Ch. 6 - Proposal Budget Development
6.1 Principles of Sponsored Project Budgeting
6.2 Preparing a Proposal Budget
6.2.1 Preparing an NIH Modular Budget
6.3 Direct and Indirect Costs
6.3.1 Direct Costs
126.96.36.199 Personnel Costs - Salaries and Wages
188.8.131.52 Personnel Costs - Staff Benefits
184.108.40.206 Graduate Students
220.127.116.11 Supplies and Materials
18.104.22.168 Equipment Purchases
22.214.171.124 Equipment Fabrication
126.96.36.199 Subawards and Subcontracts
188.8.131.52 Campus Transfers
184.108.40.206 Other Direct Costs
6.3.2 Facilities and Administrative Costs
6.4 Cost Sharing and Matching Contributions
Because Caltech receives the majority of funding for research from the federal government, many internal policies and processes are designed to comply with the following federal requirements:
OMB Circular A-21 (2 CFR, Part 220): Cost Principles for Educational Institutions. This document provides guidance for direct and indirect costs that may be charged to grants, cooperative agreements, and contracts.
OMB Circular A-110 (2 CFR, Part 215): Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations. This document sets administrative standards that federal sponsors may impose upon award recipients through their agency policies.
OMB Circular A-133: Audits of States, Local Governments and Non-Profit Organizations. This document establishes standards for federal audits of award recipients and for self-audits imposed upon recipients spending more than $500,000 annually in federal funds.
Charges to federal awards must comply with the following criteria:
Allowable: The charge is not limited or excluded under federal regulations or the terms of the sponsored agreement.
Allocable: The goods or services involved are chargeable or assignable to projects or cost pools in accordance with relative benefits received or other equitable relationship.
Reasonable: A prudent person would find the type and amount of the charge to be appropriate under the circumstances.
Consistently treated: An expense must be treated consistently under generally accepted accounting principles that are appropriate to the circumstances, i.e., direct costs or indirect costs.
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Caltech's financial and administrative policies, systems and procedures have been established to ensure proper budgeting and stewardship of sponsored project awards.
A carefully prepared budget increases the likelihood that a project will have sufficient funding to support the work that is proposed. A proposal budget should anticipate all costs necessary for the conduct of the scope of work described in the proposal. Estimates can be based upon quotations from vendors, consultants and collaborators; historical and current costs; or standardized projections of expenses. Since proposals have start dates that occur in the future, the budget should allow for cost fluctuations or escalations within that period. Finally, the calculations should be accurate for each budget category and the total budget requested.
Nearly all proposal guidelines call for a written narrative budget justification to accompany the numbers. It is very important that the various items that make up the budget be properly described and justified. This can significantly improve the chances that it will be understood by both scientific and administrative reviewers.
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The PI for the project is responsible for ensuring that:
- personnel, space, and other necessary physical resources are available or have been provided for in the budget;
- commitments for Institute cost sharing or matching funds have been secured; and
- commitments by proposed participating individuals and organizations have been secured.
In the late 1990's, the National Institutes of Health (NIH) instituted Modular Research Grants. The purpose of the Modular Grant Program was to make the proposal process easier by relieving applicants from providing detailed budgets for proposals that request less than $250,000 in direct costs per year. Modular grant funding is requested in $25,000 increments, or modules, and in most cases, the expectation is that the annual increments will be the same for all years of the project.
Budget narratives must describe all personnel by position, role, and level of effort and provide a total cost estimate for Consortium / Contractual arrangements.
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Caltech also follows the NIH approach to Modular Grant Applications by not requiring a detailed budget at the time of proposal submission. When a Modular Grant has been awarded, it is subject to nearly all of the same financial rules and regulations as "regular" NIH grants.
OMB Circular A-21 separates project expenses into Direct Costs and Facilities and Administrative Costs (F&A) or Indirect Costs.
Direct costs are those expenses that can be traced directly to or identified with a specific sponsored project with a high degree of accuracy. See 6.3.1 Direct Costs for detailed information.
Facilities and Administrative costs (F&A) or Indirect costs are those expenses that cannot be easily and conveniently traced to a specific project. F&A expenses are general business expenses that are indirectly related to a variety of projects, goods or services. Examples of F&A expenses include space costs, utilities, and general, sponsored projects and departmental administration costs. Caltech F&A costs are expressed as a percentage of the direct costs, minus certain budget categories. See 6.3.2 Facilities and Administrative Costs for more information.
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Principal Investigators and research staff should be familiar with the definition of direct costs and comply with limitations imposed by sponsor or Institute policies.
