The federal negotiated indirect cost (IDC) rate is calculated by an automated process based on payment on the subcontract purchase order (PO). Payments are made against the subcontract PO by item sequence number, unless otherwise requested by the department.

General guidelines:

• The IDC rate is applied only to the first $25,000 of a subcontract. Once that threshold is reached, no more IDC will be assessed on the subcontract PO.
• Subcontracts show up on the ledger under account code 637296.
• If the subcontract is split between two indexes or two funds, the IDC on the first $25,000 will be prorated based on the amount of payment charged to each index or fund. (See examples below for clarification.)
• When an award with a subcontract is renewed, the subcontract must also be renewed.
  • A change order to the existing PO is the preferred method, but the subcontract officer in Purchasing may issue a new PO. If a new PO is issued, the automated system will assess IDC on the first $25,000.
• When submitting a proposal that includes a new subcontract to another entity, check with the subcontract officer to confirm that the proposed subcontract meets the subcontract criteria. Without prior confirmation, you risk having IDC assessed on total costs instead of the first $25,000.

These sample situations demonstrate how IDC is calculated in different circumstances:

• Example 1: One index, over threshold
  
  Details:
  • A $100,000 subcontract is issued to Salk Institute.
  • IDC rate is 52%.
  • The subcontract PO number, 12345678, is issued June 1.
  • The subcontract PO is placed on index ABC5678, fund 25678A as item 0001.
  • A payment of $15,000 is made to the subcontractor on July 15.
    IDC calculation: $7,800 IDC ($15,000 x .52) is charged to index ABC5678, fund 25678A.
    • Note: Because there is only one item number on the PO, the payment is applied to PO item 0001.
  • Another payment of $15,000 is made to the subcontractor on Aug. 1.
    IDC calculation: $5,200 IDC ($10,000 x .52) is charged to index ABC5678, fund 25678A.
    • Note: The IDC rate is calculated only on the first $10,000 of this payment because the $25,000 ($15,000 from the first payment + $10,000 from the second) threshold has been reached. No more IDC will be charged on this PO.

• Example 2: Two indexes, over threshold
  
  Details:
  • A $40,000 subcontract is issued to Scripss Clinic.
  • The IDC rate is 52%.
  • The subcontract PO number, 10876543, is issued July 1.
  • The subcontract PO is divided between two indexes:
    • $20,000 is placed on index EFG1010, fund 21010A as item 0001.
    • $20,000 is place on index EFG2020, fund 21010A as item 0002.
  • A payment of $30,000 is made to the subcontractor on August 15.
    IDC calculation:
    • $10,400 IDC ($20,000 x .52) charged to index ERG1010, fund 21010A
    • $2,600 IDC ($5,000 x.52) charged to index EFG2020, fund 21010A
      • Note: Unless instructed otherwise, Disbursements will apply the payment (as much as possible) to PO item 0001. Once the $20,000 limit for item 0001 of $20,000 was reached, the remainder of the payment, $10,000, was to be applied to item 0002. But because the $25,000 ($20,000 + $5,000) threshold was reached, no IDC was charged on the remaining $5,000, and no more IDC will be charged on this PO.

• Example 3: Two indexes, split between two funds
  
  Details:
  • A $300,000 subcontract is issued to Sharp Hospital.
  • The IDC rate is 26%.
  • The subcontract PO number, 10065432, is issued September 1.
  • The subcontract PO is divided between two indexes:
    • $150,000 is placed on index ABC1006, fund 21006A, as item 0001.
    • $150,000 is place on index ABC2245, fund 22245A, as item 0002.
  • A payment of $25,000 is made to the subcontractor on September 30
    IDC calculation (standard): $6,500 IDC ($25,000 x .26) charged to ABC1006, fund 21006A.
    • Note: Unless instructed otherwise, Disbursements will apply the payment to PO item 0001.
    IDC calculation (two funds):
    • $3,250 IDC ($12,500 x .26) charged to index ABC1006, fund 21006A
    • $3,250 IDC ($12,500 x .26) charged to index ABC2245, fund 22245A
    • Note: Disbursements will split the payment between the two funds at your request.

Need more information?

• For questions about the IDC automated process, contact Rachel Mercado, (858) 534-0703.
• For questions about whether a new PO or a change order to an existing PO will be issued, contact Michael Spencer, 822-4392 (general campus) or Bob Beiner, (858) 534-3753 (SIO).