Federal Assistance Manual Chapter 6-100

CHAPTER 6-100 INDIRECT COST RATES

• 6-100-00 Purpose
  
• 6-100-10 Background
  
• 6-100-20 Applicability
  
• 6-100-30 Policy
  
• 6-100-40 Normal Procedures for Establishing Indirect Cost Rates

6-100-00 PURPOSE

The purpose of this Chapter is to prescribe OSM's basic policies and procedures governing the establishment of indirect cost rates and the reimbursement of indirect costs.

6-100-10 BACKGROUND

1. Indirect costs are the 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.

2. In theory, all such costs might be charged directly. Practical difficulties, however, will normally preclude this approach. They are therefore grouped into a common pool(s) and distributed to the organization's programs through a cost allocation process. The end product of this allocation process is an indirect cost rate (or rates) which is then applied to individual grant awards to determine the amount of indirect costs chargeable to the awards.

6-100-20 APPLICABILITY

This chapter is applicable to any organization that receives an OSM grant or cooperative agreement, which provides for the reimbursement of indirect costs.

6-100-30 POLICY

1. Preparation of Proposals
   1. Guidance on the preparation of indirect cost proposals is provided in the following informational brochures which can be obtained from the U.S. Government Printing Office.
      1. OASC-1 (Revised) - A Guide for Colleges & Universities - Cost Principles and Procedures for Establishing Indirect Cost and Other Rates for Grants and Contracts with the Department of Health, Education, and Welfare.

      2. ASMB C-10 Guide for State, Local and Indian Tribal Governments - Cost Principles for Developing Cost Allocation Plans and Indirect Cost Agreements with the Federal Government: Implementation Guide for Office of Management and Budget Circular A-87.

   2. Additional guidance on the preparation of indirect cost proposals can be obtained from the Federal cognizant agency or the Office of the Inspector General Regional Office. The address and States covered by each Office of the Inspector General Regional Office are contained in Exhibit X6-100-1.

2. Timely Submission of Proposal
   1. A claim for the reimbursement of indirect costs under grants awarded by OSM must be supported by the timely submission of an indirect cost proposal for each fiscal year of the recipient in which such costs are claimed. Recipients that fail to comply with this requirement will be deemed as not having a currently effective indirect cost rate.

   2. In the absence of this rate, future grants awarded to the grantee will not provide for the reimbursement of indirect costs. If a rate is subsequently established, based on the late submission of an indirect cost proposal, indirect cost reimbursement will be limited to the indirect cost applicable to the period subsequent to the date the proposal is submitted.

   3. Failure to submit a timely proposal may also result in the disallowance of indirect costs previously reimbursed based on the use of a provisional indirect cost rate.

3. Reimbursement of Indirect Costs
   1. All grants awarded by OSM will provide for the full reimbursement of indirect costs applicable to the grants.

   2. When a provisional indirect rate is used for interim reimbursement of indirect costs, such costs will be adjusted upward or downward, as appropriate, when a permanent rate (i.e., final, predetermined or fixed) is established. If the recipient fails to establish a permanent rate, the Indirect costs previously reimbursed on a provisional rate will be disallowed.

4. Subgrants
   1. Except as otherwise provided in subparagraph 2 of this paragraph, recipients will be responsible for negotiating appropriate indirect cost rates with subrecipients and cost-type contractors (hereafter collectively referred to as "grantees") awarded funds under OSM grants. Such negotiations will be based on the OSM cost principles applicable to the subgrantee (See Chapter 6-00). The procedures followed by the recipient in conducting the negotiations will be subject to review and audit by, or on behalf of OSM. If the recipient requires assistance in connection with the negotiations, it should request such assistance from the Federal cognizant agency.

   2. Recipients will not be required to negotiate indirect cost rates with subgrantees if any of the following conditions exists:
      1. The subgrantee does not provide for the reimbursement of indirect costs.

