HHS Treatment of Independent Research and Development (IR&D)
Regulation and Links:
It is prescribed in the Department of Health and Human Services (HHS) regulation under Additional Cost Principles (HHSAR ’ Section 352.216-72(b) that:
(b) Independent research and development costs. (1) Independent research and development is research and development conducted by an organization which is not sponsored by Federal or non-Federal contracts, grants, or other agreements.
(2) Independent research and development shall be allocated its proportionate share of indirect costs on the same basis as the
allocation of indirect costs to sponsored research and development.
(3) The cost of independent research and development, including its proportionate share of indirect costs, are unallowable.
Similar provisions are spelled out in "Allowable Costs" in HHS’ Title 45, Code of Federal Regulations (CFR), Part 74.27
A 20% G&A rate calculated using a $120,000 G&A Pool (which includes $10,000 in IR&D costs) divided by a G&A Base of $600,000 would adjust for the HHS treatment of IR&D to an 18% Adjusted G&A rate. The adjustment is made by deleting the IR&D from the G&A Pool and adding it to the G&A Base.
Adjusted G&A Pool = $120,000 less IR&D ($10,000 in this example) or $110,000
Adjusted G&A Base = $600,000 plus IR&D ($10,000) or $610,000
Adjusted G&A Rate = Adjusted Pool divided by Adjusted Base or $110,000/$610,000 or 18%
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