Hot Topics in Grants Management
COFAR: Frequently Asked Questions
In November 2014, the COFAR made revisions and updates to the following Frequently Asked Questions (FAQs): 110-3 Effective Dates and Disclosure Statements (DS-2s); 110-5 Effective Dates, Applications, and DS-2s; and 431-1 Fringe Benefits and Indirect Costs. In addition, they have made an edit to the lead-in paragraph to the FAQs. Updated FAQs are available here.
New De Minimis Rate Not Available to All Entities
The Office of Management and Budget’s grant reform guidance provides an opportunity for first-time award recipients to receive a de minimis indirect cost rate of 10 percent of modified total direct costs if the entity never had a negotiated indirect cost rate. However, this provision is not available to all new awardees.
Bonnie Graham, Esq., a partner with Brustein and Manasevit PLLC, told attendees participating in a webinar on indirect costs hosted by Thompson Information Services that although the guidance creates uniformity in many areas across all grant recipients, it does contain appendices that discuss differing indirect cost rate requirements for various types of grant recipients. Appendix III addresses indirect costs identification and assignment and rate determinations for institutions of higher education, while Appendix IV covers nonprofit organizations and Appendix VII covers state, local and Indian tribal organizations.
In §200.414(f), the guidance states that non-federal entities that have never received a negotiated indirect cost rate, except those covered in Appendix VII(D)(1)(b), may elect to charge a de minimis rate of 10 percent of modified total direct cost, which may be used indefinitely. If chosen, this methodology must be used consistently for all federal awards until the entity chooses to negotiate for a rate.
However, according to Appendix VII(D)(1)(b), “a governmental department or agency unit that receives more than $35 million in direct federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs. Other governmental departments or agencies must develop an indirect cost proposal in accordance with the requirements of this [Appendix] and maintain the proposal and related supporting documentation for audit. These governmental departments or agencies are not required to submit their proposals unless they are specifically requested to do so by the cognizant agency for indirect costs.”
“It’s not particularly clear, but … the assumption is that this is the group that is being excluded from the de minimis rate,” Graham said. “If you are a government agency that receives more than $35 million of direct federal funding, you are not qualified to use the de minimis rate.”
Learn more here.
Accepting Cost Rates
Another new provision in the guidance related to indirect costs rates includes a requirement that federal agencies must accept a nonfederal entity’s negotiated indirect cost rate, as specified in §200.414(c)(1). “The OMB wants to make it more difficult for federal agencies to require different indirect cost rates from nonfederal entities,” Graham said. “It wants to see the same rate applied to all the federal programs and to increase efficiency and help reduce the burden on negotiating multiple rates depending on the agency you are working with.”
A federal agency may use a rate different from the negotiated rate only if it is required by statute or regulation, or when approved by the federal awarding agency head based on documented justification. Such deviations from the negotiated rate must be publicly available, established in policies and included in the announcement of funding opportunity. The awarding agency must also notify OMB of any approved deviation.
The circular also includes a new requirement in §200.331(a)(4) related to pass-through entities. Pass-through entities must provide the opportunity to use an indirect cost rate from subrecipients, or provide the de minimis rate if it can apply. “If a first-time subrecipient doesn’t want to negotiate an indirect cost rate, then the pass-through could provide the de minimis rate,” Graham said. However, “if the subrecipient wants to negotiate a rate, then the pass-through entity would be required to provide negotiations to come up with a rate based on actual figures consistent with the methodology that they have to approve indirect costs.”
In §200.414(g), the guidance states that entities with an approved federally negotiated indirect costs rate may apply for a one-time extension of the current negotiated rate for a period of up to four years. If an extension is granted, the entity may not request a rate review until the extension period ends. At the end of the extension, the entity must apply to negotiate a rate. “It’s a nice option if you believe your indirect cost rate is appropriate based on your numbers, and you don’t want to go through the administrative burden of renegotiating your rate,” Graham explained.
Under the new guidance (§200.413), salaries of administrative and clerical staff should be treated as indirect costs. Direct charging of this cost is only appropriate if all of the following are met:
- such services are integral to the activity;
- individuals can be specifically identified with the activity;
- such costs are explicitly included in the budget; and
- the costs are not also recovered as indirect costs.
Graham said that Appendix III includes some new provisions for indirect cost calculations for institutions of higher education. One key change in Appendix III(C)(9) states that institutions of higher education, when calculating the administrative portion of their indirect costs, may claim a fixed allowance of either 24 percent of modified total direct costs or a percentage equal to 95 percent of the most recently negotiated fixed or predetermined rate, whichever is less. “If the institution decides to use this discounted rate, then no cost proposal has to be prepared for the administrative portion,” Graham said. “This is an option found only for postsecondary institutions. However, when you use this discounted administrative cost method, any cost adjustments that are needed would have to be reclassified as direct costs for purposes of reconciling your proposal to your financial statement and allocating that facilities portion of your cost.”
Appendix III(B)(4) also states that a utility cost adjustment of up to 1.3 percent can be included in the higher education institution's indirect negotiated cost rate.