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Service Center Billing Rate Policy

Updated: April 2014

Based on federal compliance requirements (see 'Key Federal Compliance Requirements' table below) the University has developed the policy and guidance below for establishing and monitoring service center recharge or billing rates. All Service Centers that charge federal grants are subject to the cost principles and cost accounting standards outlined in OMB Super Circular-2 CFR Part 220, Cost Principles for Educational Institutions. In general, rates must be based on actual costs, applied consistently, and based on the actual use of the service (i.e. per test, hour, item, class, etc.)

Key Federal Compliance Requirements
  • Rates should recover no more than the cost of the good or service.
  • Rates must break-even over time, not necessarily each year.
  • Rates can’t discriminate between users, especially federal users.
  • Surplus from one service center shouldn’t be used to fund unrelated activities.
  • Must maintain published price list.
  • Equipment use (depreciation) may be included in the rate, so long as the equipment is purchased with funds from the revolving account (not General or Federal).
  • Equipment costs must be spread over the useful life (instead of one year) if cost is greater than $5,000.

All billing rates must be reviewed and approved by the Office of Financial and Cost Analysis every two years, at a minimum if the Service Center as a whole has at least $5,000 annual activity.

The rates charged to internal and federal grant and on-campus users may not exceed the cost-based rate (no profit/markup). The billings for external users can include markups. In some cases, work for external users may be subject to Unrelated Business Income Tax (UBIT). More information on UBIT is available on the UBIT FAQ website. The University Administrative Fee will be charged on revenue derived from external services. This charge and UBIT (if applicable) should be built into the rates for external users.

Where consistent rates are to be charged for external users, they should be reviewed and approved by the Office of Financial and Cost Analysis on a recurring basis at a minimum of every two years. For “one time” work or non-recurring, the terms and fees should be determined on a case by case basis and need not be reviewed by the Office of Financial and Cost Analysis.

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  1. DEFINITION OF SERVICE CENTER

    1. An operating unit within the University that provides a service or group of services or product or group of products to users principally within the University for a fee. Goods and services are provided:
      1. at approved rates
      2. on a regular and continuing basis
    2. Services are provided on a recurring, ongoing basis. For occasional services or testing, pricing should be determined on a case by case basis depending on the nature of the agreement and user, and reviewed by Contracts and Grants through e-transmittal.
  2. SERVICE CENTER BILLING RATE

    1. The internal or federal grant rate is the dollar amount charged for each unit of goods or services provided and used for billing purposes, based on annual costs.
    2. The rate must be constructed to neither overcharge nor undercharge internal and grant customers. The goal is to break even on a cost basis (over time); however, a working capital balance of up to 10% of annual operating exenses may be maintained.
    3. Simplified Example: Estimated Total Annual Costs / Total Estimated Billing Units = Billing Rate or Billing Rate x Total Billing Units = Total Annual Cost
  3. REQUIREMENTS

    1. Rates charged to external, internal, or federal grant users must be updated by departments and approved by the Office of Financial and Cost Analysis at a minimum of every 2 years (although annually is preferred).
    2. Service Centers should recover costs over a reasonable period of time. This is typically one fiscal year, but overages/shortages should be tracked on an annual and ongoing basis and future rates should be adjusted to recover shortages or return overages related to internal and federal grant users.
    3. The same rate schedule must be used for all internal and grant users. This rate schedule must not discriminate against federally funded accounts for the benefit of other users. The federal rate MUST be the lowest or equal to the lowest rate charged. Rates for these users must break-even over time, not necessarily each year. Ongoing tracking is necessary to review the cumulative “overage” or “shortage” (working capital) to carry forward and adjust future rates accordingly. Working capital balances up to 10% of annual expenditures may be maintained, but any amount over this balance will necessitate adjustment in future rates.
    4. Rates must be reviewed periodically for consistency with long-term costs by department staff administering the service center. This means a review of revenue and expenses and the related cumulative overages/shortages must be analyzed. At a minimum, this is required every 2 years, but every year is preferred.
    5. Service Centers must exclude federally unallowable costs from their billing rates and must only include the actual costs of performing the service to all users. The Federal Cost Policy lists allowable and unallowable costs.
  4. INSTRUCTIONS FOR PREPARATION OF A SERVICE CENTER BILLING RATE

