Indirect Costs: how funders cover research overhead

What are indirect costs?

Indirect costs, often called overhead, are the shared expenses of hosting research that cannot be attributed to any single project. They include facilities, administration, utilities and institutional support, the underlying costs that make research possible but are not tied to one grant.

Because they cannot be traced to a specific project, funders usually cover indirect costs as a percentage of a project's direct costs rather than asking an institution to itemise them. That percentage is the mechanism by which a funder contributes to the real cost of hosting the work.

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What is the difference between direct and indirect costs?

Direct costs are attributable to a specific project, researcher salaries, equipment, materials, travel for the study. Indirect costs are the shared institutional expenses, the building, the finance office, the IT systems, that enable research in general but cannot be assigned to one project.

The distinction is essentially about traceability. If a cost exists because of one particular project and would disappear without it, it is direct; if it is part of the institution's standing capacity to do research, it is indirect and recovered through a rate.

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Why are indirect costs charged as a percentage?

Itemising every shared expense for every project would be impractical and contentious, so funders and institutions agree a rate instead: a set percentage of direct costs that stands in for the project's fair share of overhead.

These rates vary considerably between funders. Some foundations cap indirect costs at around 15%, while research councils and agencies may allow 25% or more, and the applicable rate is a significant factor in what a grant actually costs a funder beyond the visible research budget.

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Handling indirect costs in a platform

A research grant management platform lets a funder set an indirect-cost rate in the call for proposals and apply it consistently to every application budget, so overhead is calculated the same way across the portfolio and budgets stay comparable and disputes-free.