Even though your organization has a federal negotiated indirect cost rate (NIDC), that doesn’t mean it will be able to recover that rate on every federal funding award. Historically, federal awarding agencies have sought to drive down indirect cost (IDC) recovery rates while recipients have sought to push them up.
The awarding agencies argue that they want to fund outcomes, not organizational infrastructure. Grant recipients argue that they want to produce outcomes but need to recover a fair-share IDC rate to cover the financial burden of managing external funding.
In some federal funding programs, statutory caps limit IDC recovery to a fixed percentage and the typical cap is 15% to 20%. In this situation, if your organization’s NIDC is 30%, you’ll be losing 10%-15% of the fairly negotiated rate. Some federal agencies will allow grantees to use unfunded IDC to meet cost-share requirements, but other agencies will not. In this situation, recipients will have to decide on a case-by-case basis whether to bear the financial burden of competing for the grant and managing the award with inadequate IDC. “Sometimes the best thing to do is walk away from an award or simply not apply when the cost burden does not make economic sense,” said Henry Flood, senior advisor to The Grantsmanship Center in Los Angeles.
There are also regulatory caps on IDC recovery. There are more than 1,100 federal assistance programs and you’ll find that the regulations of awarding agencies permit limits on IDC cost recovery even in the absence of explicit statutory authority. How does this happen? “Special program rules that are stricter than what is permitted in the cost allowability policies of 2 CFR 200 (Code of Federal Regulations) are put into place, or policy interpretations vary,” said Flood.
Some recipients try to recover IDC losses by using “directly charged IDC” when specific IDC costs substantially or exclusively benefit one program. But recipients of grant funding must certify their IDC and certify their grant payment requests and must take great care that their allocations stand up to close scrutiny. IDC is subject to audit and any IDC claim identified as false places recipients at risk. The cognizant federal agencies for IDC can challenge recipient claims at any time, even in the absence of an audit.
The 10% de minimus no-questions-asked rate will be more easily managed. Federal awarding agencies are only likely to question the use of the 10% rate when issues are raised by an independent audit. But 10% is indeed de minimus and many recipient organizations may be unable to live with it.
What’s the situation with grants from private and corporate foundations? It is a mixed bag. More nonprofit grantmakers are recognizing the importance of IDC and supporting it in the range of 10%-20%. This is good. However, some private funders still do not support IDC. The IDC policies of private funders are all over the place and they’re often rule of thumb and undocumented.
“Educate yourself, play by the rules, and seriously consider whether to take on the burden of operating a grant-funded program if the funder won’t support the associated indirect costs,” said Flood. If your organization has a significant amount of federal IDC funding, Flood advises having an IDC expert on staff. © 2020, Henry Flood and The Grantsmanship Center
