Section 3 – Budgeting Overview

The purpose of this web page is to provide helpful guidance and information when preparing a budget for a sponsored project.


A proposal’s budget represents the amount of funding required to perform the project and presents to the sponsor an accurate assessment of what cost items and cost amounts will be necessary to complete the proposal’s aims, objectives or statement of work.

Sponsor’s Budget Forms and Formats

Sponsor’s forms and format for budget and budget narratives should always be used.

Pay attention to Sponsor’s guidelines. They provide information concerning budget limitations, specific cost considerations, requirements for cost sharing, and other special financial information. Failure to adhere to a Sponsor’s budget or program guidelines may jeopardize funding of the proposal.

Budget Escalation Factors

For multi-year proposals, DSP recommends using  up to a 3% escalation factor for those recurring direct costs found in each budget period, such as Salary and Wages, Travel, Equipment, and Material and Supplies. For Tuition as part of a Graduate Student Research Assistant (RA) compensation, use the escalation factor found at the Tuition Table.  We may not escalate fringe benefit rates or indirect costs rates.  We must use the most current approved and published rates at the time of proposal.

Cost Reimbursement vs Fixed Price Budgeting

Under a cost reimbursement agreement, the sponsor obligates an amount not to exceed and reimburses/pays the University of Florida for actual expenditures made in support of the project. The budget submitted to the sponsor will provide detail of all anticipated costs required of the project and a corresponding budget justification for each item. The budget represents the financial plan for the expenditures.

Under a fixed price agreement, the sponsor is agreeing to pay the University a fixed sum of money to complete the work agreed upon. The fixed sum can be paid in full upon agreement signing or a payment schedule can be negotiated, which will require DSP’s approval. The fixed price quote needs to be carefully created to ensure the work can be completed at the price offered.  If the project incurs expenses less than the fixed sum, the University may retain the balance. If the project’s expenses exceed the fixed sum to complete the project, the sponsor is not obligated to pay for any overexpeditures.

Federal Grant Budget Tips and Reminders

Most federal grant applications are now submitted through These federal grant applications require the use of the standard form and format called the SF-424 Budget Information Forms. Below are links to the NIH and NSF Budget Tips and Reminder pages that are applicable to almost all federal agency.

Cost Sharing

Budgets and/or budget justifications submitted to the sponsor that identify costs that will be paid by the University or a third party are considered cost sharing and requires additional approvals prior to submitting the proposal to the sponsor. For more information about when the University allows cost sharing and what approvals are needed see the University of Florida’s Cost Sharing Policy.

There are some sponsors that do not allow cost sharing. For example the National Science Foundation unless specifically required in the program announcement cost sharing is not allowed to be presented in a proposal. If include the NSF has reserved the right to reject the proposal for being non-compliant.

Cost Groups

Most budgets are composed of two kinds of cost groups: direct costs and indirect costs.

  • Direct costs are those budget line items that support performing the scope of work and are reasonable, easily identifiable and allocable to the project. The Principal Investigator is responsible for spending the direct costs on allowable costs such as project personnel salaries, associated fringe benefits, materials, supplies, travel, and equipment.
  • Indirect costs are expenditures that cannot be allocated to a specific project. Indirect costs are collected and expressed as a percentage of the direct costs. Indirect costs normally pay broad categories of costs such as sponsored programs administration, research compliance, purchasing, accounting, libraries, custodial services, building depreciation, and utilities.

When preparing your budget, all direct cost items are usually itemized first and totaled. The appropriate indirect cost percentage rate is then assessed against the appropriate base of the allowable direct costs.

 $ 100,000   Total Direct Costs (TDC)

$   44, 385 Indirect or F&A costs at 50% MTDC (see below for MTDC discussion)

$ 144,385   Total Project Costs

 Indirect Costs or Facilities and Administration (F&A) Cost

The indirect cost rate is a percentage applied to either a Total Direct Cost (TDC) or Modified Total Direct Cost (MTDC) or Other Base as follows;

  •  TDC base = All direct costs. There are no exclusions or modifiers. Total F&A cost = TDC x the F&A rate.
  • MTDC base = TDC minus equipment, patient care, tuition, rental costs of off-site facilities, scholarships, fellowships, and the portion of each subaward in excess of $25,000. Total F&A cost = MTDC x the F&A rate.
  • Other bases = On occasion sponsors or programs may have unique policy or written instructions regarding the application of indirects. Please follow those instructions and provide a copy to DSR in advance. Also include a copy in the proposal package being routed for approval.
  • The University of Florida’s indirect cost rates used in grant and contract applications can be found at: F&A and Indirect Rates

Direct Cost Categories

The following is a list of typical direct costs, broken out by accepted cost categories. Faculty are encouraged to group costs according to sponsor requirements.

Budgeting Normally Indirect Costs as Direct Costs