Federal Requirements: The Office of Management

and Budget and Federal Agencies

The Office of Research and Sponsored Programs (ORSP) assists faculty and staff with applications and proposals for external grants and contracts. ORSP also negotiates grant awards and contracts up to the point of execution. Upon formal grant award notification or contract execution, grants and contracts are managed by Cal State L.A., University Auxiliary Services, Inc. (UAS). Throughout this handbook, the acronyms "ORSP" and "UAS" are used to refer to the Office of Research and Sponsored Programs and Cal State L.A., University Auxiliary Services, Inc., respectively.

This section of the PI handbook is intended to help ensure University compliance with (1) statutes and (2) government-wide directives, and to facilitate PI grant and contract preparation. The federal government has four classes of regulations that govern grant and contract funds. In order of authority, they are:

1. Statutes;

2. Government-wide directives (e.g. Office of Management and Budget circulars and presidential orders);

3. Regulations of government agencies;

4. Terms and conditions of a specific grant or contract. (Regulations of particular government agencies and the terms and conditions of their awards are usually more restrictive and specific; hence, they must be addressed on a case by case basis.)

PART I: SPONSORED PROGRAM BUDGET CATEGORIES and PREPARATION

Different agencies may require different categories or different category organization. Budgets must be developed according to categories specified by the relevant agency. If no specific budget format is given, ORSP has a standard budget template that can be used. (Sample budget. Sample budget narrative.)

A. Key Personnel

"Key Personnel" is most often the first category to be itemized. It should include the Principal Investigator (PI) and other individuals whose participation in the project is critical. Examples are: Co-PI, Project Coordinator, and Project Evaluator. Once an award has been made, key Personnel usually may not be changed without sponsor permission. Identification of an individual by name in a proposal or award creates absolutely no commitment of employment on behalf of Cal State L.A. or of UAS

    1.  Calculating Cal State L.A., CSU, and UAS personnel salary only

Contact your school's fiscal officer to determine appropriate rank and salary. Faculty workload and salary are calculated in terms of units, with 45 units being a typical academic workload for a faculty member with a nine (9) month appointment. A faculty member's unit rate is derived by dividing his/her annual salary by 45.

For administrators and faculty with a 12 month workload, the unit rate is derived by dividing the annual salary by 60. Salaries for faculty "To Be Named" are estimated according to the unit rate of the highest ranking faulty member being considered. In this way, a shortage of funds resulting from a high ranking faculty member hired at a Lecturer or Assistant Professor's salary will be avoided. Salaries for project staff other than faculty and administration are calculated according to the market rate for their positions and their corresponding percentage of effort on a project. A maximum of a 5% cost of living increase for all salaries (faculty, administration and staff) may be used for multiple year projects. Percent of time should be noted on all budgets. (See below: Calculating faculty percentage of effort.)

Salary information is subject to audit. Since the federal government requires universities to certify proposal budgets, appropriate Cal State L.A. chairperson and dean signatures on the Approval Form For Externally Funded Contracts & Grants constitutes University certification of data accuracy.

    2.  Calculating salary according to faculty replacement rate

In certain instances, when the total proposal budget amount has been limited by the funding agency so that the project could not be done with salary calculated as above, a faculty replacement unit rate can be used. A replacement unit rate is the rate the department is expected to pay for a replacement lecturer/professor. The current replacement unit rate is $932 per unit; however, a higher unit rate may be used, if the budget allows. Use of a replacement rate always involves University costsharing; therefore, it must be approved by the relevant department chair and school dean.

