A. Purpose
This policy establishes Northwestern's policy on cost sharing and the procedure for monitoring project-by-project cost sharing and reporting such cost sharing to sponsoring agencies.

B. Revision History
Originally issued: January 2001

C. Persons Affected
All Northwestern Health Sciences University Prinicipal Investigators, Department Heads, and personnel responsible for fiscal management of grants.

D. Policy

1. INTRODUCTION
   This policy was developed for the following purposes:
   
   • To provide guidance regarding the circumstances in which cost sharing is permitted by the University, including what kind of services, expenditures, or assets may be cost shared
   • To provide information regarding the contractual, financial, and administrative implications that result from the commitment to cost share
   • To establish procedures which give the University the ability to provide information to sponsoring agencies which demonstrates that the University has fulfilled any cost sharing commitments it has made as a condition of obtaining external sponsorship
   • To establish procedures for recording cost-shared expenditures in the University's accounting system in order to segregate cost sharing for inclusion in the University Research portion of the Organized Research Modified Total Direct Cost (MTDC) base, in response to the July 15, 1993, revision to OMB Circular A-21 (A-21), "Cost Principles for Higher Education," regarding the classification of University Research.

 

2. DEFINITION OF PROJECT-BY-PROJECT COST SHARING
   Cost sharing represents that portion of the total project costs of a sponsored agreement borne by the University, rather than by the sponsor. Cost sharing of direct expenditures represents a redirection of departmental or school resources from teaching or other departmental and school activities to support sponsored agreements.
   
   Mandatory cost sharing is required by the sponsor as a condition of obtaining an award. It must be included or a proposal will receive no consideration by the sponsor.
   
   Voluntary cost sharing represents resources offered by Northwestern when not a specific sponsor requirement. In either case, when an award is received in which cost sharing (voluntary or mandatory) was proposed, the cost sharing becomes a binding commitment which the University must provide as part of the performance of the sponsored agreement. Committed cost sharing included in organized research agreements becomes a component of University Research.
   
   Requirements for inclusion of cost sharing in grants and cooperative agreements are listed in OMB Circular A-110.
   
   
3. DEFINITION OF INSTITUTIONAL COST SHARING
   In contrast to project-by-project cost sharing, institutional cost sharing, which is required by some sponsors, is not accounted for at a detailed level. Institutional cost sharing is a requirement of some unsolicited proposals whereby the University commits that it will use some of its own resources for related research. This commitment is made at the aggregate level between the sponsor and the University. This approach allows the University greater flexibility by being able to share a greater percentage on some projects and not share at all on others. In most cases, departmental research meets this requirement and no special accounting or tracking is needed.
   
   It is important to note, therefore, that since departments have no responsibility to account for institutional cost sharing, the remainder of this policy does not apply if institutional cost sharing is the sole form of cost sharing on a project. Contact the Chief Research Officer or Chief Financial Officer with any questions related to institutional cost sharing.
   
   
4. THE COST SHARING COMMITMENT
   When a Principal Investigator (PI) proposes and the University agrees to cost share University resources, the University is required to provide the stated resources in the performance of the sponsored agreement. Considering the administrative requirements and responsibilities inherent in the cost sharing commitment, the PI, departmental and school administrators should weigh the cost effectiveness and the expected benefits of each cost sharing commitment, prior to making such commitments. Implicit in the University's commitment to cost share is the PI's agreement to ensure that:
   

• Funds are provided for cost-shared direct costs
• Verification of the cost sharing commitment is provided at the time the proposal is submitted, and whether the cost sharing offer is mandatory
• The Cost Sharing Authorization Form with attached budget, indicating the source of cost sharing funds or a guarantee account, is completed upon receipt of the award and submitted to the Business Office
• Cost-shared expenses for each project are accounted for in separate University accounts
• Allowable costs are timely and accurately charged to the appropriate cost sharing account
• Expenditures on cost sharing accounts are certified
• Records for cost sharing accounts are retained for the same period as the records for related sponsored agreements
  

Note: The tracking, reporting, and certifying of cost sharing are subject to audit.

5. WHAT EXPENDITURES CAN BE COST SHARED?
   To provide the most flexibility and to best support the project it is highly recommended that the cost sharing be proposed as a lump sum amount. Cost sharing may consist of allowable direct or indirect cost resources.
   
   A. Direct Costs

1. Faculty, Student, or Staff Effort
   It may be appropriate to contribute faculty, student, or staff effort to the performance of a sponsored agreement. The commitment to provide such support binds the University to contribute the effort and record the associated expenditures including fringe benefits in separate cost sharing accounts. Cost sharing effort is included in the calculation of total committed effort. Although proposals could be in circulation at any given time which exceed 100% of a faculty, student, or staff's effort, care must be taken at the time of each award to ensure that effort is not committed more than the appointment allows for concurrent periods of time.
   
