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."

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. However, some sponsors impose limitations at less than three months. For example, the National Science Foundation will not fund more than two months of summer salary.

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. 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. Call Sponsored Projects (626-6000) or 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. Reference: FRS Departmental Manual, Section 9.12. You may also contact the Tax Compliance Office (621-7719) for additional information.

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 is awarded.

Administrative Costs
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:

1. The subcontract has its performance measured against the objectives of its portion of the scope of work of the UA's program;
2. 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.”
3. The subcontractor has responsibility for adherence to applicable sponsor program compliance requirements; and
4. 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:

1. Vendor provides the goods and services within normal business operations;
2. Vendor provides similar goods or services to many different purchasers;
3. Vendor operates in a competitive environment;
4. Vendor provides goods or services that are ancillary to the operation of the program; and
5. Vendor is not subject to program compliance requirements.
6. Vendor is not subject to reporting requirements of the prime, e.g., inventory reporting, patent reporting;
7. 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.

Travel
Costs of 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, using University per diem rates and airfare quotes. Domestic and foreign travel are presented separately.

Student Support
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. 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 University of Arizona does not have approval from the Federal government to charge tuition remission to federally-sponsored research projects. Therefore, Sponsored Projects will not approve proposal budgets for federal research projects if the budget includes tuition for research assistants and associates, either sponsor-funded or UA cost sharing.

Equipment
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
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.

Many non-profit sponsors do not reimburse indirect costs at the full indirect cost rate. Sponsored Projects maintains a list of non-profit sponsors whose indirect cost rates are "stipulated" at less than the UA negotiated indirect cost rates. Indirect cost waivers are not required for sponsors on this preapproved list.

The indirect cost rate for qualifying clinical trials is preapproved at 20% 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

Mailing Address:
PO Box 3308
Tucson, AZ 85722-3308

Phone: (520) 626-6000
Proposal Fax: (520) 626-4130
Post Award Fax: (520) 626-4137
Email: sponsor@u.arizona.edu

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All contents copyright © 2003. Arizona Board of Regents.