Industrial Research Programme d’aide à la

Assistance Program recherche industrielle

IRAP Project Costing Guide for Client

This guide is provided to assist you, the client, in understanding the various components that make
up the project costing process within our National Research Council’s Industrial Research
Assistance Program (NRC-IRAP).

The definitions contained in this guide reflect how NRC-IRAP interprets and administers the terms
and conditions of our Contribution Agreement (CA) (an agreement entered into between the
National Research Council Canada and a recipient of a contribution). These definitions that you
will encounter are typically found in your CA document.

This guide should help you understand project costing while preparing your proposal. For any
clarification on the content of this guide, please contact your ITA.

Table of Contents
1. Project Costs........................................................................................................................... 2
1.1 NRC-IRAP Project Costs...................................................................................................2
1.2 Supported and Non-Supported Costs................................................................................2
1.3 Client’s Share of the Project Cost......................................................................................2
2. NRC-IRAP Project Cost Components...................................................................................3
2.1 Salary Costs....................................................................................................................... 3
2.2 Contractor Labour Fees.....................................................................................................3
2.3 Overhead Costs.................................................................................................................4
2.4 Other Costs........................................................................................................................ 5
3. Adequate Records and Proof of Cost Incurred and Paid....................................................5
3.1 Providing Proof for Salaries................................................................................................5
3.2 Providing Proof for Contractor Labour Fees.......................................................................6
3.3 Making a Change to a Salaried Employee or a Contractor.................................................6
4. Total Government Assistance (Stacking Rule)....................................................................6

IRAP Project Costing Guide-20050613

Documents for client Page 1 of 7
1. Project Costs
All requests you may make to NRC-IRAP for a financial contribution towards an innovation project
or activity is assessed against a number of criteria ( i.e. the potential of the project/activity to
produce an innovation that will improve your technological competitiveness or innovation
capability, etc.).

The sharing ratio of assistance is such that the NRC-IRAP financial contribution normally does not
exceed 50 per cent of the amount NRC-IRAP estimates as your total project or activity costs.
1.1 NRC-IRAP Project Costs
The National Research Council’s (NRC) financial contribution is a conditional transfer payment
from NRC to you for a very specific innovative project or activity. Once NRC-IRAP is able to
determine what your salary costs and contractor labour fees will be, they will be included in the CA.
These will become the costs that are monitored by NRC-IRAP throughout the project and that are
subject to potential auditing processes.

It is important for NRC-IRAP to obtain at the proposal stage the estimated Total Project Costs of
the client. The complete picture enables NRC-IRAP to assess the client’s ability to financially
support all the expected costs of the project and to ensure its completion.

NRC-IRAP project costs are the sum of salary costs, contractor labour fees and overhead costs
associated with the work carried out over the period specified in the CA. When calculating the
NRC-IRAP project costs, “in-kind” contributions will not be considered as part of the calculation.

NRC-IRAP Project Costs = Salary Costs + Contractor Labour fees + Overhead costs

1.2 Supported and Non-Supported Costs

The Basis of Payments section of the CA will determine the percentage of supported costs in the
direct performance of the work.

 NRC-IRAP may support up to a maximum of 80 per cent for salaries.

 NRC-IRAP may support up to a maximum of 50 per cent for contractor labour fees.

 NRC-IRAP will not support the overhead costs of the project, as these are defined as ‘non-
supported’ costs.

NRC-IRAP Supported Costs= up to 80 % of Salary costs + up to 50% of Contractor Labour Fees

NRC-IRAP Non-Supported Costs= Overhead costs

1.3 Client’s Share of the Project Cost

NRC-IRAP supported clients must contribute a minimum of 25 per cent, in cash, of the NRC-
IRAP Project Costs. Clients must prove that they have sufficient funds and that cash flow will
not impede the project, given the client’s obligation to claim for costs incurred and paid.

A client has the flexibility to pursue alternate sources of funding for other costs related to the
project, but clearly outside of NRC-IRAP’s purview.

IRAP Project Costing Guide-20050613

Documents for client Page 2 of 7
2. NRC-IRAP Project Cost Components
This section describes to the client what NRC-IRAP considers important for each component of the
NRC-IRAP Project Costs.
2.1 Salary Costs
A Salary(ies) is a payment (net of any incentive or bonus etc.) for work performed, paid on a regular
basis by an employer to an employee, from which the employer withholds payroll deductions to the
proper authorities on behalf of the employee.

NRC-IRAP may reimburse up to 80 per cent of the total supported employee salaries who’s
duties are directly associated with the project. However, it is the Basis of Payments section of the
CA that will determine the exact percentage.

What clients should know about Salaries

 Salary costs are calculated based on the estimated time to be spent directly on project
activities;
 Only straight time of an employee’s salary will be considered by the program;
 Items such as vacation, statutory holiday and sick leave will not be included in the
calculation of salary costs. However, the client may include these items under their
‘overhead’ costs; and
 While management may participate in technical project activities, they must charge out at
the labour rates no greater than the technical salaries normally paid for the type of work
performed.
2.2 Contractor Labour Fees
Contractor labour fees are amounts invoiced by a contractor for the services rendered to a client
within the NRC-IRAP project.