Direct costs are those expenses that can be traced directly to or identified with a specific sponsored project with a high degree of accuracy.
Personnel costs consist of salaries and staff benefits projected for the percentage of time that Caltech employees will work on a project. Requested funding should be based upon the current salary of an individual or on published salary scales for vacant or "to be named" positions.
Federal sponsors consider any quantifiable effort in the proposal narrative, budget or budget justification to be a binding commitment (voluntary cost sharing) that must be tracked, certified and reported.
Administrative or clerical staff salaries are normally viewed as indirect (F&A) costs under the federal cost principles (OMB Circular A-21). The Circular allows direct charging of these costs "where a major project or activity explicitly budgets for administrative or clerical services and individuals involved can be specifically identified with the project or activity. ‘Major project' is defined as a project that requires an extensive amount of administrative or clerical support, which is significantly greater than the routine level of such services provided by academic departments."
To compensate non-employees involved in sponsored projects, see 220.127.116.11 Consultants. Collaborators at other institutions may be paid salaries and benefits as part of a subaward budget; see 18.104.22.168 Subawards and Subcontracts.
Some federal programs limit the total amount of salary or the salary rate that can be requested. National Institutes of Health policy limits the amount of salary that can be requested on research grants.
The National Science Foundation limits the amount of a faculty member's salary that can be charged to all of his/her NSF grants to the equivalent of two months or 16.67% of the annual salary. Exceptions to this policy require specific approval from NSF.
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Caltech encourages budgets that project expenses at an appropriate level of effort for faculty and staff, including the Principal Investigator.
Principal Investigators should request salary and staff benefits of at least 1% for each PI and co-PI included in research proposals to federal agencies. If the PI or co PI chooses not to request that any direct salary be charged to the grant, the minimal effort requirement still must be addressed. In this situation, the effort would be paid from Institute funds and is considered to be "voluntary committed cost sharing." PI effort commitments are not required on the following types of proposals:
- Grants for instrumentation acquisition or instrumentation development
- Dissertation support, training grants or other awards for "student augmentation"
- Limited purpose awards, e.g., travel grants, conference support, etc.
Requested faculty salaries should be based upon the current Institutional Base Salary adjusted for anticipated annual salary increases.
An individual serving on a sponsored project may not receive compensation above their institutional base salary, unless there is compelling evidence of additional duties and the President or a designee has approved.
Staff benefits are part of the compensation package provided to an employee in addition to the salary paid for their work. Staff benefits include the cost of unemployment and workers' compensation insurance, medical and dental insurance, long term disability insurance, life insurance, and retirement contributions. Benefit costs are calculated as a percentage of the salary paid to each individual.
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Caltech pays staff benefits for all employees and recovers this expense in sponsored project budgets through the assessment of a staff benefits rate. Separate staff benefit rates in the form of partial tuition remission exist for Graduate Research Assistants (GRA) employed on federal or non-federal sponsored projects.
Staff benefit rates are negotiated annually and are announced annually by the Office of the Provost. They are also posted on the Office of Sponsored Research website.
Graduate students may be employed as Graduate Research Assistants (GRA) to do laboratory work or research on sponsored projects. Research assistantships typically involve 15 to 20 hours per week during the academic year, but can be more during the summer. The partial tuition remission paid in lieu of staff benefits is not subject to indirect costs.
The National Institutes of Health limits compensation of a graduate student receiving support from NIH research grants to the zero-level Kirschstein-NRSA stipend for postdoctoral fellows in effect when NIH issues the grant award. The current levels are posted at
Payments made for educational assistance (e.g., scholarships, fellowships, and student aid costs) may not be paid from research grant funds even when they appear to benefit the research project.
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Graduate students who work as research assistants for a required number of hours will receive salary and partial remission of tuition and fees. A portion of tuition and fees is charged as a GRA Benefit to the grant or contract on which the GRA is employed. The GRA Benefit is exempt from overhead and should be listed in the budget under "other direct costs."
Partial Tuition Remission
Graduate students employed as GRAs do not receive staff benefits. Instead, they receive Partial Tuition Remission. This is calculated as a percentage of the salary earned by the GRA. The partial tuition remission rate is calculated and announced each year around October 1. Institute policy is to provide partial tuition and fees for each Graduate Research Assistant working on a sponsored project who meets a required average workweek.
Sponsored Research, Proposal Information for Caltech
Sponsored Research, Frequently Asked Questions.
