Why do universities use a MTDC approach?

I am not well versed in this area but perhaps it is driven by federal regulations that control government contracts. It appeared to me that Code of Federal Regulation (CFR),  2 CFR 200.414 might be a fair start? see https://www.ecfr.gov/current/title-2/subtitle-A/chapter-II/part-200/subpart-E/subject-group-ECFRd93f2a98b1f6455/section-200.414

University of Utah rate agreement with the government which defines modified total direct costs. See https://osp.utah.edu/_pdf/f_a_rate_agreement_2022.pdf

@Neil Roberts, thank you for sharing that CFR language. That does help make more sense. I also saw that universities administrative costs are capped for non-DoD projects at 26.00% but may be uncapped for DoD work per DFARS 231.303(2). 

This does make me ask the following:

• Does the language from 2 CFR 200.414 prevent universities from having a model like for-profit companies have with a separate overhead and G&A rate?
• Does it also prevent them from establishing a subcontractor and/or material handling rate? I often see they are capped at applying their MTDC rate on the first $25,000 per subaward, meanwhile some industry organizations that follow a similar approach have created a separate subcontractor handling rate.