Indirect Costs
1. What is the difference between a direct cost and an indirect cost?
An indirect cost is any cost that cannot be easily identified (or it would not be cost effective to identify) to a specific project, but identified with two or more final cost objectives. There are three types of indirect costs: Fringe Benefits: services or benefits provided to employees, e.g., Health Insurance, Payroll Taxes, Pension Contribution, Paid Absences, etc
Overhead: indirect costs associated with the performance of a project, e.g., Facility Costs (rent, heat, electricity, etc.), General Laboratory Supplies, etc.
G&A: indirect costs associated with the overall management of an organization, e.g., President’s Office, Human Resources Office, Accounting Office, office supplies, etc.
2. What is an F&A rate?
3. How does the process start for obtaining a negotiated indirect cost rate with a commercial organization?
The notification to DFAS needs to include the following information:
- Organization’s Representative’s Name, Title and Email Address
- Organization’s Name
- Organization’s Address
- Grant Number or RFP/Contract Number
- Grant Specialist’s/Contract Specialist’s Name
4. If a commercial organization’s provisional indirect cost rate has recently expired, what rate should be used for funding a new NIH award?
5. How can I determine if a commercial organization has an indirect cost rate negotiated with NIH?
6. Who is responsible for negotiating indirect cost (F&A) rates for subrecipients that receive no prime awards?
Yes, if a major portion of the grant/contract funds is for the subaward, as determined on a case-by-case basis.
7. Is the DFAS Indirect Cost Branch responsible for negotiating indirect cost rates for universities, hospitals, non-profit organizations and state and local governments?
8. How can I obtain the HHS negotiated indirect cost rate for a college/university or non-profit organization?
9. Why are indirect cost rates required for cost reimbursement type awards?
10. I represent a commercial organization. This is our first time preparing an indirect proposal, we're not sure how to do this?
11. How is an Indirect Cost Rate Computed?
- One Tier System: One Pool
Pool includes Fringe Benefits, Overhead and G&A - Two Tier System: Two Pools
(Go to Excel File Two Tier System for a detailed example)
Fringe Benefits Pool
Overhead and G&A Pool - Three Tier System: Three Pools (Go to Excel File Three Tier System for a detailed example)
Fringe Benefits Pool
Overhead Pool
G&A Pool
An organization should chose a Base for allocating indirect costs that will equitably distribute indirect costs to all projects.
12. Which rate structure should I use when submitting my indirect rate proposal?
13. Is there a standard or average indirect cost rate for Commercial Organizations?
- Size of Organization
- Type of Organization (e.g.; research or manufacturing)
- Age of Organization
- Location of Organization
- The rate structure used
- The indirect cost base used
14. Is the Organization required to negotiate a rate prior to submitting a grant application/contract proposal?
NOTE: Phase I SBIR/STTR grantees that do not have rates negotiated with a federal government agency should not propose in the grant application a rate in excess of the 40% (of total direct costs) ceiling rate specified in the SBIR/STTR Omnibus Solicitation.
15. If a Grantee, receiving a Phase II SBIR grant award, does not have a negotiated indirect cost rate at the time of award, should the 40% rate referred to in the SBIR/STTR Omnibus Solicitation be used as a temporary rate for funding indirect costs under the grant?
16. If an organization has negotiated rates with the Defense Contract Audit Agency (DCAA), can these rates be used for funding NIH grants/contracts?
17. How long does it take to negotiate an indirect cost rate(s) once the DFAS Indirect Cost Branch receives the proposal?
18. What is fixed fee, i.e., is it an indirect cost?
19. Is an indirect cost rate good forever?
20. The NIH Grants Policy Statement states that patent costs are “unallowable as a direct cost unless specifically authorized on the grant award” but “may be allowable as F&A costs, provided they are authorized under applicable cost principles, and are included in the negotiation of F&A cost rates.” Does that mean patent costs may be allowable F&A costs for commercial organizations?
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