An indirect cost rate is a tool for determining the proportion of indirect costs each program should bear. It is the ratio (expressed as a percentage) of the indirect costs to a direct cost base.
The indirect cost pool is the accumulated costs that jointly benefit two or more programs or other cost objectives. Indirect cost pool expenditures typically include:
Administrative salaries and fringe benefits associated with overall financial and organizational administration;
Operation and maintenance costs for facilities and equipment; and,
Payroll and procurement services.
An indirect cost rate proposal is the documentation prepared by an organization requesting an indirect cost rate. This package normally includes the proposal, related audited financial statements, and other detail supports such as general ledger, trial balance, etc.
The term “Base” refers to the accumulated direct costs (usually (a) total direct salaries and wages with or without fringe benefits or (b) total direct costs exclusive of any extraordinary or distorting expenditures) used to distribute indirect costs to individual federal awards. The direct cost base selected should result in each award bearing a fair share of the indirect costs in reasonable relation to the benefits received from those costs.
An indirect cost negotiation agreement is a document that formalizes the indirect cost rate negotiation process. This document typically contains:
The type of rate(s) negotiated;
The effective period(s) of the rate(s);
The location(s) to which the rate(s) is/are applicable; and,
The program(s) to which the rate(s) is/are applicable.
It also provides information on the base(s) used to distribute indirect costs, and the treatment of fringe benefits and paid absences.
The indirect cost negotiation agreement must be signed by both the organization‘s authorized representative and the DOI Indirect Cost Coordinator or authorized representative.
Indirect Cost Services has created sample proposal formats, checklists, and templates to assist you in completing the proposal package. Please scroll down and select the appropriate sample proposal for your type of organization (i.e., Nonprofit, tribal government, etc). Following our proposal format is not required; however, it will expedite the review process because our format contains the information needed.
Indirect Cost Services will not initiate the negotiation process without the indirect cost proposal and supporting documentation (including the Financial Statement Audit Report). Please do not submit the audit report by itself, as we have limited storage space and cannot keep the document on file unless accompanied by an indirect cost proposal.
There are four types of rates that can be requested in your proposal:
Fixed (Fixed Carry-forward).
A Provisional rate is a temporary indirect cost rate that is applied to a limited time period that is used until a "final" rate is established for that same period. Provisional rates can be used for funding, interim reimbursement, and reporting of indirect costs on federal awards. They must be finalized by submitting an “Indirect Cost Rate Proposal for a Final Rate” once the actual costs for the specified time period are known and can be verified through audited financial statements.
A final rate is an indirect cost rate applicable to a specific time period that is based on the actual, allowable costs of that period. Once established, a final, audited rate cannot be adjusted.
A predetermined rate is an indirect cost rate that applies to a specific current or future time period (usually the organization‘s fiscal year). Except under very unusual circumstances, a predetermined rate cannot be adjusted. Predetermined rates may be used with cooperative agreements and grants only. They may not be used for federal contracts due to legal constraints. Predetermined indirect cost rates may be negotiated for periods of up to 2 to 4 years.
A fixed rate (also known as a fixed carry forward rate) is an indirect cost rate that applies to a specific current or future time period (usually the organization‘s fiscal year). It differs from the predetermined rate in that it is subject to later adjustment. Initially, the fixed rate is based on estimated costs for a set, future time period. When the actual costs for that period become available, a carry forward adjustment is used. A carry forward adjustment is the amount required to reconcile the difference between the estimated costs and the actual costs incurred for the agreed-upon time period.
These are types of distribution bases:
Modified Total Direct Costs (MTDC) excludes capital expenditures and distorting items such as passthrough funds, major Subcontractors, etc. For nonprofit entities, MTDC includes the first $25,000 of sub grants/Subcontracts, while the remaining portion of Subgrants/Subcontracts over $25,000 is excluded.
The distribution base chosen should result in each award bearing a proportionate share of the indirect costs relative to the benefits received from those costs. For example, if several of your programs and grants do not pay salaries, then it might not be a good idea to use total salaries and wages as the direct cost base. If you do, those programs paying most of the salaries and wages would bear a larger, disproportionate share of the indirect costs. In this situation, it might be more appropriate to use modified total direct costs (exclusive of unusual or distorting expenditures). Please consult the Indirect Cost Services office if you need additional guidance.
Federal regulations (2 CFR 225 & 230, A-87 & A-122) require that employee salaries and wages be properly documented and approved. The required documentation includes:
As the cognizant agency, we have the right to approve substitute systems for allocating salaries and wages in place of activity reports. Substitute systems may include random sampling that meets acceptable statistical sampling standards, case counts, or other quantifiable measures of employee effort. We may accept sampling that does not fully comply with sampling standards provided that the amounts involved are minimal or would result in a lower cost.
Fringe benefits are allowable, "provided such costs are absorbed by all organization activities in proportion to the relative amount of time or effort actually devoted to each" (2 CFR 230 (A-122), Appendix B, Section 8.g. (1)).
