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Indirect Cost Program

Indirect Costs

Indirect costs are costs incurred by an organization that are not readily identifiable with a particular project or program but are nevertheless necessary to the operation of the organization and the performance of its programs. The costs of operating and maintaining facilities, depreciation, and administrative salaries are examples of the types of costs that are usually treated as indirect costs.

In theory, all such costs might be charged directly. Practical difficulties, however, normally preclude this approach as the effort to assign these costs to particular cost objectives would be disproportionate to the results achieved. In such cases, the indirect costs are therefore grouped into common pools and distributed to the organization’s programs or cost centers through a cost allocation process. The end product of this allocation process is an indirect cost rate (or rate for each pool) which is then applied to individual financial assistance awards to determine the amount of indirect costs chargeable to an award.

Cognizant Agency

Each organization is assigned to a single federal agency (by the Office of Management and Budget) that acts on behalf of all federal agencies in indirect cost rate negotiations and is referred to as the “cognizant agency.” This is the agency that the organization submits their indirect cost rate proposal to. For non-commercial organizations (e.g. state, local, and Indian tribal governments; educational institutions; and non-profit organizations) the cognizant agency is generally defined as the agency that provides the largest amount of direct federal funding. Entities may request, however, that an agency other than the organization that provides the largest amount of federal funds in a fiscal year serve as their cognizant agency, if they have a reasonable justification for such a request and the federal agency that should serve as their cognizant agency agrees to allow another agency to serve in this capacity. Some entities, like federally recognized Indian tribes and state and local economic development districts, have particular agencies specifically designated as their cognizant agency.

EDA continues to be the cognizant agency for EDA-designated Economic Development Districts (EDDs) (Appendix V to 2 C.F.R. part 200, Section F.1).

Claiming Indirect Costs Under an EDA Award

To claim indirect costs on an EDA award, the applicant must provide EDA with one of the following in their grant application:

  • Negotiated indirect cost rate agreement (NICRA),
  • Certificate of Indirect Costs (for entities for which EDA is not the cognizant agency),
  • Certificate of Indirect Costs WITH an Acknowledgment Letter (for entities for which EDA is the cognizant agency), or
  • Other acceptable documentation as noted below to claim indirect costs under an award.

If the applicant is a State or local unit of government that receives less than $35 million in direct Federal funding per year, it may submit either of the following: a Certificate of Indirect Costs in the form provided by EDA with an Acknowledgment Letter, a cost allocation plan approved by a Federal agency (note that cost allocation plans or indirect cost rates approved by state agencies are not acceptable), or a Negotiated Indirect Cost Rate Agreement (NICRA)*. Note that indirect cost rates approved by state agencies are not acceptable.

*EDA reserves the right to require EDDs to submit to DOI a cost allocation plan or an indirect cost rate proposal if, in EDA’s judgment, a NICRA is required to verify the District Organization’s proposed indirect cost rate.

Types of Rates

There are four different types of rates that can be negotiated:

  • Provisional – a temporary indirect cost rate that is applied for a limited time period. A Provisional rate 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.
  • Final – an indirect cost rate applicable to a specified past period that is based on the actual costs of the period. A final rate is not subject to adjustment.
  • Predetermined – an indirect cost rate, applicable to a specified current or future period, usually the organization’s fiscal year. The rate is based on an estimate of the costs to be incurred during the period. A predetermined rate is not subject to adjustment. Predetermined indirect cost rates may be negotiated for periods of up to 2 to 4 years. Predetermined rates may not be used by governmental units that have not submitted and negotiated the rate with the cognizant agency for indirect costs.
  • Fixed (or Fixed Carry-Forward) – an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period.

Maximum Allowable Indirect Costs Payable to the EDA Project

The maximum dollar amount of indirect costs reimbursable under an EDA award is the lesser of (1) the line-item amount for the federal share of indirect costs contained in the EDA-approved budget for the award, or (2) the federal share of the total indirect costs allocable to the award based on either (a) the indirect cost rate approved by EDA (or applicable cognizant Federal agency), provided that the cost rate is current at the time the costs were incurred and provided that the rate is approved on or before the award end date, or (b) other acceptable documentation as indicated below.

If indirect costs are included in the budget for a non-construction project, the applicant must include documentation to support the indirect cost rate it is using. In most cases, indirect costs are not allowable for EDA construction awards.

If the applicant does not have a current or pending indirect cost rate, it may propose indirect costs in its budget; however, the applicant must within 90 days from the award start date either prepare and submit an indirect cost rate proposal for approval by the cognizant agency or, if the applicant qualifies (see 2 C.F.R. part 200, App VII), submit a Certificate of Indirect Costs . See 2 C.F.R. part 200 Apps. III, IV, V, VI, VII for guidance.

You can view more information on this process by visiting the How to Get Your Indirect Cost Rate section. If the applicant chooses to pursue this option, it should include a statement in its Budget Narrative that it does not have a current or pending NICRA and will submit an indirect cost rate proposal to EDA or the applicant’s cognizant Federal agency or provide a Certificate of Indirect Costs within the required timeframe.

De Minimis Rate

If the applicant does not have a current NICRA (including a provisional rate), the applicant may alternatively elect to charge a de minimis rate of 10% of modified total direct costs subject to the exceptions of 2 C.F.R. § 200.414(f). The applicant should include a statement in its Budget Narrative that it does not have a NICRA and is electing to charge the de minimis rate.

MTDC means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $25,000 of each subaward or contract (regardless of the period of performance of the subawards or contracts). MTDC excludes equipment, capital expenditures (including revolving loan fund capital), charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward or contract in excess of $25,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs, and with the approval of the cognizant agency for indirect costs.

The use of de minimis rates does not require the review and approval of the cognizant agency for indirect costs.

If chosen, this methodology must be used consistently for all federal awards until such time as the non-federal entity chooses to negotiate for a rate, which the non-federal entity may apply to do at any time.

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