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Service Center Billing Rate Guidance

Please see MBP section 6 for the University's policy regarding service centers and billing rate reviews.


  1. The internal or sponsored program 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 sponsored program 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 expenses 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

  1. Rates charged to external, internal, or sponsored program users must be updated by departments at a minimum of every 2 years. Please see MBP Section 6 for requirements regarding the certification and central review of rates
  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 sponsored program users.
  3. The same rate schedule must be used for all internal and sponsored program users. This rate schedule must not discriminate against sponsored program accounts for the benefit of other users. The sponsored program 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. Please see MBP Section 6 for requirements regarding overdraft accounts.
  4. 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.

  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 sponsored program user group?
    1. Internal Users: MSU Departments or Units. Internal billings and service billings.
    2. Sponsored Programs: Sponsored programs 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 200 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 200.
  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 self-supporting account (accounts in the Designated or Auxiliary Fund) starting with D or X and be offset with any discounts, credits, or rebates (DCRs) received directly by the Service Center. In addition, any DCRs applicable to individual purchases that are charged directly to the unit (e.g. Dell computer purchased through MSU Tech Store that was charged directly to the unit) should be applied to that individual purchase. Examples of direct costs 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 sponsored program accounts are charged. Information on the F&A Rate components can be found under Current Facilities & Administrative Cost Rates. Contact Contract and Grant Administration at CGA.ServiceCenter@cga.msu.edu with additional questions. Generally, costs funded by self-supporting 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 self-supporting account, but cannot include costs that are incurred on general fund accounts or sponsored program 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 200 (see below).
    Common Examples of Unallowable Costs
    • Alcoholic Beverages (OMB A-21 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.
      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 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.
      Depreciation Useful Lives
      Vehiclesincluding trailers, boats, buses, cars, and trucks 4 Years
      University Developed Software & Software Licenses 5 Years
      Animals and Livestock 7 Years
      Kitchen Equipmentincluding grills, refrigerators, trayveyers, stoves, and dishes 7 Years
      Office Equipmentincluding copiers, faxes, printers, pagers, cell phones, two way radios, computers, fiber optics, and hubs 7 Years
      Scientific Equipmentincluding surveying equipment, construction equipment, autoclaves, dishwashers, scales, sterilizers, diffractors, lasers, and microscopes 7 Years
      Farm Equipmentincluding tractors, bailers, manure spreaders, wagons, hydraulic equipment, mowers, and welding machines 10 Years
      Lab Furnitureincluding tables, wet and dry lab sections, chemical cabinets, stools, and chairs 10 Years
      Office Furnitureincluding desks, chairs, bins, air conditioners, humidifiers, and non-collection art work 10 Years
      Library Books 10 Years
      Patents and Copyrights 17 Years
      Improvementsand replacements of buildings 20 Years or longer if related asset remaining life is longer
      Buildingsand major additions 40 Years
    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 self-supporting 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. 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.
  6. 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).
  7. 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)
  8. Determine the rate that will actually be charged based on the analysis above keeping in mind the following restrictions:
    1. Sponsored program 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 sponsored program 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 administrative fee to calculated rates. Details on the administrative fee can be found here. 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 sponsored program 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 sponsored program users.
  9. 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 Reporting to support the rates. Maintaining the support for the rate calculations is the responsibility of the unit providing the service. (Links to these templates can be found in the Quick Links section below)
    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.

  1. Questions regarding the allowability of costs and inclusion in billing rates and the review and approval process: Christine Mossner, Office of Financial Reporting at 517-355-5029, CTLR.billingrates@ctlr.msu.edu.
  2. Questions regarding federal cost allowability:
    1. Contract and Grant Administration - CGA.ServiceCenter@cga.msu.edu
    2. OMB Super Circular-2 CFR Part 200.

Q: What should fiscal officers do when a service center that was previously not expected to exceed $25,000 in billings to sponsored programs now exceeds this threshold during the fiscal year?

A: In accordance with MBP Section 6, the billing rate(s) should be submitted to the Office of Financial Reporting for central review as soon as possible.