Tufts University Service Center Policy
Revised July 1, 2016
Service Centers are units that charge for goods and services that directly support the research or academic mission of the University and recover costs through charges to internal and external users. Service centers are expected to recover no more than the aggregate costs of their operations through charges to users. All academic service centers must be able to demonstrate compliance with federal requirements and cannot use fee structures that discriminate against federal funding sources.
As a recipient of federal funding, the University must comply with the U.S. Office of Management and Budget Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R. §200) (“Uniform Guidance”). In accordance with Uniform Guidance, Subpart E (§200.468), our policy requires that all service centers charge customers using federal funds to pay for services according to actual usage, only recover costs and not make a profit. Non-compliance could result in Government-imposed fines or disallowed costs. Service Centers are reviewed and tested annually as part of the single audit required by Uniform Guidance, Subpart F Audit Requirements (§200.500).
- Establishment of New Service Centers
- Rate Development
- Financial Considerations
- Billing Rate Principles
- Standard Billing Rates
- Rate Consistency
- Breakeven Expectation
- Alternative/Discount Rates
- Service Centers that Provide Multiple Services
- Cost Allocations
- Equipment Purchases
- Services Provided to Outside Parties
- Unrelated Business Income Tax
- Transfers of Funds Out of Service Centers
- Subsidized Service Centers
- Setting Animal Care Facilities Rates
- Records Retention
- Review of Service Centers
- Technical Assistance
The establishment of new service centers must be reviewed by Finance & Planning and the Manager of Taxation Services and approved by the dean or executive administrative dean of the school where the center will be located. The requests for approval must contain the following information:
- A description of the services to be provided and the users of the services.
- The reason why the services can best be provided by an internal service center rather than by an external service provider.
- A multiyear budget/business plan including projected costs and utilization of the services.
- Billing rate calculations with supporting data. Generally, Finance & Planning will work with the school or department to develop billing rates and initial business plans.
- When possible, an examination of current market conditions should be conducted. If service centers exist in the market, a list of their rates should be compiled for comparison purposes.
- The proposed location of the service center.
Prior to establishing a new service center, please see below for helpful questions in determining whether a Service Center should be established:
- Is this service available elsewhere on campus?
- Is the need for this service short-term or long-term?
- Is this service provided for, or subsidized by, a federal award?
- What portion of users will be internal vs. external?
A service center rate is the cost per unit of goods or services sold set to recover the expenses of the service center and achieve a breakeven financial position. The use of an appropriate billable unit is essential to ensuring that users are charged only their fair share of the actual costs of operating the service center. Rates are based on budgeted projections of operating expenses, including a carryforward surplus/deficit, divided by projected levels of activity or revenue.
Budgeted Expenses +/- Cumulative Carryforward Surplus/Deficit
Budgeted/Projected Level of Sales of Goods/Services (Billable Units)
Billing rates should be designed to recover the direct operating costs of providing the services on an annual basis including internal service center overhead. No costs other than the costs incurred in providing the services should be included in the billing rates. The costs should exclude unallowable costs per Federal Guidelines and be net of applicable credits. For service centers and specialized service centers, the computation of the billing rates may also include the center’s allocable share of institutional indirect costs.
Billing rates should be computed annually for the start of each fiscal year. The rates should be based on a reasonable estimate of the direct operating costs, and where applicable, indirect costs of providing the services for the year. These estimates can be determined through use of historical costs and billing units or projected costs and billing units. In some cases, the service center may charge a market price, so long as it recovers no more than cost by doing so. While billing rates must be computed annually, they will not necessarily cause actual rates to change.
- Users should normally be charged the published rates for a service center’s services. This requirement does not apply to alternative pricing structures related to the timeliness or quality of services. Pricing structures based on time-of-day, volume discounts, turn-around time, etc. are acceptable, provided that they have a sound management basis and do not result in recovering more than the costs of providing the services
- If circumstances change significantly (sales volume or costs) during a fiscal year, then billing rates should be adjusted. A new rate calculation and rate sheet should be sent to the Budget Center or Executive Associate Dean (EAD) and to Finance and Planning for approval. All billing rates must not discriminate against federally supported users.
- All users should be charged for services during the fiscal year the service is rendered. Monthly or quarterly bills should be processed and charged to user DeptIDs or ProjectIDs. Any adjustments can be made in the subsequent billing period(s).
