Preparation

Most sponsors provide detailed instructions for budget preparation; many provide budget forms or require a specific format. Always read the agency guidelines before preparing a proposal budget.

Budgets for federal contracts and grants are to be prepared in accordance with Office of Management and Budget (OMB) Circular A-21, "Cost Principles for Educational Institutions." OMB A-21 identifies allowable direct cost categories and prescribes a standard distribution and allocation method for the recovery of F&A costs. Because OMB A-21 also establishes standards for consistency in the treatment of costs for institutional accounting, the A-21 regulations apply to grants, contracts, and other types of awards accepted by the campus.

Cost Categories

Proposal budgets generally include two basic categories of costs: direct costs of the proposed project and facilities and administrative (F&A or indirect) costs. Both are real costs. Direct costs plus F&A costs equal total costs.

Direct costs

Direct costs are incurred in the performance of the project and must be directly attributable to the project and must be considered reasonable, allocable, and allowable. Direct costs include categories such as salaries, fringe benefits, consultant costs, equipment, supplies, travel, subagreements, alterations or renovations, and other costs.

Resources

• Cost Principles for Sponsored Agreements (Contracts and Grants)

For each project participant, list the:

• Name (or "To Be Named" for an unfilled position)
• University payroll title
• Nature of the position (e.g., nine month or 12 month appointment)
• Current annual or monthly salary (summer salary for faculty with nine-month appointments should be listed as a separate line item)
• Number of months per year and/or percentage of effort
• Total salary requested

For multiple-year budgets, include:

• Projected cost of living increases, specifying the period to which they apply, with an explanation of the basis for calculating the rates
• Projected merit increases, specifying the period to which they apply, with an explanation of the basis for calculating the rates

Resources for Salaries and Wages

• Home department: title, step, anticipated merit or promotion
• Academic Personnel Office: Academic Compensation at UC Berkeley, Summer Compensation
• National Institutes of Health Salary Cap (for NIH applications only)
• Compensation for Postdoctoral Employees Campus Policy Memo
• Graduate Division: Graduate Services Appointments Office
• Office of Human Resources: Staff Title and Pay Plan
• Summary of UCOP Composite Rates for Employee Benefits

Use either the composite rates compiled by the UC Office of the President or the actual rates if known. State if the budget uses published composites or are based on historical rates for the individual employees.

Resources for Fringe Benefits

• Summary of UCOP Composite Rates for Employee Benefits

Graduate student fees and tuition are considered fringe benefits in budgets to comply with campus cost accounting practices. Under MTDC, no indirect cost is applied.

Resources for Fees and Tuition

• Graduate Student Fee Remission (PDF)
• Graduate Student Registration Fee Schedule

Consultant fees may generally be paid only to individuals not employed by the campus or other UC campuses or UC labs who can provide special knowledge or advice necessary for the project. For each individual, specify the name, daily rate of pay, and number of days each consultant will be paid. Documentation supporting the reasonableness of the pay rate should be provided. Any costs of travel and per diem should be specified.

Resources for Consultant Costs

• Procurement and Business Contracts Purchasing Guide: Independent Consultants

The University defines equipment (purchased as of July 1, 1999) as items that cost at least $1,500 and and have a life expectancy of at least one year.

The University threshold for equipment is changing from $1,500 to $5,000 effective July 1, 2004, with a two-year phase-in period. Equipment costing $1,500 or more projected to be received before July 1, 2006 should be included as equipment in the budget and excluded from MTDC. Equipment costing $5,000 or more projected to be received on or after July 1, 2006 should be included as equipment in the budget and excluded from MTDC.

• List each item individually and describe as completely as possible.
• Provide current prices with sources noted. Original vendor pricing information should be retained.
• Explain any inflationary factors that have been used to estimate anticipated increases.
• If equipment is to be fabricated rather than purchased, itemize the individual component parts and estimated labor costs, explain the basis for calculations, and retain supporting documentation. If title of the fabricated equipment is retained by UC, no indirect cost applies but California taxes do; if title goes to the sponsor, then full indirect cost applies.

Resources for Equipment

• Changing the University's Definition of Equipment (threshold increase to $5,000 effective July 1, 2004)
• Equipment Management: Equipment Management Policies; Equipment Threshold; Government Contract Requirements; Fabrication
• BAI: BFS/BAIRS Manual Appendix A: Purchase Order Types (PDF)

Supplies are expendable items under $1,500, specifically related to the project.