2. Equipment
   Equipment cannot be offered as cost sharing unless the receipt of the award is contingent upon such cost-sharing. PIs should take care in preparing proposals for sponsored agreements not to commit the use of University-owned or government-owned equipment as cost sharing, but rather to characterize the equipment as "available for the performance of the sponsored agreement at no direct cost to the project".
   
   Proposals that include the acquisition of special-purpose equipment as a direct cost may include an offer of University funds to pay for all or part of the cost of such equipment. These proposals may be for equipment or instrumentation grants, where the purpose of the grant is to buy equipment and the recipient is required to share the cost with the sponsor, or research-oriented grants or contracts where the purchase of equipment required for the research is an allowable expense included in the proposal and award. Purchase and acquisition must occur during the period of performance. The portion of the purchase price paid by the University must be charged directly to a cost sharing account in support of the award.
   
3. Other Direct Costs
   Allowable direct costs other than salaries, fringe benefits, or equipment may be committed by the PI as cost sharing on the proposal budget. The following are examples of other direct costs that may be cost shared:
   
   
   • travel expenses
   • items that do not meet the capitalization threshold
   • laboratory supplies
     
     

See Section 7 for expenses that may not be offered as cost sharing.

B. Indirect Costs (Facilities and Administrative Costs)
Indirect costs are real costs of conducting instruction and research. Indirect costs do not disappear simply because a sponsor refuses to pay for them; the University must fund any indirect costs that have not been reimbursed. When direct costs are cost shared, the indirect costs associated with the direct costs are AUTOMATICALLY cost shared. PIs may take advantage of the automatic cost sharing of indirect costs, and include them on the proposal budget. PIs may also include any waived indirect costs as University cost sharing in proposals.

The accounting system is not capable of tracking cost-shared indirect costs; they will not appear in the expenditure statements. The Business Office will calculate the cost-shared indirect costs based on information from the awarded budget and the accounting system for reporting purposes (see Section 10).

6. SOURCE OF FUNDS FOR COST-SHARED EXPENDITURES
   Identifying and providing resources for cost sharing of direct costs (including equipment) is the responsibility of the PI. The PI may NOT utilize funds from another federal award as the source of cost sharing, except as authorized by statute. The PI may utilize funds from non-federal awards as the source of cost sharing ONLY when specifically allowed by the non-federal sponsor. Funds for cost-shared expenditures are typically identified from among gift, endowment income, operating budget, or other department designated funds.
   
   
7. EXPENDITURES NOT ELIGIBLE FOR COST SHARING
   The following expenses cannot be offered as cost sharing commitments in sponsored project proposals:

• administrative salaries, services, and supplies not permitted by the sponsor as direct costs;
• indirect costs in excess of the 26% administrative cap;
• unallowable costs as defined in A-21, section J;
• salary dollars above a regulatory cap, e.g., NIH;
• college facilities such as laboratory space-- PIs should take care in preparing proposals for sponsored agreements not to commit use of facilities as cost sharing, but rather to characterize the facilities as "available for the performance of the sponsored agreement at no direct cost to the project"; or
• depreciation on government-funded equipment.

8. OVERDRAFTS
   After the end of the project performance period, when unanticipated project expenses result in more charges to a sponsored account than were funded, the amount of the overdraft is accounted for in the same manner as cost sharing. These costs represent project costs being borne by Northwestern Health Sciences University, and therefore, must be accounted for in the same manner as cost sharing.
   
   However, these costs cannot be considered cost sharing for purposes of fulfilling a cost sharing commitment because overdrafts are considered unallowable under A-21. When such overdrafts occur, the department is responsible for notifying the Business Office, who will open a cost sharing account and document the source of funds (as identified by the department) to cover the amount of the overdraft. The department then initiates the necessary expense transfer, including documentation of the nature of the expenses, appropriateness of the charge to the project, and other reasons for the transfer. This does not apply to temporary overdrafts which are the result of accounting errors, or mistakes in the coding of charges.
   
   Note: Cost Sharing Authorization Forms are not necessary for overdrafts.
   
   
9. REDUCTION IN COST SHARING
   The actual effort and other costs required to accomplish the goals of a sponsored project might differ from what was proposed and awarded. The total costs could decrease due to changes in programmatic needs. When there is cost sharing on such projects, the sponsor may need to be consulted to determine if the reduction can be applied to either the University's committed cost sharing or to both sponsor and University resource contributions on a pro rated basis. Otherwise, the sponsor's share is reduced and the University's entire cost sharing commitment must be met.
   
   
10. REPORTING COST SHARING
    When required, Northwestern Health Sciences University is responsible for providing information to sponsoring agencies that demonstrates the University has fulfilled the cost sharing commitments that it made as a condition of receiving external sponsorship. In order to do so, PIs must provide the necessary information on the Cost Sharing Authorization Form at the time of the award, and follow the accounting procedures described in the previous sections of this policy. In addition, during the financial close-out of a sponsored project, cost sharing commitments will be reviewed.

E. Related Research Policy Documents
Fiscal Responsibilities of Principal Investigators
Charging for Administrative and Technical Expenses
Cost Sharing Authorization Form [Downloadable Word file]