    1. Identify all services provided. A separate rate should be calculated for each category of service.
    2. Identify all user groups. Do the users who will pay for products or services include internal, external, and or federal grant user groups?
      1. Internal Users: MSU Departments or Units. Internal billings and service billings.
      2. Federal Grants: Federal grants or customers are subject to the same requirements as internal users, and may be subject to separate federal compliance audits. This user group includes federal pass-through funds even though they are not received directly from a federal source. State grants which require compliance with federal costing regulations such as OMB Super Circular-2 CFR Part 220 fall under this group too.
      3. External Users: Private individuals (including students), companies, and state or other non-federal grants that do NOT have audit requirements or requirements to comply with federal costing regulations such as OMB Super Circular-2 CFR Part 220.
    3. Determine direct costs of Service Center operations. These are specifically identifiable with relative ease and a high degree of accuracy. These costs must be charged to the revolving account (accounts in the Designated or Auxiliary Fund) starting with D or X. Examples include:
      1. Salaries and benefits of staff directly providing the service.
      2. Materials costs.
      3. Contracted services.
      4. Equipment lease or rental.
      5. Repairs and machine supplies.
      6. Other directly related expenses

      * Remember that costs included in the F&A Rate negotiated by the University cannot be included in the direct costs above. These will be added on separately by Contract and Grant Administration when federal grant accounts are charged. Information on the F&A Rate components can be found under Current Facilities & Administrative Cost Rates and are summarized as shown in the box under the Quick Links section at the end of this guide. Contact Evonne Pedawi at pedawiev@cga.msu.edu or 517-884-4272 with additional questions. Generally, costs funded by revolving accounts beginning with D or X are not included in the F&A rate.

