Proposals must include a budget, a detailed breakdown of the financial support requested from the sponsoring agency. (For NIH Modular Budgets, see the Sample NIH Modular Budget Template.) The budget should reflect the best estimate of the costs requested to conduct the work outlined in other sections of the proposal.

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
• UCB Guidance for Furlough Exchange Program (FEP) Charges to Grants and Contracts
• National Institutes of Health Salary Cap (for NIH applications only)
• Compensation for Postdoctoral Employees Campus Policy Memo
• Postdoctoral Scholar Contract Settlement Highlights
• Graduate Division: Graduate Services Appointments Office
• Office of Human Resources: Staff Title and Pay Plan
• SPO Salary and Benefits

Use either the composite rates 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

• SPO Salary and 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 Services: Consultant Agreements

The University defines equipment as items that cost at least $5,000 and and have a life expectancy of at least one year. These items 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 increased to $5,000 effective July 1, 2004)
• Equipment Management
• BAI: BFS/BAIRS Manual Appendix A: Purchase Order Types (PDF)

Supplies are expendable items under $5,000, specifically related to the project.

The University threshold for equipment changed from $1,500 to $5,000 effective July 1, 2004. Items costing less than $5,000 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 increased 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

Before a sponsor’s funds can flow from Berkeley to another entity, it is necessary to select the proper type of funding instrument to make this happen. The first step in this process is to determine what type of transaction the sponsor is using to provide funding to Berkeley. Two types of transactions are typically received by SPO: Awards and Contracts.

“Award” means financial assistance (grants, cooperative agreements) that provides support or stimulation to accomplish a public purpose.

“Contract”means a contractual agreement to procure goods and/or services for the direct benefit or use of the Sponsor.

Under an “Award” of financial assistance Berkeley may issue a “subaward” to any entity that is needed as a collaborator on the project. However, when Berkeley receives a “Contract” and wants to provide project funds to a collaborating entity the appropriate transaction is a “subcontract.” Note: Sponsor approval is assumed if a subawardee is named in the Berkeley proposal. Subcontracts may require additional prior written approval of the sponsor.

Each collaborating entity (subrecipient) should be named in the proposal. The proposal should incorporate documentation from each subrecipient, including a complete itemized budget, budget justification, Statement of Work to be performed, and a description of the subrecipient’s qualifications to perform that work.  The proposal also should include a letter of commitment, a cover sheet, certification, and a Subrecipient Commitment Form signed by each subrecipient’s authorized official.

The costs of each subaward/subcontract should appear in Berkeley’s proposal budget as a separate line item that includes both the subrecipient’s direct and indirect costs. Berkeley’s negotiated indirect cost (F&A) rate should then be applied on only the first $25,000 of the total amount of the subaward/subcontract. Note: When a lesser F&A rate is all that the sponsor will allow, the lesser F&A rate is applied to “all” subaward/subcontractor costs. The following chart illustrates these relationships:

Collaborator vs. Vendor (Supplier)

When an entity does not contribute a significant portion to the project as described in the Statement of Work and is instead is providing goods and/or services that are ancillary to the operation of the sponsored program, a subaward or subcontract should not be used. Instead, the entity should be treated as a “vendor”.  At Berkeley vendors are referred to as “suppliers.” Suppliers should be contracted for their goods and/or services according to the procedures specified by University Procurement Services.

To determine if an entity is a collaborator or a supplier use the following guide:

( ) Yes ( ) No  The goods and/or services to be provided are comparable to the goods and/or services the entity provides to many different customers during the course of normal business operations.

( ) Yes ( ) No  The goods and/or services to be provided will be supplementary to the operation of the sponsored program and the entity will not be responsible for programmatic decision making.

If the answer to either of these questions is “Yes,” the entity should be considered a supplier. Note: “Independent Contractors” are typically considered suppliers because their involvement in the project is short term and/or sporadic and the services they provide do not include programmatic decision making.

It is important to correctly categorize collaborators and suppliers at the proposal stage because, as noted above, indirect cost charges are applied to “all” supplier costs but only to the first $25,000 of a subaward or subcontract when Berkeley’s negotiated rate is applied. If an entity is incorrectly budgeted as a subawardee in the proposal and it becomes necessary to treat the entity as a supplier at the award stage, the PI may lack sufficient project funds to cover the indirect costs that will be charged. This can negatively impact project outcomes.

Furthermore, SPO must flow down all of the compliance requirements from the prime award or contract received by Berkeley, e.g., effort reporting on federal awards, to each subawardee or subcontractor. Suppliers are not subject to all of these compliance requirements and will be ill-prepared to comply with some requirements if they are incorrectly classified as a subrecipient.
 
Per UC Business and Finance Bulletin BUS-43, a “sole source justification” must accompany requests for contracts when competition is deemed unacceptable and the dollar amount will exceed $10,000. Additionally Procurement must conduct a competitive bidding process for those requests that exceed $50,000. However when an entity is a collaborating subawardee or subcontractor the foregoing is not required. Should a supplier be incorrectly classified as a subawardee or subcontractor and the sole source justification or competitive bidding process not be addressed, the use of the supplier could place Berkeley at risk for audit findings that could impact future funding from the sponsor.

“Named” vs. “TBD” Collaborators

When the name and/or role of another entity is still “TBD” (to be determined) at the proposal stage, it is safest to budget for this entity as though the entity will be a supplier. Include the total cost of the supplier’s goods in the budget under “supplies” or “equipment.” Supplier services should be budgeted under “contractual services” or “other.” The total cost of items budgeted as supplies, contractual services, or other will be subject to F&A charges. Items classified as equipment are not subject to F&A, unless a lesser indirect cost rate is used instead of the University’s negotiated F&A rate.

Note: If the unnamed entity is budgeted as a subrecipient at the proposal stage, and at the award stage a supplier relationship is determined to be more appropriate, it may be necessary for the PI to modify the proposal budget to include appropriate F&A charges.

Resources for Subagreements

• Subaward Set Up and Monitoring
• Request for Subaward Form
• Subrecipient Commitment 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, Automobile, and Employment Liability (GAEL) charges.

Resources for Other Direct Costs

• Graduate Student Fee Remission (PDF)
• Graduate Student Registration Fee Schedule
• Business and Finance Bulletin BUS-79: Entertainment
• General, Automobile, and Employment Liability (GAEL)
• 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.

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.

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.)