    3.  Calculating overload

According to the current agreement between the California State University (CSU) and the California Faculty Association (CFA), faculty may work and be reimbursed for 25% time and effort over and above their normal work duties. (Also, the CSU has approval from the Department of Health and Human Services for the CSU Personnel Effort Certification which accommodates the overload policy--BA  81-40 (dated 11/20/81 from Edmond Macias to Presidents.)) Such voluntary additional workload and payment are usually referred to by campuses as "overload," and is noted on the Approval Form for Externally Funded Contracts and Grants only. Employees classified in the Management Personnel Plan must have the University President's approval prior to requesting overload.  Overload is inclusive of external grant and contract awards made to any of the CSU campuses or their auxiliaries and of work performed through a CSU Department of Continuing Education. See below for a detail of the maximum possible reimbursable workload for typical CSU faculty member.

Academic Year	Fall Quarter	Winter Quarter	Spring Quarter	Off Quarter*
Maximum Academic Units	15 Units (100%)	15 Units (100%)	15 Units (100%)	15 Units (100%) Summer Salary
Maximum Overload Units	3.75 Units (25%)	3.75 Units (25%)	3.75 Units (25%)	3.75 Units (25%)
Maximum Unit Load	18.75 Units (125% time)	18.75 Units (125% time)	18.75 Units (125% time)	18.75 Units (125% time)

* Certain agencies restrict summer salary. For example, the National Science Foundation will pay summer salary at no more than two-ninths of a researcher's regular academic year salary.

    4.  Calculating faculty percent of effort

To work on a contract or grant, faculty are typically released from one or more four (4) unit courses during the academic year. In general, a full faculty load consists of 15 quarter units (not semester units), 12 of which are designated for instruction, and 3 for advisement, committee and administrative work. Since faculty typically work three out of four quarters per year, the percent of effort on a contract or grant is calculated by the number of academic year and overload units requested divided by the total amount of units (including overload units) a faculty member expects to work during the academic year.

B. Fringe Benefits

Faculty and administration fringe benefits are calculated (based on averages) at 31% for release time and 14% for off-quarter and overload. Fringe Benefits for release time are paid directly to a faculty member's school, as reimbursement for the faculty member's regular fringe benefit package. Because faculty working off-quarter or overload are technically part time UAS employees, UAS pays fringe benefits for them at a part time rate of 14%, as detailed below. Rates are consistent with the Cal State L.A., UAS current federally negotiated university rate agreement.
 

Fringe benefits for project staff other than faculty and administration are based on the percentage of effort on a project. A 40% fringe benefit rate is used for full time staff; a 14% rate for staff working under 1000 hours per year. Undergraduate and graduate students may be employed full-time, provided they use the appropriate fringe benefit rate. (Note: Presently, students may qualify for a lower fringe benefit rate if they are currently enrolled in six units or more and have not been enrolled at a community college, college or university for a total of more than five years. Students may work one quarter while not enrolled in classes and use the same low fringe benefit rate, provided they were enrolled in classes the previous quarter. For budgeting purposes, fringe benefits for such students should be budgeted at 14%. Lower rates will be rebudgeted upon receipt of award.)

Students receiving tuition remission or stipends from sponsored project funds are not charged for and may not receive fringe benefits. Consultants are not charged for and may not receive fringe benefits.

C.  Student Stipends

Costs of scholarships, fellowships, and other programs of student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency. However, tuition remission and other forms of compensation paid as, or in lieu of, wages to students performing necessary work are allowable provided that (1) there is a bona fide employer-employee relationship between the student and the institution for the work performed, (2) the tuition or other payments are reasonable compensation for the work performed and are conditioned explicitly upon the performance of necessary work, and (3) it is the institution's practice to similarly compensate students in nonsponsored as well as sponsored activities. (These conditions are mandated by the federal government in OMB Circular A-21.) Students receiving stipends, scholarships, fellowships or other forms of student aid are not eligible for fringe benefits. For NIH proposals, graduate student compensation levels (salary, fringe benefits, plus tuition remission) cannot exceed $26,000 (NIH GUIDE, NOT-98-168: GRADUATE STUDENT COMPENSATION).