NRC-IRAP may reimburse up to 50 per cent of total supported contractor labour fees, and will
only consider costs associated to the fees directly supporting the NRC-IRAP project costs. The
Basis of Payments section of the CA will determine the exact percentage of support.  

A‘Contractor’ is a person or organization engaged by the Firm under contract to perform any task or
service devoted to the accomplishment of the Work described by the Contribution Agreement.

IRAP Project Costing Guide-20050613

Documents for client Page 3 of 7
 ‘Contractor Labour Fees’ are amounts invoiced by a contractor, as labour costs for the services
rendered to the Firm under the Contribution Agreement. If the contractor is a related party, NRC will
accept from its client only contractor's invoices that are charged at Costs Incurred, not at a charge-out
rate. 

If the contractor is a related party, NRC will accept from its client only contractor's invoices that
reflect the actual cost to the contractor for the service, and not what the typical ‘charge-out’ or
‘mark-up’ rate would have been. Thus, the contractor should not be garnering a profit from the
related party.

A ‘Related Party’ includes people acting in concert without separate interest, notably individuals who
are related to each other by blood, marriage, adoption, common-law relationships, or close business
ties. Such a non arm's length relationship may also exist between individuals and partnerships or
corporations. Two or more parties are considered to be related parties if one of them is controlled,
directly or indirectly in any manner whatever, by the other. Where two unrelated parties are related to
the same third party as described above, they will also be deemed as related parties.The Firm must
inform NRC if it is owned by or has ownership in any parties working on the project, regardless the
percentage of ownership.

In some cases, there are individuals that work on a project without being on the payroll and firms
do not wish to consider them as real independent contractors. NRC-IRAP refers to these people as
contracted employees. These individuals that are not employees of the client and cannot be
claimed under the salary item, receive compensation for their work as “self employed”. As such,
their associated costs are deemed “contractor labour fees” by NRC-IRAP. These self-employed
individuals should be receiving a T4A from the firms that use their services.

As a client, you must notify NRC-IRAP of any changes in the business relationship with any
of your Contractors that may cause such relationships to cease being at arm’s length (the
Related Party) as defined in the Income Tax Act of Canada. In such cases, costs must be
charged as costs incurred by the Related Party and not the "charge-out" rate. Related
Party status will be confirmed at NRC-IRAP’s discretion.

What to request from Contractors

NRC-IRAP will reimburse the client on the Contractors’ labour fees only if the following conditions
are met, prior to filing a claim:

a) A Contractor Proposal
A contractor proposal needs to be submitted to the client for the scope of work to be performed by
the contractor. Within the proposal, the contractor must segregate their labour related costs
from other costs.

The contractor proposal may be considered as a contractor agreement assuming it was reviewed
and approved by the Industrial Technology Advisor (‘ITA’ or other NRC-IRAP representative)
during the assessment phase, and that there have been no changes. The client needs to notify the
contractor if they intend on adopting the proposal as a “contractor agreement”. The client is then
required to send a copy of the correspondence to the ITA (a copy of an e-mail sent to the
contractor is acceptable).

b) Invoices with segregated labour related costs

A client must submit to NRC-IRAP contractor invoices that include segregated labour related costs
from other contractor costs in relation to the scope of the project. Contractor’s travel and
incremental costs attributed to the project are not part of the Contribution Agreement and,
therefore, not eligible for reimbursement.

IRAP Project Costing Guide-20050613

Documents for client Page 4 of 7
During the claiming process, if contractor labour fees are significantly different relative to their
rates, resources or nature of work, the client then needs to submit a revised contractor
proposal/agreement that will be deemed a “contractor agreement”. The revised contractor
agreement will need to be approved by an NRC official with the appropriate signing authority.
2.3 Overhead Costs
For NRC-IRAP purposes, overhead costs are costs that can be directly associated with a client’s
specific project activities and must be allocated on a reasonable basis. Overhead costs are to be
included in the calculation of the total NRC-IRAP Project Cost. Examples of overhead costs
considered by the Program may include but are not limited to: supervisory costs, accounting
expenses, office personnel, purchasing, computer support, leasing of materials, location, and
maintenance and materials handling.

When submitting your proposal to NRC-IRAP, you must provide an estimate of your overhead
costs for the project. The maximum overhead that NRC-IRAP will allow to the project is no more
than 65 per cent of your employees’ salary costs. Appropriateness of overhead estimates will be
determined through the business assessment phase of NRC-IRAP’s process. Although the
overhead costs are not supported, they do make up part of how NRC-IRAP calculates your Project
Costs.
2.4 Other Costs
No costs, other than those discussed in this document, may be considered as part of NRC-IRAP
Project Costs when managing the CA.

