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§200.412 Classification of costs.
There is no universal rule for classifying certain costs as either direct or indirect (F&A) under every accounting system. A cost may be direct with respect to some specific service or function, but indirect with respect to the Federal award or other final cost objective. Therefore, it is essential that each item of cost incurred for the same purpose be treated consistently in like circumstances either as a direct or an indirect (F&A) cost in order to avoid possible double-charging of Federal awards. Guidelines for determining direct and indirect (F&A) costs charged to Federal awards are provided in this subpart.
[78 FR 78608, Dec. 26, 2013]
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[78 FR 78608, Dec. 26, 2013, as amended at 79 FR 75889, Dec. 19, 2014]
2 CFR 200 Compliance Supplement (Frequently Asked Questions—July 2017 update)
200.331
.331-8 Pass-Through Entities That Have Previously Paid Indirect Costs
Q: Can a pass-through entity that paid actual or negotiated indirect costs to a subrecipient prior to the Uniform Guidance now impose the 10 percent de minimis rate on that same subrecipient?
A: No. The 10 percent de minimis rate is for non-Federal entities that have never received a negotiated indirect cost rate. If a pass-through entity paid negotiated or actual indirect costs to a specific subrecipient in the past, they should continue to negotiate and award indirect costs to that subrecipient in accordance with their prior practice. If a pass-through entity has never awarded or negotiated actual indirect costs with that subrecipient, and the subrecipient does not have a Federally approved indirect cost rate agreement, then the pass-through entity can provide the 10 percent de minimis rate or negotiate a rate with that subrecipient. If the pass-through entity negotiated an approved indirect cost rate with its subrecipient in the past, a de minimis rate cannot be applied.
.331-9 Negotiating Indirect Costs with State Agencies
Q: If one department within a state government negotiates indirect costs with a subrecipient that does not have a Federally approved rate, are all departments/agencies within that state government obligated to also negotiate an indirect cost rate with that subrecipient?
A: No. Each pass-through entity has a separate subaward arrangement with each subrecipient. For example, a State’s Health department has negotiated and approved an indirect cost rate to pay indirect costs to a subrecipient. If the State’s Transportation department subawards to the same subrecipient, and the State’s Transportation department should consider the negotiated rate already provided by the State’s Health department. Also, since this subrecipient has received a negotiated indirect cost from the State, it does not have the option of using the de minimis rate because this subrecipient has negotiated an indirect rate with another state department. In the case, where a subrecipient has no federal awards and there is no defined federal cognizance, the awarding of grants to the same subrecipient by other pass through entities must consider consistency and fairness when reviewing indirect costs. Therefore, the State Transportation department has two choices: (i) accept the State Health department’s negotiated rate or (ii) negotiate its own rate with the subrecipient. (See §200.331(a)(4)). Therefore, a subrecipient may not have a negotiated indirect cost rate with one State agency and the 10 percent de minimis rate with another State agency within the same State.
200.414
.414-1 De Minimis Rate and Governments
Q: Is the 10 percent de minimis rate for new organizations which have never negotiated an IDC rate at 200.414 (f) available to governmental organizations or tribal government entities which have never negotiated an IDC rate?
A: Yes. Provision of the 10 percent de minimis indirect cost rate is conditioned on the non-Federal entity meeting the requirements specified at 200.414 (f). These include limiting availability to organizations that have never received a negotiated indirect cost rate, except for those described in Appendix VII of Part 200, paragraph (D)(1)(b) ”governmental department or agency unit that receives more than $35 million in direct Federal funding must submit its indirect cost rate proposal…” State and local government departments that have never negotiated indirect cost rates with the Federal government and receive less than $35 million in direct Federal funding per year may use the 10% de minimis indirect cost rate, and must keep the documentation of this decision on file. Federally recognized Indian tribes that have never negotiated an indirect cost rate with the Federal government may also use the 10% and must keep the documentation of this decision on file.
.414-9 De Minimis Rate and Breaks in Federal Relationship
Q: Our organization previously had a negotiated indirect cost rate. However, all federal awards expired causing a break in our relationship with the federal government. During the break in relationship our negotiated indirect cost rate expired. Our organization has now received a new federal award. Are we eligible to receive the 10 percent de minimis rate?