The University threshold for equipment is changing from $1,500 to $5,000 effective July 1, 2004, with a two-year phase-in period. Items costing less than $1,500 projected to be received before July 1, 2006 should be included as supplies in the budget and included within the MTDC base. Items costing less than $5,000 projected to be received on or after July 1, 2006 should be included as supplies in the budget and included within the MTDC base.

• List by specific categories of cost (e.g., chemicals, glassware, survey forms, small electronic components) with an estimate of the cost of each category.
• Explain how estimates were derived. Historical costs can be the basis of budget estimates for ongoing projects or in cases where similar work has been performed on another project.

Resources for Supplies

• Changing the University's Definition of Equipment (threshold increase to $5,000 effective July 1, 2004)

Specify for each trip:

• Purpose and destination (if known)
• Number of individuals traveling
• Mode and cost of transportation (e.g., airfare, mileage reimbursement)
• Number of days of per diem and the per diem rate

Resources for Travel

• Travel Department : Meals, Lodging, and Per Diem

A subagreement (subcontract, subgrant, or subaward) must be included in the proposal when a portion of the project is to be performed at another institution or organization. The total costs for a subaward (the subrecipient direct costs and indirect (F&A) costs) are considered direct charges to the budget of the prime applicant. The proposal should incorporate documentation from each subrecipient's authorized official, including a complete itemized budget, with justification, a statement of work to be performed, and description of the subrecipient's qualifications to to that work, and include and a letter of commitment signed by the authorized official. The Berkeley campus requires a cover sheet and certifications signed by the subrecipient's authorized official. Subcontracts may require prior written approval of the sponsor.

• List the total amount of anticipated subagreements as a line item on the budget.
• Provide details of direct and associated indirect costs separate pages incorporated into the budget package.
• Under MTDC, indirect cost applies only to the first $25,000 of each subagreement.

Resources for Subagreements

• Subrecipient (Subaward) Guidelines
• Request for Subaward Form

Budgets may include essential alterations and renovations necessary to convert interior space necessary to adapt an existing facility or to install equipment. Routine maintenance and repair are generally not considered alteration and renovation expenses.

• Specify the amount
• Provide justification

Use previous department and investigator experience when available. BAIRS reports can provide comparative data for estimates, and consult with faculty and staff colleagues for assistance. Always follow agency guidelines on direct costs in proposal budgets. Typical categories of other direct costs are listed below. On federally sponsored projects, clerical support, postage, local telephone costs, and memberships cannot be charged unless they are specifically approved by the agency.

• Graduate student fee remission. Fees and tuition are usually charged as part of fringe benefits (see above). Under MTDC, no indirect cost is applied.
• Stipends. Stipend charges are allowable for projects with a training component and fellowships. For the Berkeley campus, all individual grants for student fellowships are considered a fellowship and have no indirect cost applied. All individual grants for postdoctoral or faculty fellowships from federal agencies are considered research funding, and the research indirect cost rate is applied.
• Publication/documentation/dissemination costs. This category includes expenses for publication in established journals. Costs for publication of a book, monograph, or other publication usually cannot be charged without prior approval from the sponsor.
• Meeting costs, participant costs.
• Computer usage rates.
• Allowable telecommunications charges.
• Equipment maintenance. Charges should be based on maintenance agreements.
• Equipment rental. Charges may be included as rental costs if the cost of equipment rental is required for the project.
• Rental costs. When projects are conducted in rental space not owned by the University, the off-campus indirect cost rates apply, and the rental charges must appear on the proposal budget.
• Service agreements. Service agreements generally result in delivery of a product and may be issued to either individuals or companies. They are sometimes included in the cost of equipment purchase.
• General and Employment Liability (GAEL) charge.

Resources for Other Direct Costs

• Graduate Student Fee Remission (PDF)
• Graduate Student Registration Fee Schedule
• Business and Finance Bulletin BUS-79: Entertainment
• GAEL (go to "What is this GAEL charge on my ledger")
• OMB Circular A-21, Cost Principles for Educational Institutions
• UCOP Operating Guidance Memo No 94-5: Departmental Direct Charging of Designated Categories of Expenses; Supplement Number One

Indirect (or facilities and administrative (F&A) or overhead) costs represent those expenses that cannot be easily identified to any specific project, but that are incurred for common or joint objectives. Indirect cost elements include items such as operation and maintenance of facilities, including building depreciation, library expenses, space, utilities, payroll, accounting, and other services. Different rates are applied to on and off campus research, instruction, and other activities.