      2. The subgrantee is also a direct recipient of OSM grants or contracts and is required to negotiate indirect cost rates directly with the Federal cognizant agency. In these cases, the Federal cognizant agency will negotiate indirect cost rates applicable to all OSM supported activities, including those conducted under subgrants. However, although the recipient will not be primarily responsible for these negotiations, it may participate in the negotiations if OSM or the recipient considers such participation necessary or desirable.

6-100-40 NORMAL PROCEDURES FOR ESTABLISHING INDIRECT COST RATES

1. Submission of Proposals
   1. An organization that has not previously established an indirect cost rate with the Federal cognizant agency must submit its initial indirect cost proposal to the appropriate Federal cognizant agency immediately after being notified that a grant providing for the reimbursement of indirect costs will be awarded. The proposal, which will be used to establish a rate to permit funding of indirect costs under the award, should normally be based on the organization's actual costs for its most recently completed fiscal year. However, if the organization is aware of factors that are expected to result in a significant change in the rate for the fiscal year during which the grant is to be performed, the proposal must be based on projected costs for that year.

   2. Organizations that have previously established indirect cost rates with the Federal cognizant agency must submit a new indirect cost proposal to the appropriate Federal cognizant agency within six months after the close of each fiscal year. The type of rate(s) reflected in the proposal and the fiscal year(s) on which it should be based will be governed by the specific circumstances involved.
      1. If a provisional rate was previously established for the most recently completed fiscal year, the proposal must reflect (1) a final rate for the completed year based on the actual costs of that year, and (2) a fixed, predetermined, or provisional rate for the subsequent year.

         Normally, the rate for the subsequent year should also be based on the actual costs of the most recently completed year. However, if the organization is aware of factors that are expected to result in a significant change in the rate during the subsequent year, the rate computation must be based on projected costs of that year.

      2. If a fixed or predetermined rate was previously established, the proposal must reflect a fixed, predetermined, or provisional rate for the fiscal year immediately following the year covered by the last negotiation. This rate should be based on the actual costs of the most recently completed year.

   3. The recipient organization's initial proposal as well as each succeeding proposal must be accompanied by, and be cross-referenced and reconciled to, its independently audited financial statements for the fiscal year on which the proposal is based. If independently audited statements are not available, the recipient should contact the Federal cognizant agency to determine what other financial documents will be acceptable to substantiate the amounts reflected in the proposal (e.g., internal financial statements).

   4. If a recipient organization is unable to submit a proposal by the prescribed due date, it may request an extension of time from the Federal cognizant agency. The request must contain a justification for the extension and must specify the date the proposal will be submitted. Such requests will normally be approved only when they are submitted on or before the due date of the proposal.

2. Negotiation of Rates
   1. The Federal cognizant agency will review the indirect cost proposals submitted by recipient organizations and, based on these reviews, will negotiate appropriate indirect cost rates with the organizations. If an audit is deemed necessary, the Federal cognizant agency will contact the recipient to establish an audit date.

   2. The results of each negotiation will be formalized by a Negotiation Agreement signed by the appropriate cognizant agency official and an authorized representative of the recipient.

   3. Where possible, disputes arising in the negotiation of indirect cost rates will be resolved in accordance with informal appeal procedures established in the Inspector General's Regional Offices. Disputes that cannot be resolved at the State Office level will be resolved in accordance with the procedure contained in the Department's grant appeals regulations.

3. Notification to Organizations without Established Indirect Cost Rates

   OSM will notify those recipient organizations which have not previously established indirect cost rates with the cognizant agency that they must establish such rates with the appropriate Federal cognizant agency if they wish to claim indirect cost reimbursement under OSM grants. This notification will be made immediately after the agency has determined that a grant providing for the reimbursement of indirect costs will be awarded. In the event that an organization submits its proposal to OSM, the office will transmit the proposal and supporting documents to the appropriate Federal cognizant agency.

EXHIBIT X6-100-1

DOI OFFICE OF THE INSPECTOR GENERAL

FEDERAL ASSISTANCE MANUAL
January 2, 1998