Handbook for Principal Investigators
FORMAT OF THE PROPOSED BUDGET
Sponsor guidelines determine the proposal budget format, which is generally
(but not always) consistent with the University’s expenditure categories.
See "Sample One-Year Budget"
and "Sample Multi-Year Budget."
Budget Cost Categories
Direct vs. Indirect Costs
It is important to distinguish between direct and indirect costs when preparing
your proposal budget. Direct costs are those costs that can be identified
specifically with a particular sponsored project, relatively easily and
with a high degree of accuracy. Indirect costs are those costs that are
incurred for common or joint objectives and therefore cannot be identified
readily and specifically with a particular sponsored project. Examples of
direct costs are: salaries and wages, fringe benefits, materials and supplies,
travel, consulting services, equipment, subject pay, student support on
training grants, and subawards.
Salaries and Wages
The Salaries and Wages section of the proposal budget includes the cost
of persons paid on The University of Arizona payroll for the portion of
effort directly related to the project. Key personnel are always identified
by name, title, and effort to be expended (expressed as a percentage/number of person months/number of hours) on the project.
Personnel in other positions may be identified by name, to-be-announced
(TBA), or title of job classification.
The principal investigator must commit a reasonable amount of effort consistent with the scope of work and this effort must be included in the proposal even when no salaries are requested. The University of Arizona requires a minimum of 1% effort to be devoted to the proposal. The principal investigator may not need to commit effort on awards that do not require the principal investigator's participation, e.g., equipment and fellowship awards. During proposal review, justification may be requested for these instances of zero effort.
The salaries of administrative and clerical staff are normally not allowed
as direct charges to federally-sponsored projects, except in unusual circumstances
where the project is "major," and the individuals involved can
be specifically identified with the project or activity. The circumstances
for requiring direct charging of these services should be clearly described
in the budget justification.
Labor costs are based on the employees’ actual salary rates, or
an amount within the salary range of the job classification for persons
to be recruited. An individual may not be charged to a sponsored project
at a salary rate higher than the rate charged to other funds. Some sponsors,
such as NIH, impose salary caps on the annual salary rate.
Supplemental compensation (summer salary) and academic year salary are
shown as separate line items. The academic year appointment is nine months,
regardless of the time period over which the faculty member chooses to
be paid. Supplemental compensation is calculated at one-ninth of the academic
year salary for each month of supplemental compensation. By University
policy, three months is the maximum number of months that an academic
faculty member may be paid for supplemental compensation.
Employee-Related Expenses (ERE)
Also referred to as "fringe benefits," employee-related expenses
cover the employer’s contribution for FICA, retirement, health insurance,
and unemployment insurance. ERE also covers tuition remission for graduate research and teaching assistants. Employee-related expenses are proposed at
the current federally-approved ERE rate for the employee’s job classification.
Charges to the project account will be calculated at the ERE rate in effect
at the time that the employee is paid. Refer to the Quick
Reference for current ERE rates.
Supplies and Materials
Consumables used in the performance of the project are included in this
category. Examples include laboratory supplies, laboratory notebooks,
raw materials for fabrication of equipment, and data processing supplies.
See the section on Administrative Costs for federal restrictions on cost
items in this category.
Consultants (Independent Contractors)
The Internal Revenue Service establishes the criteria for distinguishing
independent contractors from employees and imposes severe penalties for
paying individuals as independent contractors who should have been paid
as employees. There is a strong presumption that all individuals providing
services should be classified as employees rather than independent contractors.
Before engaging the "consultant," be certain that the individual
meets the Internal Revenue Service criteria for an independent contractor.
Financial Policies and Procedures Manual,
Section 9.12. Additional information is available from FSO's Tax Services web site.
See specific sponsor guidelines for restrictions on maximum daily rates.
Keep in mind that the University procurement process requires competitive
bidding before issuing a purchase order to the independent contractor.
The director of procurement is authorized to waive the bidding requirement,
based on an adequate justification for sole source procurement. Naming
a consultant in the proposal budget is not necessarily sufficient support
for sole source justification. It is good planning for the investigator
to start the bidding process at the proposal stage, before the project
The Federal government does not permit direct charging of costs normally
treated as administrative costs to federal grants and contracts, other
than in exceptional circumstances where the costs are explicitly budgeted
for and justified in the budget justification. Examples of costs normally
treated as administrative costs include: salaries of administrative and
clerical staff, office supplies, postage, local telephone costs, and membership
dues. If an investigator wishes to charge administrative costs to the
project, the proposal budget must include a detailed line item for each
administrative cost. "Other research costs" is not explicit
enough. The budget justification must provide a description of the purpose
for the administrative cost and an explanation of the benefit to the project.
