Service Centers

This policy governs service center establishment, operation, rate setting, and financial management.  It applies to all areas of the University of Nebraska-Lincoln (UNL).

UNL requires that all departments/service centers operate in accordance with the standards established in this policy. 

Responsibility for Monitoring Changes 

It is each UNL department's responsibility to monitor all 22 and 23 cost center financial postings to ensure the operations are properly classified as a service center. If it is found that this activity changes (for example, there are no longer internal users, or the only revenue being deposited is conference revenue), Accounting must be notified immediately so that the cost center may be changed. 

Service Center Management & Oversight

All operating expenses and revenue for a service center, up to the break-even point, must be recorded under a Specialized or Reviewed Service Center, with expenses posted to the primary service center account only.  Service centers that include capital equipment or generate external revenue are required to maintain a separate Service Center Reserve, which must not run a deficit. For service centers offering multiple revenue-generating services, separate child cost centers may be created to track each service individually. All service center details are subject to review by the Service Center Committee – comprised of Accounting and the Office of Sponsored Programs – and approval is confirmed via email once the center is established.

Budget Development 

Internal Rates 

Service centers must develop budgets where rates break-even; revenues will offset expenses over the budget period. 

Service centers must periodically evaluate their financial position and rates to assess their position with respect to break-even. Rates can be adjusted through a mid-cycle reduction/increase subject to review by the Service Center Committee. 

NOTE: Mid-cycle budget review/rate reductions or increases do not change the assigned odd- or even-year review cycle discussed later in this policy.  

Billing rates cannot be based on “market rates” or competitor pricing except when charging external customers.

Allowable expenses to include in break-even rates are: 

1. Direct Personnel
   The salaries, wages, and fringe benefits of all personnel directly related to service center activity (e.g. lab technicians or machine operators, administrative staff) must be included in the rate calculation and charged to the service center's operating account unless charged as a direct cost to federal award. When an individual has multiple duties, an equitable distribution of the employee's salary among the duties usually can be accomplished by using the proportional amount of time the individual spends on each service. To adequately reflect an individual's duties, PAFs must be processed to split funding for the employee's salary among departmental (state-aided), grant, and service center (revolving) cost objects, as appropriate. Personnel numbers must be included in the budget. 
    
2. Direct Operating Costs (supplies, materials, etc.)
   The costs of materials, supplies, and equipment (costing less than $10,000) needed to operate a service center must be included in the rate calculation. Other operating expenses to be included in service center rates are rental and service contracts, operating equipment leases, and professional services.
   
   If inventory is accumulated in a particular year, the service center cannot include the costs of accumulated inventory in its rates. Service centers that maintain significant inventory must establish a separate inventory account. Any inventory on hand at the end of the fiscal year must be reported to Accounting. 
    
3. Capital Equipment 
   Capital equipment is defined as an item with a purchase price of $10,000 or more and an estimated useful life greater than one year. Capital equipment used within the service center must be capitalized according to the University Capitalization Policy. The rates can include depreciation of the equipment as calculated by the University to allow for recovery of its purchase cost over its useful life. Depreciation may not be charged unless it is held in the Reserve. 
   
   Federal guidelines do not allow the purchase price of a capital item purchased with federal funds to be recovered through service center rates. Depreciation for capital equipment purchased with federal funds, whether title has reverted to the University, cannot be included in the user rates. 
   1. All capital equipment purchases must be made from the Service Center Reserve or another source, not the service center's general operating cost center. 
   2. Accounting must have information on all capital equipment for which a service center will charge depreciation to ensure the equipment is appropriately accounted for and is not included in the F&A rate proposal.
   3. Proceeds from the sale of surplus equipment must be held in the Service Center Reserve. 
4. Unallowable Costs
   Unallowable costs must be excluded from the internal/governmental user rate calculation. Such expenses (e.g., bad debt expense, internal interest, etc.) may be recovered only through charges to external users. Refer to Subpart E of the OMB Uniform Guidance for a list of unallowable expenses. The 5% Administration Fee assessed by Accounting on external sales is not an allowable service center expense. It must be posted to the Service Center Reserve. 