D.  Consultants (Note: Cal State L.A. and UAS Employees May Not Be Consultants)

Occasionally there will be need for short-term professional services that cannot be performed by existing employees. The use of an independent contractor may satisfy this need in some qualified situations. Although the classification of independent contractor is not clearly defined by federal or state taxing agencies (i.e. the Internal Revenue Service [IRS] and the Employment Development Department [EDD] respectively) we have set forth the following guidelines to aid in the appropriate use of independent contractors.

Independent Contractor - An independent contractor is an individual or organization, not affiliated with the University or UAS, providing primarily professional or technical advice or services under a written agreement or engagement letter.

Employee - An employment relationship exists when the employer (UAS) has the right (whether or not it exercises that right) to supervise and control the manner of performance as well as the results of the service by the individual (employee). When such a relationship exists, the formal employment process must be followed.

Independent contractors are in business for themselves and receive a fixed amount for services rendered which is shown as a lump sum or hourly wage in the proposal budget and is based on a market rate. UAS is not required to withhold federal or state taxes, unemployment, social security, worker's compensation, or disability insurance benefits from their payments. It is very important that individuals who should be hired as employees not be set-up as independent contractors due to the potentially severe financial consequences facing the employer (UAS). Both the IRS and the EDD have the legal authority to audit an employer's records to check for such misclassifications. When individuals are found to be misclassified as independent contractors, either agency will not only collect the applicable taxes that should have been withheld, but may also impose penalties on the employer (UAS).

In addition to the definitions above, the following tenets of common law should be used to determine if it is possible to use a consultant to perform project duties. A consulting position should meet each of the following requirements.

Factor 1 No Instructions - Independent Contractors are not required to follow, nor are they furnished with, instructions to accomplish the job.

Factor 2 No Training - Independent Contractors do not receive training by UAS. They use their own methods to accomplish the work.

Factor 3 Services don't have to be rendered personally - Independent Contractors are hired to provide a result and usually have the right to hire others to do the actual work.

Factor 4 Work not essential to department or program - The success of the department or program should not depend on the services of independent contractors. An example in violation of this factor would be hiring a Project Director as an independent contractor.

Factor 5 Own work hours - Independent contractors set their own work hours.

Factor 6 Not a continuing relationship - Independent contractors normally do not have a continuing relationship with UAS.

Factor 7 Control their own assistants - Independent contractors should not hire, supervise, or pay assistants at the direction of the department or program administrator. If assistants are hired, it should be at the independent contractor's sole discretion.

Factor 8 Time to pursue other work - Independent contractors should have enough time available to pursue other gainful work.

Factor 9 Job Location - Independent contractors control where they work. If they work on the Cal State L.A. campus or in a UAS owned facility, it should not be under the direction of a Cal State L.A. or UAS representative.

Factor 10 Order of work set - Independent contractors determine the order and sequence in which they will perform their work.

Factor 11 No interim reports - Independent contractors are hired for a final result and, therefore, should not be asked for progress or interim reports.

Factor 12 Payment Timing - Independent contractors are paid by the job, not by time. Payment by the job can include periodic payments based on a percentage of job completed. Payment can be based on the number of hours needed to do the job times a fixed hourly rate. However, this should be determined before the job commences.

Factor 13 Working for multiple firms - Independent contractors often work for more than one firm at a time.

Factor 14 Business expenses - Independent contractors are generally responsible for their incidental expenses.

Factor 15 Own tools - Independent contractors normally furnish their own tools.

Factor 16 Significant investment - Independent contractors should be able to perform their services without Cal State L.A. or UAS facilities (equipment, office furniture, machinery, etc). The independent contractor's investment in his trade must be real, essential, and adequate.

Factor 17 Services available to the general public - Independent contractors make their services available to the general public by one or more of the following:

• Having an office and assistants;
• Having business signs;
• Having a business license;
• Listing their services in a business directory and advertising their services.

