(The following was excerpted from a recent article in the Federal Grants Management Handbook.) Many subrecipients that currently have no negotiated indirect cost rate are opting to accept the 10 percent de minimis indirect cost rate available under the Office of Management and Budget’s (OMB’s) uniform guidance, but a state official recently encouraged them to “do their homework” to determine their actual indirect costs and negotiate a more appropriate rate.

During a webcast on best practices under the uniform guidance hosted by OMB and the Council for Financial Assistance Reform (COFAR), Carol Kraus, director of the Illinois Grant Accountability and Transparency Unit, said that subrecipients in Illinois with no negotiated indirect cost rate have three options: (1) negotiate an indirect cost rate annually; (2) use the de minimis rate of 10 percent of modified total direct costs (MTDC); or (3) use a restricted rate designated by programmatic or statutory policy.

Kraus encouraged subrecipients to consider negotiating a rate with the pass-through entity that will enable them to recover a greater share of their indirect costs than the de minimis rate. “Be aware of all the rules and don’t be scared of negotiating a rate,” she said. “Really do some homework, get some training and figure out how to” negotiate a proper rate.

The uniform guidance requires federal agencies and pass-through entities to accept an indirect cost rate from a nonfederal entity or subrecipient that has been negotiated with the cognizant agency for indirect costs (§200.414(c)(1)), adding that a different rate may only be used when it is required by federal statute or regulation, or approved by the federal agency head based on documented justification (§200.414(c)(3) and (4)). If no such negotiated rate exists, the subrecipient may negotiate a rate with the pass-through entity.

The uniform guidance also makes it easier for a nonfederal entity that has never had a negotiated indirect cost rate to use a de minimis or flat rate of 10 percent of MTDC as its indirect cost rate (§200.414(f)). If a nonfederal entity qualifies and chooses to use the de minimis rate, it must use this rate consistently across its federal grants until it opts to negotiate an indirect cost rate. However, nonfederal governmental entities that receive more than $35 million in direct federal funding are restricted from using the 10 percent indirect cost rate.

(The full version of this story has now been made available to all for a limited time on Thompson’s Grants Compliance Expert site.)