External Rates 

External (third-party) users may be charged a higher rate than UNL departments, grants and related parties. External users are other institutions outside the University of Nebraska system, industry clients, and non-federal entities. Third-party service center rates follow the same guidelines as internal/governmental rates with a few adjustments: 

1. Depreciation of all equipment, regardless of funding source used for initial purchase, may be included in external billing rates. 
2. Subpart E of the OMB Uniform Guidance indicates excluded expenses may be included in external billing rates provided they are allowable expenses for the University and of the service center. 
3. Any amounts charged to outside parties more than the regular break-even billing rates must be held in the Service Center Reserve. Third-party surcharges must be excluded from the computation of a service center's surpluses and deficits for purposes of making carry-forward adjustments to future billing rates. 
4. Any charges to external users may be subject to the unrelated business income tax (UBIT) reporting requirements. 
5. Services provided to external clients are not considered collaborative in nature and cannot result in intellectual property. As such, there must be no Intellectual Property (IP) terms in any agreement with an external user. Projects that are collaborative in nature and could result in intellectual property are considered a sponsored project and must be managed through the Office of Sponsored Programs. 
6. At no time will an external customer be charged less than UNL departments, grants or related parties for the same service. 
7. External sales are subject to the 5% Administration Fee assessed by Accounting. 

Surplus/Deficit 

A service center's surplus or deficit cannot exceed 15% of annual operating expenses, exclusive of depreciation. If the surplus or deficit is within the break-even range of +/-15% (exclusive of depreciation), the rate does not need to be adjusted for the following period. However, if the surplus or deficit is greater than +/-15% (exclusive of depreciation), the rate must be adjusted for the following period to more accurately reflect the cost of running the operation, taking the existing surplus/deficit into account when calculating the new rate. This is called the tolerable threshold. 

Financial Management

Biennial Review 

A complete rate review and recalculation must be performed at least biennially and submitted to the Service Center Committee. Service centers are classified with an odd- or even-year review date, as determined by the Service Center Committee: 

• Odd Review Cycle
  • Applies to service centers with rates effective beginning in an odd-numbered fiscal year (e.g., FY27). Reviews occur in the preceding fiscal year.
  • Example:  FY27-FY28 rates are submitted and reviewed in May 2026.
• Even Review Cycle
  • Applies to service centers with rates effective beginning in an even-numbered fiscal year (e.g., FY28). Reviews occur in the preceding fiscal year.
  • Example: FY28–FY29 rates are submitted and reviewed in May 2027.

Pricing of Multiple Services

When a service center provides different types of services to different users, separate billing rates must be established for each service that represents a significant activity within the service center. Revenues and expenses must be separately identified for each service. 

A service center providing more than one service may sometimes have a surplus on some services and a loss on others. Service centers must ensure there is no cross-subsidization between user groups. Combining the results of various services is not acceptable if the mix of users of each service is different; that is, if higher prices charged to one set of users are subsidizing losses charged to a different group of users. 

Multiple services may be segregated by using child cost centers.

Transfers 

Service centers cannot be used as a conduit to transfer revenues, expenditures or fund balances (for example, cash) between cost objects, as such transfers can distort billing rate calculations and impact the break-even plan. Surpluses generated from premiums charged to external users must be recorded in the designated Service Center Reserve.

UNL's policy for the financial management of service centers has been established to provide consistent operational practices among the various service center units and to ensure compliance with federal government regulations. This is essential since UNL conducts sponsored programs under federal government grants and contracts. Service center activities result in direct and indirect charges to sponsored grants and contracts. Therefore, Service Center policies and practices must reflect government regulatory costing principles such as those contained in the Office of Management Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R §200) (Uniform Guidance) and those required by the Cost Accounting Standards Board. As a major research university, UNL cost accounting must be consistent for all operations. 

Service Center: A service center is any organizational unit, or activities within units, that charge for goods or services provided primarily to other internal university operations or units, but also potentially to users external to the University. Any unit or activity established for the purpose of, or participating in, supporting internal or external research objectives through billing to federal or federal flow-through funds for goods or services provided may be a service center. Examples include, but are not limited to, computer services, copy services, lab analysis services, research animal care services, etc. A service center is identified as one of two types: Reviewed Service Center or Specialized Service Center. 

Service Center Reserve: A reserve cost center is used to hold a service center’s depreciation and external revenue (above break-even).  (SAP Cost Center Flag:  SRV)

Specialized Service Center: A specialized service center is a type of service center that generates more than $1,000,000 in annual charges or generates significant charges to federal grants and provides highly complex or specialized services. (SAP Cost Center Flag:  SSC) 

Reviewed Service Center: All service centers that do not meet the Specialized Service Center definition are identified as "reviewed service centers." This is the most common type of service center. (SAP Cost Center Flag:  SRC)