HBP Part 10.3.5. Rate Setting

Handbook of Business Procedures

Date published: June 19, 2012
Last revised: March 29, 2019
Issued by: Federal Reporting


A. Usage

All usage must be tracked and factored into the rate calculation(s).

B. Rates

  • All internal users must be charged the same rate(s) for the same level of service or products under the same circumstances.
  • Rates are structured for internal and external users.  
  • Rates may be structured on a collaborative basis if such an agreement exists between a university department and an external institutions of higher education (IHE), state agency or federal agency.
  • Collaborator rates must be fully documented and must be included as part of the proposal package. The collaborative rate structure is negotiated on a case-by-case basis.
  • Rates must be developed to recover the full cost of operating the center and clearly document any costs that are subsidized by the department or with university funding.
  • Rates to external entities are based on total operating costs and must include the 26.5 percent institutional surcharge used to cover institutional facilities and administrative expenses.

C. Distribution Base (Units of Product or Service)

The distribution base used to calculate rates must be reasonable and have a causal/beneficial relationship to the cost objective. For example, if effort is the base, it must be adjusted for holiday/sick/vacation leave, possible equipment/machine downtime, training, or breaks, etc. to arrive at available billable hours.

Example of calculating available billable hours:

Working hours per year = 2,080 (40 hrs x 52 weeks)


Annual vacation taken = 96 hrs (12 days x 8 hrs) Holidays = 112 hrs (14 days x 8 hrs)

Sick leave = 48 hrs (12 months x 4 hrs)

Available billable hours* = 1,824 (2,080 – 256) Percent of billable time = 87.7% (1,824÷2,080)

*Centers should consider time spent on/in meetings, training, timesheets, or breaks in calculating available billable hours.

D. Internal University User Rates

Internal users are university departments represented by charges to accounts over which The University of Texas at Austin has fiduciary responsibility.

  • Internal user rates must be developed to recover total operating costs. Any subsidies must be clearly documented.
  • All users of the center must be billed at the approved rates and in a timely manner.
  • Internal user rates cannot add charges to accumulate or establish reserve funds.
  • All users must be charged the same rates regardless of the funding source.
  • There is no discriminatory pricing for university departments for the same type of good
  • University departments include departments within colleges and vice-president offices. It does not include direct support organizations such as the alumni associations, clubs, organizations, etc.

E. External User Rates

External users are entities or persons over whom The University of Texas at Austin has no fiduciary responsibility, regardless of the user’s relation to the university’s academic or research mission. External users include IHEs other than The University of Texas at Austin, for-profit entities, nonaffiliated not-for-profit organizations, other state agencies, students, and members of faculty or staff acting in a personal capacity.

  • The university is not allowed to subsidize external users. External center rates are based on total operating costs and the rate must include the 26.5 percent institutional surcharge used to cover institutional facilities and administrative expenses.
  • Income derived from the 26.5 percent institutional surcharge must be transferred into the Institutional Portion of Center Income (19-0220-0696) account.
  • External user rates to for-profit entities must be the higher of calculated or market rate to ensure centers do not compete with external for-profit entities 
  • If a surplus balance is created as a direct result of the additional markup on for-profit rates, the additional revenue generated must be used to offset allowable expenses.for-profit source.

F. Collaborative User Rates

  • A collaborative or consortium agreement exists when entities combine expertise and resources from multiple entities in accordance with the requirements of the sponsoring entity.
  • On a case-by-case basis, a department may propose a rate structure based on an existing collaborative agreement between the unit and an external IHE, state agency, or federal agency.
  • Usage is based on an existing collaborative agreement allowing collaborative users to receive the same rates applicable to internal users.
  • To offer collaborative rates, a center must provide a copy of the collaborative agreement showing the name of the sponsoring entity, sponsored project name and account, and names of all Principal Investigators (PIs) and entities included in the collaborative sponsored project. In addition, the center must provide the scope of work detailing the usage of the center within the collaborative agreement.

G. Multiple Rates

Separate rates for different services provided must be separately identified and allocation of expenses must be made on an equitable basis that reflects the relative benefits each activity receives from the cost.

H. Breakeven Rates

A center must operate on a break-even basis. A center operating on a break-even basis may have an effective balance equivalent to working capital (two months of annual expenditures) and allowable accumulated depreciation-like amount. Working capital provides center managers with some flexibility in dealing with unanticipated income or expense fluctuations. Centers cannot acquire working capital by increasing rates for the express purpose of acquiring a working capital balance.

To determine whether a center is operating on a break-even basis, calculate the effective balance.

To calculate current year effective balance:

Current Year Income less current year expenses

Add balance forward, add transfers

= balance (if negative, center is in deficit)

Less accumulated equipment maintenance/replacement amount

Less working capital

= effective balance  

If the effective balance is > $0.00 = surplus. If effective balance < $0.00 = deficit. Rates may need to be updated to alleviate surplus or deficit balances even if the effective rate period has not ended.



Part 10. Costing - Table of Contents