Rate Development

Cost Recovery

The actual direct costs of providing the service are recoverable. Costs may include salaries & wages, fringe benefits, materials, supplies, repairs, maintenance, service contracts, and depreciation recovery (see below).

• Technical Staff – Salaries, wages, and fringe benefits of technical staff dedicated to and directly supporting the Recharge Center. The costs of individuals benefiting more than one Recharge Center or activity should be allocated proportionally to each activity.
• Materials and Supplies – Costs of materials and supplies necessary to operate a Recharge Center.
• Capital Equipment Depreciation Expense – Capital equipment includes items of tangible personal property with a cost of $5,000 or more and a useful life of more than one year. Federal regulations do not allow the purchase of capital equipment in a Recharge Center but do allow the recovery of equipment depreciation for equipment purchased with non-federal funds.
• Miscellaneous Expenses – Rental and service contracts, equipment operating leases, and professional services utilized by the Recharge Centers should be included in the rate calculation.

Charges to internal users may not recover more than the cost of the service and may not discriminate between activities under Federal awards and other activities. Special rates, such as for high volume work, are allowed. Such rates should be available and applied consistently to all users who meet the criteria.

Unallowable Costs

Unallowable costs for Federal grants and contracts (Refer to §200 Sub-part E for federal cost principles) and indirect costs that are included in an Institution’s F&A cost proposal may not be included in the service center rate calculation. Recharge rates may not include the following:

• The costs that have been designated as unallowable for government grants/contracts since those services may be charged to a government grant or contract. Below is a list of common unallowable costs.  Contact UND Grants & Contracts Accounting for more information.
• Departmental administrative staff who are not directly involved with the operation of the Recharge Center (ex. Payroll Clerk). Staff that share both roles should be allocated appropriately.
• Any costs formally committed as cost sharing to any Federal sponsored project.
• Depreciation associated with capital equipment purchased with Federal funds.
• Reserves for anticipated future equipment repairs and replacement.

Rate Calculation

An important step is to determine the appropriate unit of measure to be used for the billing rate. Examples include:

• Per-unit (I.E. billed for each sample prepared)
• Time based (I.E. billed hourly or daily)
• Flat Fee (I.E. billed per use)
• Combination (I.E. flat fee + fee per unit)
• Subscription/Membership based

The rate per unit is calculated by the total allowable annual costs divided by the unit of measure.

• Surplus and deficits generated in a service fund may not be used to fund activities outside the service center.  Rather, they must be factored into the following period’s rate calculation. However, service centers may establish and maintain a reasonable level of working capital reserve, in addition to the full recovery of costs. A working capital reserve (as part of the fund balance) of up to 60 calendar days cash expenses for normal operating purposes is considered reasonable.
• The same rate must be charged to all users of the service, based on actual usage. The service center may not charge a higher rate to a Federally sponsored project than it does to institutional departments. However, external entities may be charged a higher rate using a mark-up. A mark-up rate option would be UND’s F&A rate, however other options are allowed. Revenue from the mark-up portion may be transferred to another fund and used by the institution for other purposes or retained in the fund to reduce the overall rate.
• A specific billing rate should be established for any service which has costs unique to that service, such as specialized equipment or dedicated staff. Separate rates must also be calculated if the user population is different for each service. Identifying costs for each service ensures that one service is not subsidizing a service with higher costs.

Internal/External Users

Although Recharge Centers primarily serve users internal to UND (sponsored and non-sponsored funding sources), in some cases external entities may also use the service. Examples of external users include non-UND personnel, visiting faculty members, private industry and UND employees conducting personal research.

All users should be charged directly for actual use of services at a pre-approved rate.  The UND's cost plus the appropriate indirect cost rate may be charged to external users.  At no time will an external customer be charged less than the Federal government and internal users for the same service. The Federal government must always be treated as the most favored customer. To ensure compliance with Federal Unrelated Business Income Tax (UBIT) and ND sales tax laws, consult with the Controller’s office for guidance prior to contracting with external users.

Major Equipment/Depreciation

Major equipment purchases are not allowable in a service center and surplus balances in the service center operating account may not be used to purchase equipment. However, non-federal funds may purchase equipment for use in service centers.  An amount equal to the annual depreciation of this equipment may be recovered from the service center and set aside in a separate equipment reserve fund for future equipment purchases for the center. (Depreciation on equipment purchased from federal grants/contracts cannot be recovered from a service center as this would be considered double-dipping.)

• Other than the depreciation recovery option, service centers cannot set aside funds or include an equipment reserve fund in the internal rate. However, external billing rates can include a cost for an equipment replacement reserve.
• Assets included in the recoverable depreciation calculation must be directly assigned to the recharge center and used in the delivery of the good/service for which the rate is being charged.
• Equipment used in service centers can have a different useful life than similar assets at UND. Service centers must be able to defend a shorter life.
• Depreciation recovery is calculated and charged to the service centers at the end of each fiscal year.

Rate Subsidization

In some cases, the institution may choose to provide subsidized rates to internal customers, such as:

• An individual such as a new PI
• A specific customer group
• A particular service
• The entire service center

Subsidized rates may be necessary if:

• Calculated rates are too high to be competitive
• Rates cannot support expensive equipment depreciation costs
• Strategically support of new or junior faculty members
• Provide benefit to faculty members in the home department
• Lower than anticipated demand

If the entire service center is receiving a subsidy, that amount can be included in the rate calculation to reduce the rate. The subsidy can be transferred into the service center operating account at the end of fiscal year.

If individual customers are receiving a subsidy, that amount should not be included in the rate calculation. Each invoice should document subsidy and that amount should be transferred into the revenue account.

All subsidies should be documented in the rate development process.