Sneak Preview: Indirect Cost Rate ‘Business Decision’ Promoted

Jerry Ashworth
June 21, 2024 at 08:25:01 ET

(The following is excerpted from a recent Thompon Grants Compliance Expert article.) Although there is generally widespread support in the grants community for the Office of Management and Budget’s (OMB) increase of the de minimis indirect cost rate from 10% to up to 15% as part of the 2024 uniform guidance revisions, a federal indirect cost rate official, during a recent webinar hosted by the National Grants Management Association, advised that recipients should fully consider whether using a de minimis rate or negotiating a rate is the best “business decision” for the entity.

Under §200.414(f) of the 2024 uniform guidance revisions, OMB states that “recipients and subrecipients that do not have a current federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 15% of modified total direct costs. The recipient or subrecipient is authorized to determine the appropriate rate up to this limit.” The provision, which raises the rate from the current 10%, aims to allow for flexibility and reduced burden for eligible grantees that would prefer opting not to undergo the indirect cost rate negotiation process.

As part of a panel of federal agency grants officials discussing federal impacts of the 2024 uniform guidance (2 C.F.R. Part 200), Andre Hylton, director of the Department of Education’s (ED) Indirect Cost Division, offered important considerations that recipients and subrecipients should evaluate when determining if they should select the de minimis rate.

“For any grantee determining the indirect cost rate, it’s a business decision,” Hylton said. “You as a prudent person in your financial capacity should be making financial decisions that are both allowable based on the regulations, along with how you can survive when it comes to your administrative reimbursement. Even if you have the ability to elect the de minimis indirect cost rate if you have programs that allow it, I still would encourage entities to look and see [if this is most beneficial] when it comes to your financial operations because if you simply just want to avoid [negotiating with the agency], that’s not a prudent business decision. You should still engage in the activity of indirect cost rate negotiation even if you don’t like the [negotiation] process,” he said, if you ultimately determine that this process is better for your organization.

Still, Hylton anticipated a greater number of entities will seek to opt for a de minimis rate if they are eligible for it. “I do think it’s a good thing to increase the de minimis rate to alleviate the stress on some ‘mom and pop’ nonprofit businesses that may not have an accounting staff that can” negotiate an indirect cost rate, he said. However, he pointed out that ED has certain awards that are statutorily required to have a restricted indirect cost rate and therefore, the de minimis rate is not applicable. He urged recipients and subrecipients to consider the “hierarchy of regulations,” noting that uniform guidance provisions are the “umbrella regulation for everyone in the federal government,” but specific agency regulations may be more restrictive and thus supersede 2 C.F.R. Part 200.

While OMB has made the 2024 uniform guidance revisions effective for new awards and amendments to existing awards as of Oct. 1, federal agencies may elect to implement the revisions as early as June 21. Rhea Hubbard, director of the Department of Transportation’s (DOT) Office of Grants and Financial Assistance, said that most federal agencies generally expect to implement the revisions as of Oct. 1. “That seems to be the general consensus from our agency and from what we’ve heard from other agency colleagues,” she said. However, she emphasized that recipients should look at the terms and conditions of their awards — particularly those receiving new awards after July 21 — to determine which uniform guidance provisions apply.

(The full version of this story has now been made available to all for a limited time here.)

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