Proposal Budget Basics
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. Because proposal budgets are only estimates of what the project will cost in the future, and rates and costs do vary over time, the principal investigator (PI) should be aware that future budget adjustments may be necessary during the life of the award, and such adjustments may require sponsor approval obtained through SPO.
This is particularly true for proposals being submitted to and awards funded by international sponsors. A long-term international agreement may present a challenge when it comes to dealing with the likely fluctuations in the currencies of the two partners. The value of any currency can shift dramatically over time due to a variety of reasons. Between the time that the negotiated agreement is signed and payments are exchanged, one side may be receiving less money, or paying more than they anticipated.
The PI therefore should build a budget that considers the likelihood of future changes in rates and conditions. The PI should monitor project costs and make internal budget adjustments (with sponsor approval if required) to stay within the project budget approved by the sponsor. Note: If a funding deficit results from (a) international currency fluctuations or (b) project expenditures exceeding the amount of the award, the PI may wish to work through SPO to request additional funding from the sponsor. If the sponsor does not provide additional funding, any deficit that results will be cleared by the campus deficit reduction policy.
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.
This is very important because some sponsors place additional restrictions on what direct costs can be charged. For example, some sponsors have policies that prohibit the University from charging student tuition/fees, some or all of the University’s fringe benefit costs, and/or salary costs over a certain amount. It is the PI’s responsibility to discuss any such funding restrictions with his/her Chair/Director or Dean prior to preparing a project budget and submitting a proposal through SPO. When such funding restrictions exist, costs that exceed the amount allowed by the sponsor will become the responsibility of the PI’s department/unit if the proposal is funded.
Note: Budgets for federal contracts and grants are to be prepared in accordance with Title 2 of the Code of Federal Regulations (CFR). This new “Uniform Guidance” combines and replaces eight federal circulars, three of which previously governed the cost principles (A-21), administrative requirements (A-110) and audit obligations (A-133) governing the University’s federal contract and grant activities.
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 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 and vacation accrual, graduate student fees and tuition, consultant costs, equipment, supplies, travel, subagreements, alterations or renovations, and other costs.
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 (including information on Summer Compensation)
- UCB Guidance for Furlough Exchange Program (FEP) Charges to Grants and Contracts
- National Institutes of Health Salary Cap (for NIH applications only)
- Human Resources: Salary Rates
- Human Resources: Postdoctoral Scholar Unit (PX)
- Graduate Student Compensation on NIH Grants
- Graduate Division: Graduate Appointments
- Graduate Division: GSI, GSR, Reader and Tutor Guide
- Human Resources: UC Berkeley HR Academic Student Employee Unit (UAW 2865 - BX): Current Rates
- SPO Salary and Benefits
Use the University’s DHHS-approved composite rates along with the projections provided.
Resources for Fringe Benefits
All UC Berkeley staff employees accrue vacation time in accordance with relevant personnel policies and labor contract provisions, including UC Berkeley staff employees paid on grants and contracts. Departments and research units should encourage staff supported by sponsored projects to use vacation time in accordance with their personnel program, percentage of appointment, and service. Vacation accrual costs should not be included on sponsored project budgets.
Resources for Vacation Accrual
Resources for Fees and Tuition
- Graduate Division Fee Remissions
- Graduate Division GSI, GSR, Reader and Tutor Guide
- Graduate Division Appointments Policy: Fee Remissions
- Graduate Student Registration Fee Schedule
- Graduate Student Compensation on NIH Grants
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. All consultant costs are subject to the applicable indirect cost rate associated with the sponsored agreement.
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
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
- Equipment Threshold (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
Before a sponsor’s funds can flow from UC Berkeley to another entity, it is necessary to determine if the participating entity is a “contractor” or a “subrecipient.” It is important to correctly categorize subrecipients and contractors at the proposal stage because indirect cost charges (F&A) are applied to “all” contractor costs but only to the first $25,000 of a subaward or subcontract when UC Berkeley’s negotiated rate is applied. If an entity is incorrectly budgeted as a subrecipient in the proposal and it becomes necessary to treat the entity as a contractor 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 award received by Berkeley, e.g., effort reporting on federal awards, to each subrecipient. Contractors are not subject to all of these compliance requirements and may be ill prepared to comply with such requirements if they are incorrectly classified as a subrecipient. The following section delineates the differences between a contractor and a subrecipient.
Contractor: A contractor provides similar goods or services to a number of entities. The services of a contractor are repetitive in nature, and a contractor’s goods are commonly available to many customers. A contractor therefore requires little, if any, instruction as to how to go about producing the good or service. A contactor is paid when the service or product is accepted by the customer/client. A contractor engages in “work for hire” and thus should not have copyrights and/or other intellectual property rights related to any materials, inventions, works of authorship, software, information and data conceived or developed by UC Berkeley in the performance of the project.
Subrecipient: A subrecipient relationship exists when an outside entity performs all or a portion of the scope of work or objectives of the award received by UC Berkeley. A contractor may carry out an important “task” in support of the project, but a subrecipient must meet performance targets that are tied to UC Berkeley’s program objectives. A subrecipient also has the latitude to make policy and organizational decisions governing how it carries out a program, i.e., programmatic decision-making. This involves constructing a plan or method of action; executing this plan with available human and financial resources; evaluating the outcomes/results; revising the plan, strategies, and tactics as necessary; and reporting the results. A subrecipient is a true partner and as such may assert copyrights and/or other intellectual property rights related to the work performed.