The rates are negotiated with the federal government (UC Berkeley's cognizant federal agency is the Department of Health and Human Services) and applied to all projects regardless of the sponsor, unless the UC Office of the President has approved an indirect cost waiver. Some sponsoring agencies do not reimburse indirect costs at the full rate. The University will honor these exceptions when the organization has written guidelines or will provide a letter stating agency policy on payment of indirect costs.

The Modified Total Direct Cost (MTDC) base upon which the federally negotiated rates are applied is derived by excluding certain costs from the direct cost total. At Berkeley, MTDC excludes equipment and fabrication of equipment, capital expenditures, charges for patient care, tuition remission, rental costs of off-site facilities, scholarship, and fellowships, as well as the amount of each subaward over $25,000. Not all sponsoring agencies may apply all of these categories to the MTDC; check the specific agency guidelines for instructions on budget calculation.

Resources for Indirect Costs

• Office of Financial Management & Analysis
• Facilities and Administrative (Indirect Cost) Rates
• Indirect Cost Waivers

Some funding agencies require the grantee institution to demonstrate its financial commitment to the project, or the commitment of other funding sources, by sharing the project costs.

Cost sharing should be included in the proposal only when the sponsor requires cost sharing as a condition of applying for an award. Cost sharing must be documented in the same way as other charges. Unfulfilled cost sharing commitments or lack of documentation may result in a reduction of costs allowed against the sponsored project and a return of funds to the agency.

Note: By using language in proposals that cites percentage of time, salaries, or specific levels of support, principal investigators can commit to cost sharing, even unintentionally. Any quantifiable cost offered in the proposal becomes a legally binding and accountable commitment of the Universiity upon award. For more information and for examples of language that may be used to address the issue of academic or programmatic contributions or support without creating a contractual and auditable commitment to cost sharing, see Cost Sharing Basics.

Cost sharing funds may come from an outside source in the form of cash contributions, volunteer services, or donated property; from the University’s own funds (e.g., personnel effort without salary recovery); or from shared resources or facilities. If the award is federal, only acceptable non-federal costs qualify as cost sharing.

Types of cost sharing

• Direct-Cost: Direct-cost cost sharing is the provision of faculty and staff time and related fringe benefits, dedicated equipment, tuition, computer support, and other resources as direct support for the project, as well as related indirect costs. Commitments made by departments, schools, or other units must be detailed in the proposal and appropriate approvals must be included.
• Indirect (F&A) Cost: This type of cost sharing occurs any time the University agrees to recover less than the federally negotiated indirect cost rate. Approval from the UC Office of the President is required if an indirect cost rate is lower than the university applied rate.

Matching funds, if required by the funding agency, are raised from non-federal outside sources to increase the level of support provided by the funding agency. Such funds must be identified by the donor or funding source for use as matching funds.

Always follow agency guidelines when preparing budgets with cost sharing or matching funds; formats vary by sponsor. The simplest version of a cost-sharing budget has three columns: amount requested from sponsor, UC contribution amount, and total project costs (the sum of the first two columns).

Resources for Cost Sharing

• Cost Sharing Basics
• Extramural Funds Accounting: Cost Sharing - Policies and Procedures
• UCOP Contract and Grant Manual, Chapter Five - Cost Sharing
• UC Berkeley Procedures for Cost Sharing And Matching (memo on provision of central funds for cost sharing required in grant applications)
• Request for Central Campus Cost Sharing Form

The budget justification provides the rationale for proposed expenditures. The primary purpose of a justification is to provide support for the funds requested to ensure adequate funding. Follow agency guidelines to prepare budget justifications; requirements for the amount of documentation to support proposed costs and the detail of cost descriptions vary by sponsor.

Major items to include in budget justifications:

• Salaries for faculty, research associates, graduate students, technicians, or staff
• Permanent equipment
• Large or unusual categories of supplies
• Foreign travel and extensive domestic travel
• Use of consultants (e.g., why the expertise is not available in-house, unique qualifications of individuals)
• Subagreement costs
• Construction
• Any special items not easily justified by the nature of the proposal as a whole

This sample budget (PDF) for a National Science Foundation proposal includes related UC and NSF guidance for each budget section. Please note that this is provided as an example only and should not be used to prepare an actual budget. (Prepared by Nora Watanabe in the Vice Chancellor for Research Office.)