    4. Identify Service Center indirect costs incurred for multiple goods or services. These costs should be included in the rate to the extent recorded in the revolving account, but cannot include costs that are incurred on general fund accounts or federal fund accounts. These costs may be allocated on a per-unit basis to the rate or allocated based on another reasonable method (see step 6). Certain costs are unallowable components of rates for federal users and can be found in section J of the Appendix of OMB Super Circular-2 CFR Part 220 (see summary 'Common Examples of Unallowable Cost' table below).
      Common Examples of Unallowable Costs
      • Alcoholic Beverages (2 CFR 220 Appendix J.3).
      • Bad Debt (J.6).
      • Contingency (Reserves) Provisions (J.11).
      • Entertainment (J.17).
      • Fines and Penalties (J.19).
      • Interest (J.26).
      1. Salaries and benefits of administrative support staff (such as directors, clerical, accounting/finance staff).
      2. Supplies which are not directly attributable to a service (office-wide) including general office supplies, minor furnishings (see the 'Depreciation Useful Lives' table below), etc.
      3. Equipment.
        1. Equipment includes items with unit costs of $5,000 or more and a useful life of more than 1 year. A listing can be found on the KFS Capital Asset Management System.
        2. Equipment that does not meet these thresholds and is not on the list would be considered supplies.
          Depreciation Useful Lives
          Vehicles including trailers, boats, buses, cars, and trucks 4 Years
          University Developed Software & Software Licenses 5 Years
          Animals and Livestock 7 Years
          Kitchen Equipment including grills, refrigerators, trayveyers, stoves, and dishes 7 Years
          Office Equipment including copiers, faxes, printers, pagers, cell phones, two way radios, computers, fiber optics, and hubs 7 Years
          Scientific Equipment including surveying equipment, construction equipment, autoclaves, dishwashers, scales, sterilizers, diffractors, lasers, and microscopes 7 Years
          Farm Equipment including tractors, bailers, manure spreaders, wagons, hydraulic equipment, mowers, and welding machines 10 Years
          Lab Furniture including tables, wet and dry lab sections, chemical cabinets, stools, and chairs 10 Years
          Office Furniture including desks, chairs, bins, air conditioners, humidifiers, and non-collection art work 10 Years
          Library Books 10 Years
          Patents and Copyrights 17 Years
          Improvements and replacements of buildings 20 Years or longer if related asset remaining life is longer
          Buildings and major additions 40 Years
        3. Equipment purchased with Federal Funds or General Funds must be excluded from the rate because it is already a federal cost (either directly or through the F&A Rate) so including these costs in the rate would be “double dipping”.
        4. Allowable costs should include only the current year’s depreciation, not the current year’s purchases. See chart at below for the depreciable lives used by the University. Depreciable lives used for rates cannot be shorter than those used by the University without written justification.
      4. Buildings and Improvements
        1. Buildings are included in the F&A Rate and cannot be included in grant or internal rates.
      5. Debt Service (rare)
        1. External interest on long-term debt or capital leases may be charged in certain circumstances when funded by a revolving account.
        2. Principal payments should not be included in billing rates as they are equity purchases and not a current year expense.
        3. Interest on interfund borrowing is not an allowable cost.
    5. Identify campus-wide indirect costs to be included in billing rates (if any). Indirect costs are the facilities and administrative infrastructure costs that are NOT included in the F&A Rate, and are rare. See F&A Rate Information for information on components of the F&A rate. Contact Financial & Cost Analysis at billing.rates@ctlr.msu.edu for guidance on determining if there are any of these costs.
    6. Develop a method to allocate Service Center indirect costs (identified in step above) to each service offered.
      1. Allocations should be based on a causal and beneficial relationship. For Example:
        1. Percentage of Effort.
        2. Time Usage.
        3. Costs.
        4. Space – square footage.
    7. Quantify or estimate usage (number of units) for each service.
      1. This can be number of tests expected, time expected (if billing is to be by the hour), number of tests, etc. or whatever the unit of measure for billing purposes will be.
      2. Examples:
        1. For a service center that provides basic lab testing, the billing unit would be number of tests.
        2. For a center that provides consulting services, the billing unit would generally be the number of hours of service.
        3. For a center that rents storage space, the billing unit would be square footage (per day/week/month).
    8. Calculate cost-based rate for each service.
      1. Formula:
        Annual Estimated Costs (6) +/- Prior Year Cumulative Carry Forward (E)
        Expected Billing Units of Activity (7)
    9. Determine the rate that will actually be charged based on the analysis above keeping in mind the following restrictions:
      1. Federal users MUST be charged no more than the cost-recovery rate. There cannot be markup or profit and revenues from federally funded activities cannot be used to fund other activities.
      2. The Federal rate must be the lowest rate offered. Discounts cannot be provided to campus or other users that would cause others to pay less than the federal rate. The federal rate can be equal to the campus rate, but cannot be more.
      3. For rates for external users, remember to add the 2% administrative fee to calculated rates. This will be collected by the Controller’s Office on external revenue.
      4. For external users, the prevailing market rate can be used so long as it doesn’t undercut competitors and doesn’t fall below the Federal rate. Rates for external users may include markups to be used for other activities or reserves.
      5. Rates for on-campus users generally cannot include markups and fall under cost-recovery principles similar to federal users.
    10. Example Templates – The following templates may be a useful starting point to build rates with the above factors in mind. Documentation similar to these templates will need to be submitted to Financial and Cost Analysis to support the rates. Maintaining the support for the rate calculations is the responsibility of the unit providing the service.
      1. Testing or Per Unit Rates – For testing or when services are performed on a per unit basis (fixed price for a service such as $X per test).
      2. Testing or Per Hour Rates – For testing to be billed based on time or when a services are performed on a per hour basis (unless primary cost component is labor, then see c).
      3. Service Hourly Rates – For charging users based on time where the primary cost component is labor ($X per hour of labor).
      4. Noncredit Instruction – For per-course or per-seminar rates.
      5. Price List and Markup Calculation – For resale of goods or services where a markup is added to the cost of goods or services to cover unit administrative and overhead costs and the markup is a percentage of the cost of the direct materials or items.
  5. RATE REVIEW AND APPROVAL

    Rates must be updated by departments and approved by Financial and Cost Analysis at a minimum of every 2 years for each service. Annual review is encouraged. Service Center rates should allow the operation to "break even" over time; however, working capital balance of up to 10% of annual operating expenses may be maintained.