The strength of the justification for the costs will be a determining
factor for a sponsoring agency considering a request to include administrative
costs in the award budget. Reference: OMB Circular A-21,
Section F.6.b and UA Policy "Direct
and Indirect Costs of Sponsored Agreements"
Subcontracts (Subawards, Subgrants, Subrecipients)
When a portion of the scope of work is split off from the principal investigator's project, to be conducted off-site under the direction of a third party, usually another university or company, the transaction is budgeted under the Subcontract budget category. The third party is considered a “subcontractor” rather than a “vendor.” It is important not to confuse a subcontractor with a vendor, which would be budgeted under the capital or operations category.
Characteristics of a subcontract include:
- The subcontract has its performance measured against the objectives of its portion of the scope of work of the UA's program;
- The subcontractor has responsibility for programmatic decision making, i.e., the subcontractor provides an individual analogous to the UA principal investigator, who is responsible for the subcontractor's portion of the program's technical scope of work. This individual is generally referred to as a “collaborator.”
- The subcontractor has responsibility for adherence to applicable sponsor program compliance requirements; and
- The subcontractor uses the funds to carry out its own portion of the scope of work, as contrasted with providing goods or services to the University. For example, organizations providing technical services are considered vendors.
Characteristics of a vendor, indicative of payment for goods and services include:
- Vendor provides the goods and services within normal business operations;
- Vendor provides similar goods or services to many different purchasers;
- Vendor operates in a competitive environment;
- Vendor provides goods or services that are ancillary to the operation of the program; and
- Vendor is not subject to program compliance requirements.
- Vendor is not subject to reporting requirements of the prime, e.g., inventory reporting, patent reporting;
- Vendor transactions may be supported by a contract with flow-down provisions. The presence of a contract by itself does not qualify the transaction as a cost under the subcontract budget category.
There may be unusual circumstances or exceptions to the listed characteristics. In making the determination of whether a subcontract or vendor relationship exists, the substance of the relationship is more important than the form of the agreement. It is not expected that all of the characteristics will be present and judgment should be used in determining whether an entity is a subcontractor or vendor.
The total cost of the subcontract is entered as a single line item on the budget. Do not merge the subcontract cost categories (personnel, operations, capital) with the UA budget. It is desirable to attach the subcontractor's formal proposal to the University's proposal. The subcontractor's proposal should include a statement of work, a detailed budget, the period of performance, and identification of key personnel. If a formal proposal from the subcontractor is not available, at a minimum, details of the subcontract budget should be itemized on a separate sheet and attached to the main budget. The costs should be broken out in the same format as the prime budget. The subcontractor's budget will use the ERE and indirect cost rates of the subcontractor, not the UA rates.
The investigator has usually identified the name of the subcontractor at the proposal stage. If so, the subcontractor's name should appear in the budget, and the investigator should include an explanation in the budget justification section for selecting the named subcontractor. Most sponsors require their approval before the University may subcontract a portion of the project to another entity. Generally, an award based on a proposal budget with a line item for the named subcontractor constitutes documentation of sponsor approval. An adequate explanation in the budget justification will satisfy the University requirement for a sole-source justification. Otherwise, the subcontract will go out for bid.
For proposals that include one or more subcontracts, the University indirect cost amount is calculated on the first $25,000 of each subcontract. If the first year subcontract amount is more than $25,000, the indirect cost amount is calculated on only the first $25,000, and no indirect costs are budgeted in subsequent years. If the first year is less than $25,000, indirect costs are calculated on the full amount. In the next budget year, indirect costs are calculated on only that portion up to a cumulative amount of $25,000. In the following years, no indirect costs are budgeted on the subcontract.
See the Postaward Section, “Other Operating Costs” for more information
Costs incurred by University personnel on trips necessary for the performance of the project are included
in the Travel category. Examples of travel costs that would normally be
included as part of the project budget are: trips to the contractor’s
facility, trips to appropriate scientific meetings, and trips to collect
field data. The travel budget is presented on a cost basis, typically using University
per diem rates and airfare quotes. Domestic and foreign travel are presented
separately. Travel expenses for non-University personnel should not be budgeted as travel and should instead be budgeted as consultant costs/subaward costs/other direct costs as appropriate.
