This policy will increase the total amount I need to request in my budget. The sponsor’s funding opportunity has a total cost dollar cap and so I now need to reduce other line items. Can I seek an F&A waiver so I can meet the total cost cap?

No, an F&A waiver is not the appropriate method to meet the total cost dollar cap amount.  If your sponsor imposes a total cost dollar cap, you must budget within that cap consistent with University policy.  You may want to consider seeking additional funding to meet your budget needs or reduce the scope of work.