A subrecipient, unlike a contractor, also is held responsible for compliance with applicable sponsor requirements, program statutes, regulations, rules, policies (including local policies), and guidance. A subrecipient must submit a comprehensive closeout package at the end of the agreement. A contractor is only required to provide an invoice.
Including Subrecipients in Proposals
Each proposed 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 Subrecipient Commitment Form signed by each subrecipient’s authorized official as well as any other required documents required by the sponsor (e.g., letter of commitment, a signed cover sheet, signed certification form, etc.).
By signing the Subrecipient Commitment Form the subrecipient’s authorized official is approving the information provided and thereby certifying that the entity is an acceptable collaborator and a true subrecipient. At the proposal stage this is sufficient. However, before issuing a subaward to any collaborating entity SPO must be satisfied that the subrecipient’s most recent financial audit information poses no unmanageable risks and that the subrecipient’s proposed Scope of Work reflects the work of a true subrecipient. (See above.)
Budgeting for Subrecipients
The costs of each subrecipient should appear in UC 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. However, the negotiated F&A rate is applied to “all” contractor costs. 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:
|Type of Recipient||Negotiated F&A Rate||Lesser F&A Rate|
|Subrecipient||Charged on first $25,000 of subaward||Charged on all subaward costs|
|Contractor||Charged on all contractor costs||Charged on all contractor costs|
Distinguishing a Subaward from a Subcontract
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 may be assumed if a subrecipient is named in the Berkeley proposal, depending on sponsor requirements. Subcontracts may require additional prior written approval of the sponsor.
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 contractor be incorrectly classified as a subawardee or subcontractor and the sole source justification or competitive bidding process not be addressed, the use of the contractor 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 contractor. This is because if at the award stage a contractor 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
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. 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 Division Fee Remissions; GSI, GSR, Reader and Tutor Guide; Appointments Policy: Fee Remissions
- 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 University’s standard indirect cost 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 type of base and any cost items excluded from the base must be specified in either the written guidelines or sponsor letter.
The Modified Total Direct Cost (MTDC) base is used when the federally negotiated rates are applied. It 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.
The Total Direct Cost (TDC) base includes all of the direct costs being charged to the sponsor. Nothing is excluded from the base prior to calculating the indirect costs (F&A). This base is typically used when a sponsor declines to pay Berkeley’s federally approved indirect cost/F&A rate and an F&A waiver is granted by the University.
The Total Cost (TC) base is used when the sponsor states that only a certain percentage of Total Project Costs can be charged for indirect (F&A) costs.
The following three examples are provided to illustrate how different indirect cost bases affect project costs.
MTDC Base. In Case #1 below, the University is allowed to charge the federally negotiated on-campus rate for organized research. Direct costs total $100,000, and $10,000 of this amount is for equipment (an item excluded from MTDC under Berkeley’s F&A agreement with DHHS).
|Case #1 MTDC Base|
|F&A rate (56.5% x MTDC)||$50,850|
TDC Base. In Case #2 below, the University is prohibited by official sponsor policy from charging the federally negotiated on-campus rate for organized research. The sponsor allows a rate of 10%. As in Case # 1 direct costs total $100,000, and $10,000 of this amount is for equipment.
|Case #2 TDC Base|
|F&A rate (10% x TDC)||$10,000|
TC Base. In Case #3, the sponsor has indicated that no more than 10% of the Total Costs (the total amount requested) can be used for F&A. Unlike Case #2 above, it is not appropriate to simply multiply 10% against the Total Direct Cost base because in Case #2 the F&A ($10,000) is actually only 9% of the Total Costs (10,000 / 110,000 = .09). For such cases you will need to know both the maximum amount of F&A that can be charged as well as the “actual” F&A rate being used.
Determining the Maximum Amount of F&A to Charge
- Step 1: Deduct the allowed F&A percentage from 100% (e.g., 100% - 10% = 90%).
- Step 2: Divide the amount of Total Direct Costs in the budget by this percentage to obtain Total Costs (e.g., $100,000 / .90 = $111,111).
- Step 3: Multiply the Total Costs obtained by the percentage for F&A allowed by the sponsor. This will generate the maximum allowed F&A (e.g., $111,111 * .10 = $11,111).
- Step 4: Check the calculation. The Total Costs minus the Total Direct Costs should equal the amount of the F&A charged to the sponsor (e.g., $111,111 - $100,000 = $11,111).
This scenario is illustrated below:
|Case #3 TC Base|
|Total Direct Costs (TDC)||$100,000|
|Total Cost (TC)
($100,000 / .90)
|F&A rate (10% of TC)
(.10 x $111,111)
|($111,111 - $100,000)||$11,111|
Determining the Actual F&A Rate Used
Using the information provided above:
- Step 1: Identify the sponsor’s allowed F&A percentage of Total Costs (e.g., 10%).
- Step 2: Deduct the allowed F&A percentage from 100% (e.g., 100% - 10% = 90%).
- Step 3: Divide Step 1 by Step 2 for the “actual” indirect cost rate being used. (e.g., 10% / 90% = .1111 = 11.11%).
Resources for Indirect Costs
- Office of Financial & Management Analysis
- Facilities and Administrative (Indirect Cost) Rates
- Facilities and Administrative (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
- Contracts and Grants Accounting Cost Sharing
- 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
- Any special items not easily justified by the nature of the proposal as a whole
This sample budget 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.)
This NIH modular budget template should be provided for SPO review instead of a detailed line item budget. It may be used for budgets that include no more than $250,000 per year direct costs over a period of five years.