    1. Departmental Lookback Review – Departments must review operating statements to evaluate the total revenue and expenses related to providing each service. If it is determined that revenue exceeded expenses for the period under review and working capital balance exceeds 10% of annual operating expenses, adjust rates for the following period (whether the period is one year or two) down to give back the surplus (except for external user rates). If revenue was less than the expenses of providing the service, adjust future rates up to capture all the costs and recover the shortfall provided that the working capital balance remains under 10% of annual operating expenses.
      1. Revenues that exceed the actual costs of a service can not be used to subsidize other services of the Service Center, except for revenue generated by external users. For example, one service can’t be run at a profit, to subsidize another service that is run at a loss (for federal grant rates).
      2. Cumulative surplus should not exceed 10% of annual operating expenses.
      3. Surpluses or deficits should be cumulatively used to adjust future billing rates or be credited back to users by tracking the carry forward net cumulative surplus or deficit. This effort can exclude the balance created on external customers, so long as these surpluses can be documented.
      4. It is the department’s responsibility to maintain operating statements to support calculations used to develop and review rates.
      5. Consider setting up a separate account for each service center and/or sub-account for each line of service to facilitate accurate costing and tracking of revenues, expensees, and working capital balances.
    2. Financial and Cost Analysis Approval – Submit details of the rates to be charged and costs involved in developing those rates (see examples in D, 10. Above) to the Office of Financial and Cost Analysis at billing.rates@ctlr.msu.edu for approval. The rates will be reviewed and, if no issues are identified, an approval letter will be e-mailed back to the sender and any other individuals copied on the requesting message.
      1. Provide the following information either in your rate or in the body of your e-mail request:
        1. Users (Internal, External, Federal).
        2. Account to receive the revenue from the service.
        3. Rate Effective Date (when will the rates be charged).
      2. Review and approval (or follow up) will typically occur within two weeks of submission. You will receive an approval via e-mail. A sample approval letter is viewable here This approval letter along with the rates approved will be attached to the KFS Account e-doc in KFS for future reference.
      3. Rates for federal users will additionally be reviewed by Contract and Grant Administration Staff before approval is sent.
    3. Document activities and maintain records supporting the expenditures for 3 years for federal compliance requirements. Beyond 3 years, see University Archive policies.
  6. RESOURCES and CONTACTS

    1. Questions regarding the allowability of costs and inclusion in billing rates and the review and approval process: Becca Fedewa, Office of Financial and Cost Analysis at 517-355-5029, billing.rates@ctlr.msu.edu.
    2. Questions regarding federal cost allowability:
      1. Evonne Pedawi, Contract and Grant Analysis at 517-884-4272.
      2. OMB Super Circular-2 CFR Part 220.
    3. Other University Service Center Policies:
      1. University of Pennsylvania.
      2. University of New Hampshire.
      3. University of Kentucky (See Service Center/Recharge Operations Policy).
      4. University of Minnesota:
        Internal Sales
        External Sales.
      5. Washington University (POLICIES & GUIDELINES, Service Centers Policies and Worksheets section).
      6. University of Michigan.
      7. Indiana University.
  7. QUICK LINKS

    1. Templates
      1. Testing or Per Unit Rates – For testing or when services are performed on a per unit basis (fixed price for a service such as $X per test).
      2. Testing or Per Hour Rates – For testing to be billed based on time or when a services are performed on a per hour basis (unless primary cost component is labor, then see c).
      3. Service Hourly Rates – For charging users based on time where the primary cost component is labor ($X per hour of labor).
      4. Noncredit Instruction – For per-course or per-seminar rates.
      5. Price List and Markup Calculation – For resale of goods or services where a markup is added to the cost of goods or services to cover unit administrative and overhead costs and the markup is a percentage of the cost of the direct materials or items.
    2. Sample Approval Letter.
    3. Manual of Business Procedures Billing Rate Section 5.
    4. Equipment Useful Lives.
    5. Unallowed Costs Examples.
    6. Federal Cost Policy from MSU OSP/CGA.
    7. Fringe Rates.
    8. F&A Rate Components - (Summarized below).
      F&A rate components for the on-campus research rate
      General Administration 7.5%
      Department Administration 14.9%
      Sponsored Projects Administration 3.6%
      Total Administrative Cost Pools 26.0%
       
      Building Depreciation 3.6%
      Equipment Depreciation 2.2%
      Interest 2.4%
      Operations & Maintenance 18.0%
      Library 1.3%
      Total Facilities Cost Pools 27.5%
       
      Total F&A Rate 53.5%


QUICK LINKS
OFFICE ADDRESS
Hannah Administration
426 Auditorium Road
Room 301
East Lansing, MI 48824
Hours M-F 8-5
OFFICE CONTACTS
John Thelen
Manager
Phone: 517-884-4197
thelen43@ctlr.msu.edu
General Contact
Phone: 517-355-5029
financial.analysis
   @ctlr.msu.edu
Michigan State University