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Breaking Down Budgets: Lessons Learned from the Researcher Guidebook

May 21, 2024—Talking money is always uncomfortable, so it’s critical to steer clear of becoming contentious in the sponsored research contracting process. Budgets in university-industry research agreements come with a host of unique financial challenges and considerations that must be balanced to ensure successful collaborations and impactful outcomes. Communicating budgets in a way that makes sense to both parties and meets expectations, and clearly delineates cost and value is essential for efficient and successful negotiations. Ultimately, thoughtful budget development can advance sustainable and mutually beneficial research collaborations by building trust between the parties.

Budget basics

Project budgets include direct costs for things the PI requires to carry out the project, and indirect costs, also known as facilities and administrative (F&A) rates or overhead rates. For US universities, indirect costs are calculated by a federal agency and is subject to limits on administrative costs; for a majority of US universities, these negotiated rates are between 35% and 55% of modified total direct costs. The rates depend on the cost of maintaining the institution’s research facilities, managing awards, utilities, and other miscellaneous charges associated with the research activities. F&A rates vary by type of work (research or public service project), and where the research is performed (on- or off-campus). Non-US schools have their own approaches for determining and implementing their rates.

While many universities use the government rate for industry projects, some use the actual (i.e., uncapped) rate for industry agreements. (UIDP members can access a curated list of F&A rates, as well as a town hall recording explaining F&A rates in detail.) Separate from the F&A rates, direct costs commonly included in university research budgets include personnel (salary and benefits); materials, supplies, and project-related travel; and other direct costs like equipment and tuition remission for graduate research assistants. Georgia Tech’s Contract Continuum details different research agreement types and links to sample agreements and F&A rates, breaking down how different contract mechanisms can have different approaches to budgeting, including differing F&A rates depending on the type of project or research being performed.

University researchers often navigate the application process for government grants, which includes crafting budgets that align with the funding agency’s guidelines and requirements. However, this may not always translate seamlessly when collaborating with industry partners. Companies operate with different financial expectations, which may require researchers to break away from typical government budgeting practices to create something better suited for industry-facing projects. Crafting a budget for companies that is familiar to them can help increase the chances of successful negotiations. Additionally, discussing this prior to submitting a proposal can help save time getting the project funded.

Why it matters

Accurate budgets that communicate cost to value will help align expectations and prevent misunderstandings from the start, enabling the research to get underway and successful collaborations that bring mutual benefits and impactful results.

We want to hear from you. What challenges have you faced regarding budgets in research partnerships? Let us know on our LinkedIn profile.

The 3-Minute Read is a UIDP member information piece and does not represent the opinions of our members or representatives. We welcome your comments on our LinkedIn profile.

This 3-Minute Read is part of a series based on the Researcher Guidebook, a public resource published by UIDP. Our members have access to a sequential learning path and Quick Guide developed to help researchers tap into our collective knowledge and clearly understand their pivotal role in cross-sector research partnerships.