A: No. Organizations that experience a break in federal relationship are not eligible to receive the 10 percent de minimis rate upon receipt of a new award. The availability of the de minimis rate is specifically limited to a non-Federal entity that has never received a negotiated indirect cost rate (200.414(f)). It is expected that organizations that have experience developing and negotiating rates have adequate resources to develop a new indirect rates.
.414-10 De Minimis Rate and Period of Applicability
Q: If an organization elects the 10 percent de minimis rate at the beginning of an award, is the de minimis rate applicable to the period of performance of the award?
A: The de minimis rate may not be applicable during the entire period of performance of an award. A non-Federal entity may use the 10 percent de minimis rate indefinitely until it elects to negotiate an indirect cost rate, which the non-Federal entity may apply to do at any time. Indirect cost rates are generally negotiated based on a non-federal entity’s fiscal year (not the period of performance of an award). Therefore, the de minimis rate may not be applicable during the entire period of performance of an award. Awarding agencies are not required to reissue awards issued prior to the effective date of the indirect cost negotiation agreement. Accordingly, the de minimis rate may be applicable to the period of performance of the award if the total award amount is known and made available to the organization at the time of award.
.414-11 De Minimis Rate and non-Federal entity with Single Function
Q: Can a non-Federal entity conducting a single function, which is predominately funded by Federal awards elect to charge the 10% de minimis rate if they currently charge all costs as direct costs to Federal programs?
A: No, the 10% de minimis rate must only be used to pay for overhead costs that are not directly charged to Federal awards. If all costs are charged directly to the Federal award (e.g., space costs, utility and administrative costs) then the recipient should not also charge the 10% de minimis rate. As described in 2 CFR section 200.403, costs must be consistently charged as either indirect or direct cost, but may not be doubled charged or inconsistently charged as both.
.414-12 Providing Proof of Indirect Costs for De Minimis Rate
Q: Does a non-Federal entity that uses the 10 percent de minimis indirect cost rate need to provide documentation to prove that its indirect costs are at least 10 percent of its organization’s modified total direct costs?
A: No. A non-Federal entity that has never received a negotiated indirect cost rate and that uses the 10 percent de minimis rate does not need to provide proof of its indirect costs. The 10 percent de minimis rate was designed to reduce burden for small non-Federal entities(See also .414-11 above). The non-Federal entity has to report in its SEFA whether it has elected to use the 10% de minimis rate for its Federal programs (see §200.510(b)(6)).
.414-13 Is the De Minimis rate the de facto rate?
Q: Many pass-through entities are willing to pay only the 10 percent of modified total direct costs (MTDC) to subrecipients. Is the 10 percent de minimis rate meant to be the de facto indirect cost rate?
A: No. The 10 percent de minimis rate is not meant to be the de facto indirect cost rate. OMB established it to reduce the burden for smaller, less experienced non-Federal entities by not requiring them to negotiate an indirect cost rate.
Pass-through entities must recognize:
1) An approved federally recognized indirect cost rate negotiated between the subrecipient and thefederal government or,
2) If no such rate exists, either a rate negotiated between the pass-through entity and the subrecipient orthe 10 percent de minimis rate.
For more information on the 2 CFR 200 faqs, click here.
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Anchor exceptions exceptions
Which non-Federal entities cannot charge the 10% de minimis rate for indirect costs?
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Non-Federal entities that have previously had an approved indirect cost rate are not eligible to use the 10% de minimis rate. Additionally, 2 CFR 200 Appendix VII (D) outlines two basic groups of entities that are not allowed to charge the 10% de minimis rate for indirect:
- A governmental department or agency unit that annually receives more than $35 million in direct Federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs; or
- Those governmental departments or agency units that are not required to submit their indirect cost rate proposals to their cognizant agency for indirect costs. Such entities must still develop an indirect cost proposal in accordance with the requirements under 2 CFR 200 and maintain the proposal and related supporting documentation for audit. Examples of such departments or agencies are those whose cognizant federal agency is Health and Human Services (HHS). In some situations, HHS may allow a governmental department or agency to develop their indirect cost rate proposal, but not require them to submit it for approval. The reason for this is that HHS does not have the resources or capacity to review and approve all the indirect cost rate proposals from all of its different grantees. In these cases, the governmental department or agency must still develop and document their indirect cost rate and be able to provide it to auditors if needed.
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