Rates can be set based on hours, units, clock time, or any other metric that is the closest approximation for utilization of resources to produce the good or service. Rates established by service centers must be non-discriminatory, and all users of the center must be billed for services. Non-discriminatory means all internal users must be charged at same rate(s) for the same level of services or products purchased. External users may be charged a higher billing rate than internal users to recover F&A costs, other related expenses or to subsidize internal users.
- All users of the service center must be billed at the approved rates. External users may be charged a surcharge in excess of the billing rates.
- A separate DeptID should be established in the University’s accounting system to record the actual direct operating costs of the service center, internal service center overhead, revenues from billings and surpluses or deficits. Documentation to support units of service, billings and rate calculations should also be maintained. If applicable, a separate fund should be established for any approved equipment replacement reserve fund.
- Actual costs and revenues should be compared at the end of each University fiscal year. Deficits or surpluses should be carried forward as an adjustment to the billing rates of the following year or the next succeeding year.
- Any service center agreements with outside parties must be reviewed by the Office of the Vice Provost for Research to ensure that the agreement provisions are in conformance with University policies. The Office of the Vice Provost for Research decides whether the agreement is classified internally as sponsored research. Any collaboration agreements with PI’s who operate service centers that delineate publication and intellectual property rights are processed as sponsored research activity.
The break-even period is a reasonable period of time over which cumulative revenue for a service or product equals cumulative expenses. Service center billing rates should be calculated to recover the aggregate cost of a service/product over a defined period (normally one year). Some service centers require a long break-even period due to startup costs or volume fluctuations.
A service center may develop alternative discount rates for special use circumstances (e.g. volume discounts or off-hours use). Discounted rates should reflect the lower cost for providing the services. Conversely, higher rates may be charged due to special use circumstances, including priority service, reflecting the additional cost of performing the service. These alternative rates must be available to all internal users.
Where a service center provides different types of services to users, separate billing rates should be established for each service that represents a significant activity of the service center. The costs, revenues, surpluses, and deficits should also be separately identified for each service. Any material surpluses or deficits related to each service should be carried forward as an adjustment to the billing rate for that service in the following year or the next succeeding year. The surplus from one service may be used to offset the deficit from another service only if the mix of users and level of services provided to each group of users is approximately the same.
Where separate billing rates are used for different services provided by a service center, the costs related to each service must be separately identified through a cost allocation process. Cost allocations will also be needed where a cost partially relates to the operations of a service center and partially to other activities of a department or other organizational unit.
Depending on the specific circumstances involved, there may be three categories of cost that need to be allocated: (a) costs that are directly related to providing the services, such as the salaries of staff performing multiple services, (b) internal service center overhead, and (c) in the case of service centers and specialized service centers, institutional indirect costs.
When cost allocations are necessary, they should be made on an equitable basis that reflects the relative benefits each activity receives from the cost. For example, if an individual provides multiple services, an equitable distribution of his or her salary among the services can usually be accomplished by using the proportional amount of time the individual spends on each service. Other cost allocation techniques may be used for internal service center overhead and institutional indirect costs, such as the proportional amount of direct costs associated with each service, space utilized, etc. Questions concerning appropriate cost allocation procedures should be made to the Director, Financial Planning in the Finance & Planning office. Finance & Planning will also be responsible for providing institutional indirect costs for service centers and specialized service centers.
Expenditures for capital equipment purchases should NOT be included in the costs used to establish service center billing rates. The costs may, however, include depreciation of the equipment. The inclusion of equipment depreciation in the billing rates will generate funds that will enable service centers to purchase equipment needed in the future. Depreciation may never be taken on equipment purchased with federal funds. A listing of capital equipment, with inventory identification and depreciation amount, used in service centers can be provided by the Capital Asset Administrator in the Purchasing Department. The funds represented by the depreciation should be set aside in an equipment replacement reserve fund. When a service center needs to purchase a new item of equipment the purchase may be made from the service center’s equipment replacement reserve fund following normal University procedures. If the amount in the equipment replacement reserve fund is not sufficient to cover the cost of the new equipment, a request for funds to purchase the equipment should be submitted in accordance with University procedures. Finance and Planning must be contacted prior to any depreciation being included in billing rates and transferred to an equipment reserve replacement fund.
If a service center provides services to individuals or organizations outside of the University, the billing rates may include institutional indirect costs even though these costs are not included in the rates for internal University users. Additionally, non-federal users may be charged a surcharge or a higher rate than that charged to internal/federal users. Any amounts charged to parties in excess of the internal/federal University billing rates should be excluded from the computation of a service center’s surpluses and deficits for purposes of making carry-forward adjustments to future billing rates.
