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Indirect Cost Rates
Department of Health & Human ServicesNational Institutes of Health
Division of Financial Advisory Services, OALM, ODRay Woodruff, Chief, Indirect Cost Branch
Dan Milstead, Deputy Director, DFAS
Eleventh Annual SBIR/STTR ConferenceOmaha, Nebraska
June 30 – July 1, 2009
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Today’s Agenda
About the Indirect Cost Branch
Why Indirect Cost (IDC) rates are needed
Basic definitions
The negotiation process
Important changes to the 25/40 IDC Rule
Case study
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Indirect Cost Branch
Negotiates Indirect Cost Rates with commercial organizations that receive awards (i.e., grants and contracts)
Negotiates rates on behalf of all of the Department of Health and Human Services
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Why IDC rates are needed
To provide a uniform method of funding and charging indirect costs to awards
To provide an equitable allocation of indirect costs across all awards
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Why IDC rates are needed
Because you need to know your rate to keep from going bankrupt!!!
An excerpt from a recent letter to Ray Woodruff from an SBIR company:
“Somewhat to my surprise, I found that the process of carefully examining and classifying all of our expense transactions for CY/FY 2008, with strict adherence to NIH rules for expense allocation, has resulted in a better understanding of our own business expenses and improved the way in which we will track and react to our costs in the future.”
What is this SBIR company really trying to say? We screwed-up! We only asked for 12% at the time of award. Now we realize that our actual rate is 92%. HELP!!!
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Basic Definitions
DIRECT COSTS – easily identified with a specific project:
Direct salary & wages Material & supplies Consultants Subcontracts Equipment
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Basic Definitions
FRINGE BENEFIT COSTS – allowances and services provided to employees:
Paid absences (vacation, holiday & sick pay) Payroll taxes Pension plan Group insurance (health, life, disability)
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Basic Definitions
INDIRECT COSTS – not easily identified with a specific project:
Executive & administrative labor Rent & utilities Depreciation General lab supplies Professional fees (e.g., CPA) Office supplies
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Basic Definitions
ONE TIER SYSTEM
Fringe benefits and indirect costs are combined into one pool. Result: a single rate.
Computation of Indirect Rate:
Pool / BasePool / Base
Fringe Benefits + Indirect Costs
An equitable base; Examples:
• Total Direct Costs or
• Direct Salaries and Wages
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Basic Definitions
TWO TIER SYSTEM Fringe benefits and indirect costs are separated into two
pools. Result: two rates.
Computation of Fringe Benefit Rate:
Pool / BasePool / Base
Fringe Benefits Costs Total Salaries & Wages
Computation of Indirect Cost Rate:
Pool / BasePool / Base
Indirect Costs An equitable base
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Basic Definitions
Three types of rates:
PROVISIONAL RATESbased on projections for current FYused for funding & charging
FINAL RATESbased on actual costsCharges adjusted to reflect final rates
CEILING RATESFinal rates can not exceed ceiling rates
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Negotiation Process
Contact the Indirect Cost Branch:
When? After notification that the grant or contract will be awarded.
How? Via email to Ray Woodruff, Chief, Indirect Cost Branch
Ray Woodruff’s email address: [email protected]
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Negotiation Process
Information Needed:
Representative’s name, title and email address
Company’s name, address and phone number
Grant / Contract number
Grant / Contract Specialist’s name and contact information
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Negotiation Process
And then...
The Indirect Cost Branch will request an Indirect Cost Proposal
The organization submits a proposal
....the real fun begins!
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The Negotiation Process
Proposal Received
Is proposal adequate?
Return to Company
No
Company RevisesProposal & Resubmits
Assign to AuditorYes
PRELIMINARY REVIEW• Review proposal and develop understanding of organization• Review prior assignments• Review award documents to determine funding rates• Check mathematical accuracy
RECONCILIATION• Reconcile the proposal to audited financial statements• Reconcile the proposal to a trial balance• Reconcile the proposal to any supporting schedules
POOL ANALYSIS• Are costs allowable per FAR?• Are costs reasonable?• Are costs allocated equitably?• Did costs change significantly from prior year?• Any anticipated events that could impact upon future yrs?
BASE ANALYSIS• Is the base consistent with the way the award was funded?• Does the base allow for an equitable distribution of costs?• Any anticipated events that could impact upon future yrs?
Communicate Governmentposition on rates
Document work papersSubmit for
Supervisory approvalIssue rate
agreement
DRAW CONCLUSIONS• Formulate questions• Obtain additional documentation• Resolve questionable items• Determine recommended rates
Negotiate rates with company
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Changes to 25/40 IDC Rule
New IDC rules on SBIR/STTR grants: Phase I = 40% max. rate w/out neg. Phase II = 40% max. rate w/out neg.
Old IDC rules on SBIR/STTR grants:– Phase I = 40% max. rate w/out neg.– Phase II = 25% max. rate w/out neg.
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Changes to 25/40 IDC Rule
Absolutely not. You can only request what you can support.
Even though IDC rates are not negotiated at 40% or less, the rates are subject to audit at any time.
So, does this mean I can request a 40% IDC rate without justification?
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Additional Information
Visit our website at: http://oamp.od.nih.gov/dfas/dfas.asp
or
Contact Ray Woodruff at: 301-496-2444
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Questions / Comments