Consultants can provide needed expertise to a project for a limited period of time. They function as independent contractors and are not employees of the Institute. Consultants are typically paid an hourly or daily fee, plus reimbursement for travel and other incidental expenses.
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Caltech will issue Standard Consulting Agreements under sponsored projects and will incorporate applicable requirements of the prime award.
Consultant agreements issued for sponsored projects are executed by the Caltech Purchasing Services Department.
Consultation among Caltech faculty colleagues is encouraged and expected. Compensation, if any, should be reflected in proposal budgets as salary, unless approved as additional duties by the Provost.
Supplies and materials are the consumables to be used on the project. These include items such as laboratory supplies, animals, glassware, and chemicals.
Federal agencies normally view office supplies, postage, and local telephone costs as indirect costs and will not fund the items as direct costs unless the project meets the government's definition of a "major project." Investigators who have major projects can request funding for office supplies, postage, and local telephone costs in their proposal budget. Such costs must be fully justified.
An item of equipment is distinguished from supplies by the cost of the item, and the expected life. Federal regulations define equipment as an item with an acquisition cost of $5,000 or more and a useful life of two years or more. However the terms and conditions of specific awards may impose a lower threshold. Capital equipment items are exempt from indirect costs.
Budget estimates for equipment are usually based upon vendor quotes or catalog prices.
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Unless otherwise indicated in the terms of an award, equipment purchased for projects undertaken by Caltech faculty becomes the property of the Institute at the time of purchase.
Caltech equipment must meet all of the following criteria:
- An acquisition cost of $5,000 or more;
- A useful life of two or more years; and
- Exists as a stand-alone item
Note: Property Services should be notified whenever equipment is moved to a new location or disposed of.
Sponsored projects at the cutting edge of research occasionally require the fabrication or construction of scientific equipment or instrumentation from individual parts because such equipment or instruments are not otherwise available. By creating a fabrication account, the investigator can budget the individual components, e.g., supplies and materials, under the heading "equipment fabrication." Since these items will end up being part of an item of equipment, indirect costs will not be charged on their purchase.
If the equipment is being fabricated as a "deliverable" of the project, i.e., the equipment and its title will be vested in the sponsor upon completion, a Fabrication Account may not be appropriate.
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Proposal budget preparers should carefully review the proposed activities on a project and determine the appropriate classification of the expenses. Caltech recognizes that sponsored projects occasionally involve the fabrication of equipment and that the cost of fabrication should be identified within the proposal. Unless otherwise indicated in the anticipated award, equipment fabricated on Caltech projects will become the property of the Institute.
The Equipment Fabrication Policy includes the Caltech definition of "fabrication" and the types of allowable and unallowable expenditures on fabrication accounts.
Subawards or subcontracts are agreements, under which a portion of the programmatic or scientific effort of an award is transferred, along with funding, to another organization, typically another University or research institution. The subaward recipient has a Principal Investigator who is responsible for the subawardee's portion of the project. A subcontract is a purchasing action under a contract, while subaward refers to a similar action under a grant or cooperative agreement. Regardless of the terminology used, both are legal contracts that will include terms consistent with the prime award.
Sponsors typically require prior approval for subcontracts under their awards. For budgeting purposes, the PI should obtain a budget and proposal from the lead investigator at the collaborating institution. The budget should reflect all direct and indirect costs and be approved by officials at the collaborating institution.
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Contracts under sponsored projects may be vendor agreements or subawards. Indirect costs will be assessed as appropriate to each type of agreement.
Caltech assesses indirect costs on the first $25,000 of each separate subaward for programmatic or scientific effort, i.e., when another organization (usually another university) becomes responsible for the conduct of a portion of the project.
There is no reduction or waiver of indirect costs on subcontracts or vendor agreement for the acquisition of goods and services.
The Policy on Subcontracts and Subrecipient Monitoring defines subcontracts, identifies roles and responsibilities, and provides guidance in fulfilling those responsibilities.
A Campus Transfer is the mechanism by which campus funds are transferred to JPL to pay the costs for research or other services that JPL is providing for the campus. It is the reverse of a JPL IA in which the funds are coming from JPL to the campus. Campus Transfers are similar to subawards or subcontracts issued to outside organizations that provide research collaborations or goods and services to the campus. Since JPL is a division of Caltech, we cannot legally subcontract with ourselves. Instead, the Campus Transfer is used in place of a subaward or subcontract.