3. Adequate Records and Proof of Cost Incurred and Paid

A client must maintain adequate records related to the performance of the project scope under the
CA. According to the CA, NRC may perform an audit at any time during the project, and up until
three years following the end of the agreement

Adequate Financial Records must be kept in accordance with Canadian Generally Accepted
Accounting Principles (GAAP). These records must be maintained with proper segregation and
identification of the costs associated with the project scope, supported under the CA (project
accounting system).

‘Adequate Financial Records’: this term refers to the keeping of financial information in a way that
will ensure the trustworthiness and readability of the information recorded. Books of account have to
permit the segregation and verification of all transactions pertaining to the NRC Financial Contribution
and be supported by source documents that verify the information in the records and books of
account.
3.1 Providing Proof for Salaries
As the employer, the client would maintain appropriate records of employees’ salary payments and
payroll deductions to provide to the proper authorities. Employees claimed under an NRC-IRAP
project must be part of the client’s payroll during the project period.

Clients need to use the NRC-IRAP claim template and provide all the information requested on this
template. Although detailed proof is not submitted with every claim, an NRC-IRAP representative
will visit the client to ensure that proof of costs have indeed been incurred and paid by the client as
claimed.

‘Cost Incurred and Paid’: an outlay or expenditure made by the Firm in the direct performance of
the Work described in the Contribution Agreement. These expenditures are immediately paid in
cash.

The following items would be used as a means of validating that costs were incurred and paid:
IRAP Project Costing Guide-20050613
Documents for client Page 5 of 7
  time records of resources claimed to the project (to confirm the claim’s accuracy);
 a copy of the firm’s payroll ledger (to validate that Salary Costs were incurred); and,
 cancelled cheques and/or direct deposits reports (as proof of costs paid).

3.2 Providing Proof for Contractor Labour Fees

Clients must ensure that the invoice(s) they receive from a Contractor clearly identify(ies) the
billing period of the invoice and the costs claimed, along with the NRC project number and/or title
(this may be added by the client and can be indicated on the invoice). Contractor Labour Costs
need to be segregated from the other project cost (e.g., travel, material and supply).

When claiming for contractor labour fees, clients have to provide a copy of contractors’ invoices as
proof of costs incurred and paid. Costs claimed will be validated against the Contractor Agreement
(total, hours and rates).

As our client, you should be aware that from the onset of this process, at some point during the
project, the ITA will need to visit the firm and review documents such as cancelled cheques or
direct deposit reports to ensure proof of costs being paid.
3.3 Making a Change to a Salaried Employee or a Contractor
A client may have a need to add and/or change individuals working on the project team in order to
complete the project. If this should happen, the client must inform his/her ITA, in writing, of these
changes in the “salary” section of the claim, along with an explanation for the adjustment. The
changes and subsequent documentation should be completed to the satisfaction of your ITA.

Any change made to the Contractor’s name on the “Contractor Labour Fee” section of the claim,
requires an explanation with a written notice. The rationale for any changes must be to the
satisfaction of the ITA.
4. Total Government Assistance (Stacking Rule)
A client is required to declare all sources of funding for the NRC-IRAP Project before the start of
the agreement as well as upon completion of the project. The types of assistance to be considered
when outlining all sources of funding are listed in the definition below:

The Total Government Assistance is calculated on the basis of the following types of federal,
provincial and municipal assistance:
 All grants and assistance being considered;
 Any other grant or contribution for which the applicant may be eligible;
 All new investment in the applicant business in the form of capital stock or equity from a Crown
corporation or government department, in proportion to the total investment being made to the
project;
 Implicit subsidies including low interest, or interest free loans based on the difference of total
interest payable and the total interest that would be payable at normal commercial interest rates;
 Forgivable loans;
 Provisions for potential losses on loans guarantees and loans, where such guarantees or loans
are issued by government, ministers or agencies created for the purpose of administering
programs, except where the assistance is provided by a Crown corporation whose principle
function is of a banking nature. This provision will be set at five (5%) per cent of the amount
guaranteed or such other amount as is based on program experience, and;
 Investment tax credits to which the applicant would be entitled, such as Scientific Research and
Experimental Development (SR&ED) Tax Credits.

Occasionally, NRC-IRAP will be the only investor in the project scope of the CA and if the situation
arises during the CA period that other government funds become involved, the firm must advise
IRAP Project Costing Guide-20050613
Documents for client Page 6 of 7
NRC-IRAP immediately of the situation as required under the CA terms and conditions. NRC-IRAP
will adjust its contribution towards the project if necessary.

If it is found through an audit that the total government exceeded 75 per cent of the NRC-IRAP
Project Costs, the amount exceeding the 75 per cent limit will need to be returned to the Receiver
General for Canada- NRC by the firm.

IRAP Project Costing Guide-20050613

Documents for client Page 7 of 7