Part VII: Uniform Guidance -- Indirect Costs: De Minimis Rate

One of the most significant changes within the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards is the change in the requirements related to indirect costs in Section 2 CFR 200.414. Recipients of federal awards that currently have a negotiated indirect cost rate now have a requirement that this rate must be accepted by all federal awarding agencies unless otherwise required by federal statute or regulation, or when approved based on documented justification as defined in Section 200.414(c)(3). The various methods of rate determination are contained in Appendix III to Part 200. 

Non-federal entities that currently have a federally negotiated indirect cost rate may apply for a one-time extension of that rate for a period of up to four years. The request will be reviewed by the cognizant agency for indirect costs. If the extension is granted, another rate review cannot be requested until the extension period ends. When the extension period ends, the entity must reapply to negotiate a rate. Non-federal entities that have never received a negotiated rate may elect to charge a de minimis rate of 10% of modified total direct costs. Modified total direct costs are defined in Section 200.68. The de minimus rate may be used indefinitely and must be applied consistently for all federal awards until such time that the entity chooses to negotiate a rate. The entity may apply to negotiate a rate at any time.

Rates that subrecipients have negotiated with federal agencies are also applicable to pass-through entities. If no such rate exists, the pass-through entity is required to negotiate a rate with the subrecipient, or use the de minimis rate.

For entities that have never had a negotiated rate, an analysis of the implications of applying the de minimis rate would be helpful in determining if rate negotiation would be more beneficial.  The changes to the indirect cost rates for federal awards could also have a significant impact on an entity’s grant budgets. While the change in the indirect cost rate will not result in additional funding, it will change the allocation of funds and allow organizations to more fully recover their administrative costs. These administrative costs would otherwise need to be subsidized by additional means. The result is that these extra funds can be made available for other purposes.

Over the next few weeks, be on the lookout for more of Our Thoughts On the new Uniform Guidance and contact Schneider Downs with any related questions. 

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