Stipends, tuition and registration fees, student health insurance, and
student travel are included in the Student Support budget category. Generally,
student support is associated with training grants and is not included
in the budget for a research project, except where it is covered by properly budgeted salary and ERE for graduate research and/or teaching assistants. Students receiving student support
stipends are not considered employees of the University, and, as such,
are not providing services for compensation.
Some universities include the tuition as part of the compensation package
for graduate students working as research assistants or associates on
research projects. This practice of charging graduate students’
tuition to research projects is called "tuition remission,"
and requires the approval of the Federal government. The UA's federally negotiated ERE rate for graduate students covers tuition remission.
Items costing $5,000 or more with a useful life of over one year are included
in the equipment category. Shipping, sales tax, and installation costs
are included as part of the equipment cost. Equipment items should be
listed in the budget by name and estimated cost (based on price quotes),
and the budget justification should include an explanation of the use
of the equipment on the project.
Fabrication of Equipment
The activity of a project may consist partially or entirely of fabrication
of equipment. The preferable budget design for projects in which fabrication
is only a portion of the project is to breakout the costs associated with
fabrication of equipment in a separate section or supplementary budget.
When an award is made, the investigator may choose to accumulate the fabrication
costs in a separate account. This will make it easier to determine the
value of the fabricated item. The supplementary proposal budget will serve
as the basis for the budget in the separate account for fabricated costs.
Even though the end product is classified as capital, the costs comprising
the fabricated equipment should be charged to the appropriate expenditure
category for the cost. Labor, shop time, services from independent contractors,
raw materials (lumber, glass, tubing), supplies, and other costs incurred
in the fabrication of equipment are charged to the appropriate cost categories
of personnel and operations. Indirect costs are charged on personnel and
operations at the project indirect cost rate. Parts meeting the capital
definition of $5,000 or more, whether purchased from an off-campus vendor
or from an on-campus shop, are charged to the equipment category and do
not bear overhead.
Indirect costs are applied to the "modified total direct cost"
base, calculated at the appropriate negotiated indirect cost rate for
your project. Modified total direct costs consist 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.
The off-campus rate is applicable to those projects conducted
in facilities not owned or leased by the university. However, if the project is conducted in leased space
and lease costs are directly charged to the project, then the off-campus rate must be used. A project is considered off campus if more than 50% of its salaries and wages are incurred at an off-campus facility. If a project is determined to be off campus, it shall
be considered wholly off campus. Separate on and off campus rates will
not be used for a single project.
The indirect cost rate for qualifying clinical trials is preapproved
at 25% TDC. See chapter "Types
of Agreements" for eligibility criteria.
All other proposed projects budgeted at less than the full indirect cost
rate require the approval of the department head, dean, and Vice President
for Research. Requests for approval of a reduced indirect cost rate include
a signed Proposal Routing Sheet, budget abstract, and a justification
for the reduced rate, explaining the benefit to the University for accepting
the project at the reduced rate. The investigator should obtain approval
for the reduced indirect cost rate from the Office of the Vice President
for Research before routing the proposal to Sponsored Projects.
Modular Budget Format (NIH)
The application forms package associated with most NIH funding opportunities includes two optional budget components—(1) Detailed R&R Budget Component; and, (2) PHS398 Modular Budget Component. NIH applications will include either the Detailed R&R Budget Component or the PHS 398 Modular Budget Component, but not both. To determine which budget component to use for NIH applications, consult the modular budget guidelines below. Additional guidance may also be provided in the specific funding opportunity announcement.
Modular budget format is applicable to certain research grant applications requesting $250,000 or less per year for direct costs. Modular budgets are simplified; therefore, detailed categorical information is not to be submitted with the application. Note consortium/contractual F&A costs are not factored into this DC limit. They may be requested in addition to the $250,000 limit.
Please keep the following in mind:
- Applicable only to R01, R03, R15, and R21 applications.
- Use for research grant applications requesting $250,000 or less in direct costs, exclusive of any consortium F&A costs.
- Sponsored Projects DOES NOT need detailed budgets unless we need further information on what you are excluding from the indirect cost base (i.e. equipment/tuition remission/subcontracts). Your department and/or college may require detailed budgets regardless of the modular format, so please check with your department and/or college to see what they require for routing.
- Please read your program announcement AND the NIH application guide before beginning an application.
Modular Budget preparation instructions