Overheads

There are two broad categories of costs associated with undertaking research - direct costs and indirect costs. These two categories typically comprise:

Direct costs

• salaries of staff working on the research project
• student stipends
• travel
• consumables (such as laboratory reagents)
• non-capital equipment
• animal costs or specific facilities charges
• other project-specific costs.

Indirect costs

• IT systems and services
• library usage
• building usage and depreciation (power, water, rent etc)
• administration services including faculty administration, Research Office, UniServices, Human Resources, finance etc.

Direct costs are budgeted in advance and then charged to the relevant single project or contract when incurred.

Indirect costs are more difficult to assign to a single project or contract. Instead, an ‘overhead’ rate is used to average the indirect costs of all externally funded research projects.

The calculation of this overhead rate is based on a standard method agreed by all New Zealand universities and the Minister of Research, Science and Technology (“Method for the Calculation of Indirect Research Costs Rates” published by the New Zealand Vice Chancellors’ Committee in May 2003). The calculation is audited by independent external auditors and is re-assessed every three years.

The calculation is undertaken as follows:

1. The total indirect costs of the institution supporting Externally Funded Research are determined as A.
2. The total direct salary component associated with Externally Funded Research is determined as B.
3. The Research Overhead Recovery Rate is then determined as the ratio A/B, expressed as a percentage. The rate is thus a function of both indirect costs supporting Externally Funded Research and researcher salary levels.

In the period 2003 to 2007 The University of Auckland overhead rate has been 121% of the direct salary costs of doing the research. Because salary costs have been increasing at a greater rate than the indirect costs of doing research, the overhead rate for 2008 has been recalculated at 114% of the direct salary costs.

Each externally funded research contract is accompanied by a budget that specifies the salary components of the researchers involved in the contract, the ‘overhead’ components associated with those salaries, and the direct project costs. When the contract is signed the University sets up a project account in the University financial system, into which all monies from the contract flow. The costs of undertaking the research are then paid from this account as follows:

1. The salary components for researchers working on the project are used to pay for that portion of the researchers’ time that is spent on the project, as specified in the contract. In this way, the University is able to guarantee to funders that these funds are applied directly to supporting researchers working on the project.
2. The overhead component associated with each researcher salary is transferred out of the project account into ‘overheads’ accounts held by the host faculty. The faculties then use these monies to defray the ‘overhead’ or ‘indirect’ costs associated with supporting the research. The kinds of support required vary from faculty to faculty, so the exact costs defrayed with overhead monies also vary.
3. At the very least, each faculty must pay for the University services used to support the research activities, including a portion of the costs of central services such as the library, the computer network, human resources services, and research office services. The method of calculation of these costs is described in the University Research Manual. Most central costs are apportioned on a FTE basis, taking into account the numbers of researchers using the services across the University.
4. The direct research costs of the project are paid from the project account on the approval of the Principal Investigator to achieve the project or contract outputs.