cost recovery (ICR).
Indirect costs include things like depreciation and interest paid on a facility. They also cover operating and maintenance costs, such as utilities, custodian expenses, and security fees. Additionally, they include administrative functions like payroll and purchasing.
To recover part of these expenses, universities charge indirect costs to federal awards at an agreed upon rate. Universities must negotiate their Indirect Cost Recovery (ICR) rate with the Federal government every 5 years.
Why is ICR important?
For qualifying universities, improving ICR means more money remains in the budget. Recovering costs frees up money that can go toward other critical needs or new projects. If a university does not have strong data for ICR negotiations, it may miss out on funding. How many additional projects could we undertake if ICR were higher?
How FMS:Workplace drives ICR
FM:Systems focuses on the unique needs of universities. They provide complete solutions that include higher education requirements built into the system. Over 350 universities use our solutions. They rely on us to create and update accurate space surveys and improve ICR.
To improve ICR, universities need accurate, defensible data about how they use infrastructure and what it costs. Universities leverage FMS:Workplace as a single source of truth for this information. The Higher Education Survey module allows institutions to track grant moneys, principal investigators and spaces. FM Survey supports many important types of information essential for Integrated Postsecondary Education Data System (IPEDS) reporting, internal auditing and Indirect Cost-Recovery (ICR).
“The value of having the FMS:Workplace system throughout this whole process—I just can’t stress enough how valuable that resource was, for us to be able to pull up to start with the list of rooms and the capacities; then, as we went forward, to identify what we call extra spaces and the capacities we could have there as well. I’m not sure we could have even gotten it done without FMS:Workplace.”
– Cheryl Benningfield, Space Planning Manager
Facilities and space management teams can use standard Web browsers. They can enter data on usage codes and the departments responsible for their office, research, and teaching facilities. The forms have checks and balances.
They help ensure accurate and complete information at every step. This includes percentage usage by category for each room. Universities using the FM Survey have found that collecting information takes much less effort. The accuracy of the information is better, and they can collect more data.
Real-world results: University of North Texas
As a public university, University of North Texas complies with rigorous reporting requirements to the state and federal government. The reports and space data help decide Educational and General funding for the institution. Researchers also use them to negotiate Facilities & Administrative Rates (F&A) for federal grants.
One of the ongoing challenges for the university is keeping their space information updated. To make sure their space data is accurate, the university sends a formal survey to all departments every year. They also do this throughout the year.
Texas has some of the strictest reporting rules in the country. FMS:Workplace has become an essential tool for the university. UNT can now generate files instantly and transmit them to the state for required annual reporting. Prior to implementing FMS:Workplace, this process took months and consisted of long hours and numerous submissions.
As a Carnegie tier-one research university, UNT actively monitors the usage of research spaces. They use the FMS: Workplace Higher Education Survey module for this purpose. The space planning team tracks research activity, the principal investigators, and grants associated with each research space.
UNT keeps adding items to their survey based on requests from departments or administration. As the need to track these items grows, the Higher Education Survey module becomes more important. It provides easy access to accurate information.
Now is a good time to examine indirect cost recovery rates for several important reasons:
Policy Changes and Legal Uncertainty
- Recent proposals, like the NIH’s plan to cap indirect costs at 15%, are causing changes. There are also ongoing legal issues. Because of this, institutions need to get ready for changes in funding.
- Understanding your current indirect cost recovery allows you to model financial impacts and advocate effectively in policy discussions.
Budget Pressures in Higher Education and Research
- Many organizations are facing tighter budgets, inflation-related cost increases, and growing competition for grant dollars.
- Examining and optimizing indirect cost recovery can uncover new efficiencies and revenue opportunities to help stabilize funding.
Transparency and Accountability
- Funders and stakeholders are increasingly demanding clarity on how public and private research dollars are spent.
- A clear understanding of indirect costs—and how they support research infrastructure—helps justify overhead rates and builds trust.
Strategic Planning
- Indirect cost recovery supports vital operations like facilities, IT, compliance, and administration.
- Regular reviews help align your cost recovery strategies with institutional priorities, such as expanding research capacity or investing in new technologies.
Preparation for Negotiation
- If you need to renew or renegotiate your indirect cost rate agreement, you should review it carefully. This will help you collect accurate data. It will also help you make a strong case.
- Institutions can better advocate for fair rates that reflect actual support costs.
Indirect Cost Recovery – Frequently Asked Questions (FAQ)
1. What are indirect costs?
Indirect costs, also called Facilities & Administrative (F&A) costs, are expenses that help support research and other sponsored activities. However, you cannot link these costs directly to a specific project. Examples include building maintenance, utilities, administrative support, and compliance services.
2. What is indirect cost recovery?
Institutions recover indirect costs through indirect cost recovery. These costs happen when they conduct research or projects funded by outside sources. This recovery usually relies on a negotiated rate that applies to eligible direct costs.
3. How are indirect cost rates determined?
Institutions work with a federal agency to set indirect cost rates. This agency can be the U.S. Department of Health and Human Services or the Office of Naval Research. The institution typically bases the rate on its actual indirect expenses, and someone reviews and approves it.
4. What are the types of indirect cost rates?
Common types include:
- On-Campus Rate: Used when work is conducted at facilities owned or leased by the institution.
- Off-Campus Rate: This rate is used when most of the project takes place away from the institution’s facilities.
- Other Sponsored Activities Rate: Used for programs that are not primarily research, such as community service or training.
5. Are all grants subject to indirect cost recovery?
Not always. Some funders, particularly private foundations and certain government programs, place limits on or exclude indirect costs. Institutions must follow the sponsor’s guidelines and may need to request exceptions or waivers.
6. What is the current status of federal indirect cost recovery rates?
As of March 2025, the NIH proposed capping indirect cost rates at 15% for all new grants. However, legal challenges have delayed implementation. Institutions should continue to follow existing rate agreements unless new guidance comes out.
How do organizations use recovered indirect cost revenue?
Organizations often reinvest recovered funds in research infrastructure, administrative support, compliance, facilities, and strategic initiatives. Different institutions use various allocation methods, which they may outline in their internal policies.
8. Can indirect costs be waived?
Yes, but typically only with prior approval. Some institutions may lower or remove indirect costs for certain projects. However, these decisions should be made carefully to ensure sustainability.
9. How can we improve our indirect cost recovery?
- Ensure accurate documentation and consistent application of rates.
- Educate faculty and staff on sponsor policies and institutional guidelines.
- Regularly review and update rate agreements.
- Advocate for full-cost recovery where possible.
10. Where can I find our institution’s indirect cost rate agreement?
Your institution’s Sponsored Programs Office, Research Administration Office, or Finance Office typically maintains this document. It may also be available on your institution’s website or through your federal cognizant agency.
