Indirect Cost Recovery

Indirect cost recovery funds (i.e., ICR or "overhead") are monies received by the university in reimbursement for services rendered in support of grants and contracts.  ICR funds are paid to the University by the granting agencies as reimbursement for indirect support provided to the grants and contracts.

Overhead reimbursement is tied to the expenditure of direct costs associated research awards (primarily federal contracts and grants).  The amount is based on the indirect cost rate, which includes the cost of facilities (such as equipment, research space, maintenance and utilities, and the library) as well as departmental administration and support.  The negotiated rate for the Santa Cruz campus is 52.5% in 2013-14.  The “effective” rate (the amount actually generated as a percentage of expenditures) is closer to about 27% because not all federal contracts and grants generate overhead (i.e. equipment grants) and sometimes the overhead is waived or is reduced.  In general, waivers and reductions are not encouraged and are no longer common.

Overhead is used to promote research, provide flexibility, and to cover research-related costs.  The Santa Cruz campus has adopted formulas for managing and distributing its overhead receipts from federal and private contracts and grants:

  • Off-the-top funds (OTT).  Incremental off-the-top funds are used to support activities directly linked to the administration and support of research.  These funds are allocated as shown below.
  • Opportunity funds (UOF).  New opportunity funds are distributed using the "40/40/15/5" formula.  The academic divisions receive 40%, based on changes in indirect costs in the division; 40% is provided to the Provost/EVC for building infrastructure costs, faculty start-up, and other funding needs; the Vice Chancellor for Research receives 15% to seed further research, and to support matching fund requests; and the Senate Committee on Research receives 5% for faculty COR grants.
  • General Fund support.  This portion of the overhead is budgeted as University General Funds and is used, along with State General Funds, to help fund the University's budget.

In addition, 6% of the receipts from OTT and UOF is held to help pay the UC Office of the President (UCOP) assessmenta charge levied to support UC-wide initiatives and UCOP operational costs.

The graphic below depicts how these formulas work.

Diagram showing ICR flow