The Foundation's 25% Cost Share and the In-Kind Lab That Isn't Free
Your institution is submitting a two-year, $400,000 proposal to a private foundation. The foundation requires a 25% cost share ($100,000) and caps indirect costs at 10% of direct costs; your negotiated federal indirect rate is 56%. The PI proposes to meet the cost share with: (1) $60,000 per year of in-kind use of a renovated laboratory, based on the university's depreciation schedule for the building; (2) $8,000 per year of a technician's salary, though the technician is already charged 100% to a federal award; (3) a $20,000 vendor discount on a piece of equipment, which the PI calls a 'donation'; and (4) $30,000 per year of unrecovered indirect costs, calculated as the difference between the negotiated rate and the foundation's 10% cap. The foundation's guidelines say cost share must be verifiable, allowable, and incurred during the project period; they do not explicitly mention unrecovered indirect. The university's policy requires all cost share to be recorded in the financial system. The PI's spouse is a manager at the vendor offering the discount.
1. Evaluate each of the four proposed cost-share items for allowability and documentation.
Read the worked answer
Item 1, lab depreciation: potentially allowable only if the space is not already recovered through the university's indirect cost pool. If the building's depreciation is in the F&A rate, claiming it again as cost share double counts. It must be recorded at the institution's depreciation/use rate, not fair-market rent, and supported by space records. Item 2, technician salary: not allowable as proposed. The technician is already 100% charged to a federal award; the same effort cannot be cost shared. If the technician will actually work on the foundation project, the department must reassign a documented percentage and charge that portion to a non-federal cost-share account. Item 3, vendor discount: a discount reduces the purchase price; it is not cost share. If the vendor intends a gift-in-kind, it must be documented as a gift, accepted under institutional policy, and evaluated for conflict of interest. Item 4, unrecovered indirect: allowable only if the foundation's guidelines permit it. The guidelines do not mention it, so I would request written confirmation before counting it. Even if allowed, it must be calculated on the actual base and recorded as unrecovered indirect, not as a direct cost. The final package needs a cost-share ledger, monthly reconciliation, and PI/department certification.
2. What are the conflict-of-interest and institutional risks with the vendor discount, and how should you handle it?
Read the worked answer
The spouse's role at the vendor creates a financial conflict of interest that must be disclosed and managed, regardless of whether the discount is a gift or a discount. If the discount is a gift-in-kind, the PI may have a personal financial interest in the vendor selected; if it is a discount, the PI still has an incentive to choose that vendor. I would not accept or process the discount until the PI files a disclosure and the COI office determines management-likely recusal from vendor selection, disclosure in the proposal, or use of an alternative vendor. I would also check whether the vendor discount is contingent on the proposal or award; if so, it may be an inducement that must be treated as a gift or a conflict. The institutional risk is not just the $20,000; it is a procurement integrity and conflict-of-interest finding that can taint the award. The RA should document the disclosure, keep the vendor selection arm's-length, and avoid signing a cost-share letter that describes the discount as a donation without documentation.
3. How should unrecovered indirect be treated, and what is the correct way to document the final cost-share package?
Read the worked answer
Unrecovered indirect costs are the difference between the institution's negotiated rate and the sponsor's cap. They can be used as cost share only if the sponsor allows it and the institution's policy permits it. The foundation's silence is not permission; I would ask the program officer in writing and keep the response. If allowed, the amount must be calculated on the actual direct-cost base and recorded as unrecovered indirect in the cost-share ledger-not claimed as a direct charge. If not allowed, the $30,000/year cannot be counted, and the PI must find other allowable cost share. The final package should include: a cost-share account in the financial system; documentation for each item (depreciation schedule, effort reassignment, gift acceptance, unrecovered indirect calculation); a reconciliation to the foundation's 25% requirement; and a certification by the PI and department that the costs were incurred during the project period and are not double counted. Cost share is audited like direct costs; a letter of support is not enough.