Last week we looked at the blow-back from the grant community about the Office of Management and Budget’s (OMB) proposed changes to the indirect cost rate negotiation process.
As a result of the comments, three new options were contemplated by the OMB:
Option #1: Extend the Timeframe for the Indirect Cost Rate Agreement
The OMB considered allowing an extension of the negotiated indirect cost rate.
Option #2: Require Pass-Thru Entities to Accept Rates
The OMB reviewed the idea of forcing pass-thru entities to honor rates agreements which have been negotiated with the Federal government.
Option #3: Establish a Minimum Flat Rate for Grantees
The OMB looked at offering a minimum flat rate for organizations that have not yet received an indirect cost rate agreement through negotiation with their cognizant Federal agency.
Bottom Line: What’s happened?
As a result of the comments, the OMB is now looking at the following policy changes:
Outcome #1: Allow 4 Year Extension
The OMB has given up on the idea of a flat discount on the negotiated indirect cost rate.
Instead they are looking to add a provision for a one-time extension of up to 4 years for a negotiated rate-provided the indirect cost rates have not had any major changes.
Here is another key point:
The grantee couldn’t ask for another rate review until the extension period is over.
(You can’t go” rate shopping” once you get the extension.)
The OMB is hoping that the extension provision will reduce the burden for grantees and Federal agencies.
Outcome #2: Require Pass-Through Entities to Play Nice
Another change in the proposed regulations is to force the pass-through entities to:
- Accept the indirect cost rate that was negotiated with the Federal government by the recipient organization
- Negotiate a rate with the receiving organization consistent with Federal guidelines
- Provide an option for the minimum 10% flat rate
It is hoped that the days of the pass-through entities dictating the indirect cost rates that do not reimburse the receiving organization for allowable costs related to the Federal award will come to an end.
Outcome #3: Get Used to 10% for Indirect Cost
The pressure to drive indirect costs to 10% of modified total direct cost (MTDC) continues with the proposed institutionalization of the minimum flat rate.
The OMB is proposing this option to help entities who have not yet engaged in indirect cost rate negotiation to receive this rate of reimbursement for up to 4 years.
Is the Future a 10% Indirect Cost Reimbursement?
It’s hard to predict what the future will bring for grant recipients, but it is naïve at best to not expect continued pressure to drive indirect costs down to the 10% of modified total direct costs (MTDC) as a goal.
The Writing is on the Wall-Get Ready
Think of it this way…
If the Federal agency can pay a 10% indirect cost rate to new grantee without having to go through the long and painful indirect cost rate proposal review and negotiation…why would they pick an established grantee with a 20% indirect cost rate agreement?
Calling All Grant Professionals!
What are you seeing with your awarding agency?
- Are you feeling stress about managing the indirect cost rates on your grants?
Help us share the potential pitfalls.
- Add a comment and let us know what you’re seeing with your grant management.
Lucy Morgan CPA, MBA
CEO, Compliance Warrior
P.S. If you’d like to find out more about how to avoid grant management problems and pitfalls?
Check out Grant Management Boot Camp training that helps that helps people work through these issues.
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