Factor 18 Possible profit or loss - Independent contractors should be able to make a profit or loss. Employees can't suffer a loss. Five circumstances show that a profit or loss is possible:

• If the independent contractor hires, directs, and pays assistants;
• If the independent contractor has his/her own office, equipment, materials, or facilities;
• If the independent contractor has continuing and recurring liabilities;
• If the independent contractor has agreed to perform specific jobs for prices agreed upon in advance;
• If the independent contractor's services affect his/her own business reputation.

Factor 19 Limited right to discharge - Independent contractors can't be fired as long as they produce a result which meets the contract specifications.

Factor 20 No compensation for non-completion - Independent contractors are responsible for the satisfactory completion of a job. If the job is not completed, they may be legally obligated to compensate UAS for failure to complete.
 

E.  Travel

Travel expenses should be estimated per trip, with itemization for airfare, perdiem, car rental, mileage and/or other expenses as applicable. For proposals to federal agencies, airfare should be estimated by a U.S. carrier for "coach" class tickets. Lodging and per diem rates to all destinations must be equal to or under maximum rates specified by the U.S. General Services Administration (GSA). For proposals submitted to PHS agencies, travel of consultants or trainees is not budgeted under this category unless specifically instructed to do so by the sponsor. Consultant travel is budgeted in the consultant category. Field work travel and meeting travel should be separately subtotaled.

The travel mileage reimbursement rate is limited to 36 cents per mile. To obtain assistance in estimating mileage, visit Map Quest.

F.  Equipment & Supplies

All equipment under $5,000 should be itemized in the "supplies" category. This is consistent with federal regulations found in OMB Circular A-21, J.16, a(1), as stated below.

"Equipment" means an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost which equals or exceeds the lesser of the capitalization level established by the organization for financial statement purposes, or $5,000.

Equipment requests of $5,000 or more should be accompanied by the name of the company or agency that produced the equipment estimate and a copy of the relevant sections of a pricing manual or web page pricing list verifying the estimate. If a verbal estimate was made, the company name and date of the estimate should be referenced in the budget detail and narrative. Supplies should be itemized.

Computer equipment, networking, configuration and server space estimates should be equal to or over Cal State L.A. Information Technology Services' (ITS) estimates. An ITS pricing guide can be found on the ITS webpage. All computer related estimates must be approved by a budget analyst in the Office of Research and Sponsored Programs.

G.  Subcontracts

When two or more institutions collaborate on a project, funding agencies generally prefer to work with just one of them and have this institution -- the "lead" institution -- subcontract with partnering institutions. In such cases, the "lead" institution submits its budget, inclusive of subcontract amounts, and attaches authorized subcontract budgets to the proposal. Prior to the submission of a proposal, partnering institutions must submit a cover letter signed by an authorized fiscal authority, audited financial statements, a budget and statement of work from the institution. (Sample Subcontract.)

H.  Procurements

In accordance with OMB Circular A-110, Subpart C, 45-46, some form of cost or price analysis should be made and documented with every procurement estimate. Price analysis may be accomplished in various ways, including the comparison of price quotations submitted, market prices and similar indicia, together with discounts. Cost analysis is the review and evaluation of each element of cost to determine reasonableness, allocability and allowability.

Procurement records and files for estimates in excess of $25,000 shall include the following at a minimum: (a) basis for contractor selection, (b) justification for lack of competition when competitive bids or offers are not obtained, and (c) basis for award cost or price.

I.  Indirect Costs (Facilities and Administrative Costs)

Indirect costs, also known as facilities and administrative costs, are the recovery of actual costs incurred by the University and UAS; they are not a profit. Indirect costs are costs incurred for common or joint objectives which cannot be readily identified to a specific grant or contract. This costs are "real" costs and include expenses to operate and maintain facilities, equipment and grounds, depreciation and/or use allowances, general and departmental administration, and sponsored projects administration. Indirect costs are reimbursed on the basis of a maximum of the established indirect cost rate(s) included as part of the total cost of the research project.