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Caltech Investigators who wish to include research collaborations with JPL in their research proposals should obtain a budget and statement of work, i.e., a proposal, from the JPL collaborator before the campus proposal is submitted to the sponsor. The costs associated with the Campus Transfer should be shown as a single entry on the Caltech proposal budget, generally in the "other direct costs" section.
As a matter of long standing policy and practice, Caltech does not assess indirect costs on the funds included in a campus transfer. JPL burdens are applied to those funds.
Domestic travel involves travel within the fifty United States, the Commonwealths of Puerto Rico, Guam and the Northern Mariana Islands and the possessions and territories of the United States (excluding Trust Territories of the Pacific Islands). Foreign travel applies to all other travel destinations.
Travel expenses include air fare, ground transportation, lodging, meals and other travel-related expenses. Proposals should justify travel on the basis of the benefit to the project.
Federal sponsors require the use of U.S. flag carriers on all project travel. A limited number of exceptions are available.
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The Institute uses approved Federal standards as a practical guide for its travelers. In general, the Institute expects its travelers to use prudent, sound, and conservative judgment under the circumstances prevailing at the time expenses are incurred. The cost of airfare in Business Class or First Class is not allowable on Federal awards.
The Travel Policy describes the roles of various offices and individuals, procedures related to travel.
Note: Caltech's Travel Policy requires the traveler to submit a signed travel expenditure report within 30 days of returning from the trip.
Costs that do not fall within another budget category may be included in the Other Expense category. Typical expense items include:
- publication costs
- human subject fees
- maintenance agreements
- partial tuition remission for Graduate Research Assistants
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All items included in the "Other" category should be identified and explained in the budget justification section of the proposal.
Facilities and Administrative costs (F&A), Indirect costs, or "overhead" are those expenses that cannot be easily and conveniently traced to a specific project. F&A expenses are general business expenses that are indirectly related to a variety of sponsored projects and institutional activities. Examples of F&A expenses include space costs, utilities, and administration-general, sponsored projects, and departmental (divisional).
OMB Circular A-21 spells out the process for calculating F&A rates and identifies the cognizant federal agency responsible for negotiating periodic F&A rate agreements. Separate rates are negotiated for on-campus and off-campus projects.
Expenses specifically exempt from the application of F&A costs are:
- Equipment and capital expenditures
- Space rent and lease charges
- Tuition and fees
- Scholarships and fellowships
- Portion of each subaward and subcontract issued in excess of $25,000
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Caltech F&A rates are negotiated with the Office of Naval Research and expressed as a percentage of modified total direct costs (MTDC), i.e., the direct costs, minus designated budget categories. Proposal budgets must incorporate the Institute's current indirect cost rate or the sponsor's rate where the sponsor has established a lower rate by policy.
Caltech's F&A rates are distributed to faculty and research administrators annually in advance of implementation.
If a private foundation or other non-profit sponsor has a written policy that limits the amount of F&A they will provide to at least 15% of the total project costs, and this policy is applied equally to all grantees, Caltech will accept the award under these conditions. If the private foundation or other non-profit sponsor limits the indirect costs to less than 15% of total project costs, it will be necessary for the Principal Investigator to identify a discretionary fund source that will make up the indirect cost shortfall.
Commercial, for-profit sponsors must provide full reimbursement of indirect costs in all awards.
Exceptions to the required use of Caltech's indirect cost rates require approval of the Vice Provost for Research.
Cost sharing is that portion of the total cost of a research or other externally funded project that is not funded by the sponsor.
- Committed Cost Sharing
Specifically identified and described in the proposal budget and made a condition of the resulting award. Sponsors require that committed cost sharing be tracked, documented, and in some cases certified and reported.
- Mandatory Cost Sharing
Required by the sponsor as a condition of an award. Mandatory cost sharing results either from statutory requirements or from agency policy requirements.
- Voluntary Cost Sharing
Not required by the sponsor, but offered by the grantee institution as a demonstration of its commitment to the project. When voluntary cost sharing is included in the proposal budget, it is considered committed cost sharing once the award has been made.
- Uncommitted Cost Sharing
Any contributions to the project above the amount committed in a sponsored agreement. Uncommitted cost sharing does not have to be tracked, documented, or reported.
Personnel effort quantified in a proposal budget is considered a commitment to the project. Federal regulations require the Institute to compare the level of commitment with the actual effort expended on a project. The portion of the committed effort not charged to the award is considered voluntary committed cost sharing and it must be tracked.
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Proposals for sponsored projects should contain formal cost sharing commitments only when cost sharing is required (mandatory) by the sponsoring agency and stated as an eligibility criterion for the project for which funding is sought.