Cost Shares

A cost share is a financial mechanism for interested parties to demonstrate commitment to a project or a plan, and to increase available funds for that project or plan. Cost sharing can be “Voluntary” or “Mandatory”. Mandatory cost sharing is exactly what it sounds like. The cost sharing is required by the sponsor, with terms clearly defined in proposal guidelines that become part of the contract between the University and the Sponsor at the time the award is made. Voluntary cost sharing is the opposite. It happens when an applicant includes cost sharing in an award proposal that is not required by the sponsor. Voluntary cost sharing can be “Committed” or “Uncommitted”. Federal sponsors consider cost sharing offered at the proposal stage to be “committed” when an award is made. The result is that the cost shared funds are auditable and must be reported to the sponsor. Voluntary uncommitted cost sharing is much looser. It consists of any sort of effort, funds, or other resources committed to a project not included in the proposal narrative or the official budget.

What Types of Things Can be Cost Shared?

Technically, anything that isn’t either illegal or prohibited by your university could be cost shared, but there are some costs that are more common to cost share. In-Kind contributions are the computed value of any resource or service provided by a third party that contributes to a Sponsored project. Property, equipment, supplies, and services all could be in-kind cost shared if they directly benefit and are specifically designated for the proposed project.

Cost Shares can also come in the form of “cash” contributions from a university. This can be effort for project personnel or the allocation of funds from an unrestricted account, most commonly a gift, start-up fund, or endowment, to the project to support specific direct costs (travel, for example). When doing this, both the PI and a person with budget authority will need to communicate the amount of the cost share, specify the source to fund the cost share, and provide a detailed budget defining how the funds will be used.

Facilities and Administration (F&A) costs can also be cost shared. Sometimes these are linked to a cash contribution. For example, if funds for travel are cost shared, the direct cost of the travel plus the associated F&A cost is included in the cost share. Alternatively, F&A fees could be “foregone” or “waived” as part of a cost share. In this case, the University agrees not to charge its F&A fees to a particular sponsor. The University must approve this setup. 

How Does the Math Work?

You should work with your finance person and the relevant central office to make sure calculations are made in accordance with the regulations of the sponsor and of your university, as it can get complicated. The below examples can be useful for back-of-the-envelope type calculations.

Let’s start with a proposed commitment of $2,000 in direct costs for PI travel to share the data gathered in the proposal at national meetings. The first thing to determine is whether or not the type of direct cost (travel) is subject to the university’s computed F&A costs. Your university will have a list of what is excluded from F&A costs somewhere, but in general, most things that are not equipment, property costs, or tuition remission are included. If in doubt, include F&A costs in your calculation and you can be pleasantly surprised if it turns out to not be needed. The next thing needed is the F&A rate for the type of direct cost (travel). Most universities post this. For the sake of this example, we will assume a 50% F&A rate on direct costs associated with travel. This means that the total is $2,000 in direct costs plus $1,000 in F&A (50% of $2,000 is $1,000) for a total cost share of $3,000. Now, non-sponsored funds, which include gifts, start-up funds, endowments, and royalties, may have either no F&A or significantly less F&A than sponsored projects. This means that if you cost share $2,000 in direct costs with applicable 50% F&A costs for travel to a sponsored project, the total cost of the travel will be $3,000 to your endowment. If instead you simply used your endowment funds, which are not subject to F&A, to cover the cost of the trip, you would only use $2,000. 

In the case of PI effort, the total amount of the cost share includes the fraction of the PI’s salary being shared, the related fringe benefits, and the F&A costs. Here we’ll set the PI’s salary at $150,000, set the fringe rate at 30%, and keep the F&A costs at 50%. If this PI were to cost share 10% of their effort, the amount would be 10% of $150,000 (0.1 * $150,000 = $15,000) plus the calculated benefits rate ($15,000 + (0.3 * $15,000) = $19,500) plus the calculated F&A ($19,500 + ($19,500 *0.5) = $29,250) for a total cost of $29,250 for the cost share.

Costs can add up quickly.

How Can I Show Financial Commitment Without Cost Sharing?

You can include proposal language that will demonstrate the availability of other funds and your potential willingness to apply those funds to a project without triggering a formal cost share. Phrases such as “additional effort as needed” or “will be contributed by the department” show involvement of specific individuals in a project. “The department will purchase Machine for use by the PI” or “a Machine is available for use” indicate equipment availability. In contrast, phrases associated with cost sharing, or that could be interpreted as indicating cost sharing include calling something a “shared cost”, or the use of “sharing”, “matching”, ‘exclusive use”, “donate”, or “in-kind”, as well as putting specific values on effort or supplies. Check your budget justification as well as  Letters of Support to ensure that this type of language doesn’t sneak into your proposal documents unintentionally.

Should I Include a Cost Share in my Proposal?

It depends. Things to think about when deciding to include or not include a cost share in a proposal:

1. Is it required or necessary? Note that the goal of “showing commitment to the project” is not “necessary”.
2. Does the sponsor allow cost shares, and do they allow the type of costs being proposed to be included in the cost share?
3. Is it possible to show, in an auditable way, that the costs are allocable to the project?

If you answer “yes” to all 3 of these questions, then it makes sense to proceed with the cost share. Otherwise, do not include a cost share, or please at least proceed with caution and guidance.