If external users are charged a rate that is higher than the aggregate cost of the goods and services provided, the Service Center may have a liability for unrelated business income tax (UBIT). For more information about UBIT, please contact the Manager of Taxation Services, John Sanchez.
Except for transfers to the equipment replacement reserve fund discussed in section VII, it is normally not appropriate to transfer funds out of a service center DeptID to the University’s general funds or other DeptIDs. Finance & Planning must approve all transfers out of service center DeptIDs.
In some instances, the University, or a school or department, may elect to subsidize the operations of a service center, either by charging billing rates that are intended to be lower than costs or by not making adjustments to future rates for a service center’s deficits. Service center deficits caused by intentional subsidies cannot be carried forward as adjustments to future billing rates. Since subsidies can result in a loss of funds to the University, they should be provided only when there is a sound programmatic reason and approved by the School in which the service center resides.
Rates for animal care facilities should be calculated according to the NIH National Center for Research Resources’ (NCRR) Cost Analysis and Rate Setting Manual for Animal Research Facilities (CARS). This can be found at http://grants.nih.gov/grants/policy/air/rate_setting_manual_2000.pdf.
Financial, statistical and other records related to the operations of a service center must be retained for three years from the end of the fiscal year to which the records relate. Records supporting billing rate computations must be retained for three years from the end of the fiscal year covered by the computations.
Finance & Planning will conduct periodic reviews of the financial operations of service centers. A questionnaire will be sent out each year to all active service centers that charge federal grants. These reviews will focus on the development of billing rates, the handling of surpluses and deficits, and the adequacy of the service center’s record keeping procedures. Any major problems or compliance issues that arise as a result of these reviews will be referred to the Director of Budget Services or Executive Associate Dean of the school where the center resides.
The annual Single Audit, as indicated in 2 CFR 200 Subpart F, is performed by an external audit firm includes a review of service center activity. Also, Audit Management and Advisory Services may periodically perform audits of service center activities.
Finance & Planning is available to provide technical assistance and advice on the financial management of service centers. This assistance may be requested in connection with the development of business plans, billing rates, cost allocation procedures, handling of surpluses and deficits, equipment depreciation, record keeping, etc. For Budget questions, please contact your budget center contact found here.
Applicable Credits: Transactions that offset or reduce costs, such as purchase discounts, rebates or allowances.
Billing Rate: The amount charged to a user for a unit of service. Billing rates are usually computed by dividing the total annual costs of a service by the total number of billing units for the period.
Billing Unit: The unit of service provided by a service center. Examples of billing units include hours of service, animal care days, tests performed, machine time used, etc.
Deficit: The amount that the costs of providing a service exceed the revenue generated by the service during a fiscal year.
Direct Operating Costs: All costs that can be directly identified with a service provided by a service center. These costs include the salaries, wages and fringe benefits of University faculty and staff directly involved in providing the service; materials and supplies; purchased services; travel expenses; and equipment rental.
Equipment: An item of tangible personal property having a useful life exceeding one year and an acquisition cost of $5,000 or more. Purchases under this amount are considered consumable supplies
Internal Service Center Overhead: All costs that can be specifically identified to a service center, but not with a particular service provided by the center, such as the salary and fringe benefits of the center director.
Institutional Indirect Costs: The costs of administrative and supporting functions of the University such as operations and maintenance of buildings; building and equipment depreciation; and interest associated with financing of buildings.
Rate: A service center rate is the cost per unit of goods or services sold to recover the expenses of the service center and achieve a level of breakeven financial position.
Service Center: Units within Tuft’s departments or centers that charge for goods or services that directly support the research or academic mission of the University and recover costs through charges to internal and external users. There are three types of service center
- Recharge Center: A service center with annual direct operating costs of less than $100,000.
- Service Center: A service center with total operating expenses of $100,000 or more per year.
- Specialized Service Center: A large service center that (a) provides services to a select group of users rather than to overall University operations, and (b) has combined annual direct operating costs of $1,000,000 or more.
Surplus: The amount that the revenue generated by a service exceeds the costs of providing the service during a fiscal year. An amount by which a center’s revenues exceed expense
Unallowable Costs: Costs that cannot be charged directly or indirectly to federally-sponsored programs. These costs are specified in 2CFR200 and the University’s Travel and Business Expense Policy.