There is no entitlement to indirect costs recovered. Practices within the CSU and across the country vary widely. Federal regulations govern the reported costs which form the basis of establishing the negotiated rate. Federal regulations do not govern the use of indirect costs recovered.

    1.  Cal State L.A., University Auxiliary Services' indirect cost (F&A) rate

Cal State L.A.'s federally negotiated indirect rate is 41.2%. This amount is applied to total project costs minus equipment, capital expenditures, tuition remission, rental costs of off-site facilities, scholarships, fellowships, charges for patient care as well as the portion of each subgrant and subcontract in excess of $25,000. Grant or contract budgets that consist entirely of equipment or student stipends are, by definition, not allowed to recover indirect costs. If a request for proposal specifies that applicants may recover only a certain percentage of indirect costs, this percentage will be used in the proposal. In such cases, the University will cost-share the amount of unrecovered indirect costs, if the University is allowed to do so. (See below: Cost Sharing Indirect Costs.)

    2.  Indirect costs for subcontracts

Cal State LA, UAS recovers indirect costs on the first $25,000 of each subcontract. Our current indirect rate is 41.2%; hence, for a subcontract totaling over $25,000, Cal State L.A., UAS recovers $10,300. If a project has multiple subcontracts, then each subcontract in the project is subject to this fee. In a multiple-year project, Cal State LA, UAS generally recovers this fee every year, for the entire period of the project. For example, a three-year project with subcontracts for $100,000 per year ($300,000 total) would be subject to an indirect recovery fee of 41.2% of $25,000 per year, or $10,300 per year, for three years ($30,900 total). This is consistent with OMB Circular A-21, G.2, as stated below.

F&A costs shall be distributed to applicable sponsored agreements and other benefiting activities within each major function (see Section B.1) on the basis of modified total direct costs, consisting of all salaries and wages, fringe benefits, materials and supplies, services, travel, and subgrants and subcontracts up to the first $25,000 of each subgrant or subcontract (regardless of the period covered by the subgrant or subcontract). Equipment, capital expenditures, charges for patient care and tuition remission, rental costs, scholarships, and fellowships as well as the portion of each subgrant and subcontract in excess of $25,000 shall be excluded from modified total direct costs.

Each year of a multi-year award, as funding agencies send yearly award documents, corresponding subcontracts are issued and indirect costs are recovered. Hence, in a multiple-year project with subcontracts, Cal State LA, UAS generally recovers 41.2% of the first $25,000 of each subcontract, for each year of the project.

    3.  Indirect costs for off-campus projects

Cal State L.A. UAS' federally negotiated indirect rate for off-campus projects is 26%. A project qualifies for this rate if over 50% of the project is conducted off-campus. If a project is funded using this rate, auditors may ask for documentation or verification that 50% or more of the project was conducted off-campus and it is the Principal Investigator's responsibility to provide such verification or documentation.

    4.  Grants and contracts that do not pay indirect costs

If a request for proposal or application specifies that the funding agency will not pay indirect costs, then an internal form, the "Zero Indirect Cost Form," must be completed by the PI's dean or his/her school's fiscal officer. The Zero Indirect Cost Form documents that either a $15 per check fee or 8% of the total grant amount will be paid for account set-up and maintenance. This form is not optional or negotiable. For grants and contracts that do not pay indirect costs, the University will cost-share the amount of unrecovered indirect costs if the University is allowed to do so. (See below: Cost Sharing Indirect Costs.)

    5.  Cost sharing indirect costs

If a funding agency will not pay indirect costs or if a funding agency has limited the percentage of indirect costs it will pay, the University may cost-share the amount of unrecovered indirect costs. Cost-sharing indirect costs will only be considered if cost-sharing is required by the funding agency and, for federal grants and contracts, if the funding agency allow such cost-sharing. This is consistent with OMB Circular A-110, Subpart C, 23(b), as stated below.