"Whether treated as indirect or direct costs, [fringe benefits] shall be distributed to particular awards and other activities in a manner consistent with the pattern of benefits accruing to the individual or group of employees whose salaries and wages are chargeable to such awards and other activities" (Section 8.g. (2)).
Indirect Cost Services interprets the above to mean that if the position is classified as a direct position, then the salary - along with applicable fringe benefits - should also be treated as direct costs. If the position is classified as an indirect position, then the related fringe benefits are to be treated as indirect costs.
No – Federal regulations (2 CFR 225 & 230) specifically list fundraising and lobbying costs as unallowable. However, 2 CFR 230 (A-122), Appendix A, Section B.3 states, "Even though these costs are unallowable for purposes of computing charges to federal awards, they nonetheless must be treated as direct costs for purposes of determining indirect cost rates and be allocated their share of the organization‘s indirect costs if they represent activities which include the salaries of personnel, occupy space, and benefit from the organization‘s indirect costs."
In addition, "All activities which benefit from the governmental unit‘s indirect costs, including unallowable activities and services donated to the government unit by third parties, will receive an appropriate allocation of indirect costs." (2 CFR 225 (A-87), Appendix A, Section C.3.b)
Yes – but only if these depreciation expenses are related to assets used by indirect-related personnel (i.e., accounting, human resources, etc.) and are purchased with non-federal dollars. Depreciation related to assets used by direct personnel should be direct-charged.
Please have the awarding official contact:
Indirect Cost Services
Interior Business Center’s Indirect Cost Services will confirm receipt of the proposal.
Yes – the agreed upon rate(s) shall be accepted and made available to all federal agencies for their use unless prohibited or limited by statute. It is our understanding that state and local agencies will also accept the federally approved rate(s).
Please fax a written request for a duplicate/replacement copy of your signed agreement to the fax number below. The request must be on your organization‘s letterhead and signed by an individual who is authorized to negotiate indirect cost rates. The Indirect Cost Services fax line number is 916.566.7110.
For assistance with interpretation and clarification on cost principles, please contact:
Indirect Cost Services
For further clarification, you may also contact the Office of Management and Budget (OMB) directly. Please address your request to:
Mr. Gilbert Tran
Office of Federal Financial Management
Office of Management and Budget (OMB)
725 17th Street NW, Room 6026
Washington, DC 20503
Phone: 202.395.3052 (direct) / Phone: 202.395.3993 (main office)
Yes, indirect cost rate proposals and audit financial statements can be emailed to email@example.com. Please limit the number of files to no more than 3 files. These files maybe arranged like this:
File #1: Part 1 of the proposal (narrative portion) in Word or PDF format
File #2: Part 2 of the proposal (data portion) preferably in Excel format
File #3: Audited financial statements (for tribal entities, nonprofits, & local governments) in PDF format. For state entities, a copy of the general ledger in PDF format.
Hard copy of the proposal and audit report is NOT required. Submitting both the electronic copy and the hard copy will delay the processing of your proposal. The only item we required in the mail is the signed Certificate of Indirect Costs in original signature, everything else can be electronic. Our mailing address is 2180 Harvard Street, Suite 430, Sacramento, CA 95815.
We accept proposals submitted in either the PDF, Word, or Excel format. Please note that if certain spreadsheets are very large and the font is very small, the PDF version may not show the figures clearly. In this case, we would ask the information to be submitted in Excel format.
The negotiated rate is only good for the 12-month period listed on the negotiation agreement. Whether you can continue using the expired rate is a decision that needs to be made by the awarding agency. Therefore, please contact your awarding official.
Before we can release any information, we need the entity to send us a fax on letterhead authorizing our office to release the information to you. This fax needs to be signed by a representative of the entity that is either the CFO or someone in higher position.
You can check the status using one of the following ways:
By email: firstname.lastname@example.org
By phone: (916) 566-7111
By fax: (916) 566-7110
For nonprofit entities: We need a copy of IRS Form 990. If Form 990 has not been file yet, then a copy of the profit & loss statement.
For all other entities: We need a copy of the general ledger, trial balance, or profit & loss statement that shows summarized expenditures by cost elements such as salaries, fringes, supplies, travel, etc.
Our office does not have the resources to provide any training. In the past, we have participated in training sessions put on by funding agencies. If you have general questions, we are available to assist you but we cannot prepare the proposal for you. If you have general questions about our sample proposals, templates, allowability of costs, etc., you are welcome to contact our office by email (email@example.com) or phone (916-566-7111).
Before submitting anything to our office, please contact us to ensure we are the federal cognizant agency to negotiate your entity’s indirect cost rate. You can do so by email (firstname.lastname@example.org) or phone (916-566-7111). Please have the following information available when contacting our office:
a. Most recent audited financial statement
b. Past 3 years’ SEFA schedule (Schedule of Expenditure of Federal Awards)
c. For the current period, the federal agency that provides the most direct funding
d. 3 most recent indirect cost rate agreements
e. Period(s) an indirect cost rate is needed
f. Name and contact information of the federal official that requested the indirect cost rate