The 15% de minimis indirect cost rate is a Federally-recognized rate that non-Federal entities may use to recover allowable indirect costs on grants or cooperative agreements.
This information applies to:
All grants and cooperative agreements
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Overview
2 CFR 200 allows any non-Federal entity (NFE) that meets specific requirements to charge a de minimis rate of up to 15% of modified total direct costs (MTDC), which the NFE may use indefinitely as a Federally-negotiated rate. This option for NFE recovery of indirect costs incurred during work under Federal awards removes administrative barriers smaller organizations previously faced receiving and implementing Federal financial assistance. With the the de minimis rate, these organizations can charge allowable costs which indirectly support the direct work on the Federally-funded project(s) without necessitating the large administrative burden associated with the negotiation process.
Authorities
2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
§200.412 Classification of costs.
There is no universal rule for classifying certain costs as either direct or indirect. A cost may be direct with respect to some specific service or function, but indirect for the Federal award or other final cost objective. Therefore, each cost incurred for the same purpose in like circumstances must be treated consistently either as a direct or an indirect cost to avoid possible double-charging of Federal awards. Guidelines for determining direct and indirect costs charged to Federal awards are provided in this subpart.
2 CFR 200.414 Indirect costs.
(f) De minimis rate. Eligible recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 15 percent of modified total direct costs (MTDC). The recipient or subrecipient is authorized to determine the appropriate rate up to this limit. Federal agencies and pass-through entities may not require recipients and subrecipients to use a de minimis rate lower than the negotiated indirect cost rate or the rate elected pursuant to this subsection unless required by Federal statute or regulation. The de minimis rate must not be applied to cost reimbursement contracts issued directly by the Federal Government in accordance with the FAR. Recipients and subrecipients are not required to use the de minimis rate. When applying the de minimis rate, costs must be consistently charged as either direct or indirect costs and may not be double charged or inconsistently charged as both. The de minimis rate does not require documentation to justify its use and may be used indefinitely. Once elected, the recipient or subrecipient must use the de minimis rate for all Federal awards until the recipient or subrecipient chooses to receive a negotiated rate.
Appendix VII to 2 CFR Part 200 (D)(1)(b) Submission and Documentation of Proposals
A governmental department or agency unit that receives more than $35 million in direct Federal funding must submit its indirect cost rate proposal to its cognizant agency for indirect costs.
Other governmental department or agency must develop an indirect cost proposal in accordance with the requirements of this Part and maintain the proposal and related supporting documentation for audit. These governmental departments or agencies are not required to submit their proposals unless they are specifically requested to do so by the cognizant agency for indirect costs. Where a non-Federal entity only receives funds as a subrecipient, the pass-through entity will be responsible for negotiating and/or monitoring the subrecipient's indirect costs.
2 CFR 200.414 and COFFA 2 CFR 200: Frequently Asked Questions (Publication: January 15, 2025)
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 §200.332(b)(4)). Therefore, a subrecipient may not have a negotiated indirect cost rate with one State agency and the 15 percent de minimis rate with another State agency within the same State.
De Minimis Rate and Governments
Q: Is the 15 percent de minimis rate available to governmental organizations or tribal government entities which have previously negotiated an IDC rate but do not have a current one?
A: Yes. Use of the 15 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 do not have a current negotiated indirect cost rate and those described in Appendix VII of Part 200, paragraph (D)(1)(b) ”governmental department or agency unit that receives less than $35 million in direct Federal funding…”
State and local government departments that do not have a current negotiated rate, have not developed an indirect cost rate proposal, and receive less than $35 million in direct Federal funding per year may use the 15% de minimis indirect cost rate, and must keep the documentation of this decision on file. Federally recognized Indian tribes that have not negotiated a current indirect cost rate with the Federal government may also use the 15% and must keep the documentation of this decision on file.
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 and we do not have a current negotiated indirect cost rate. Our organization has now received a new federal award. Are we eligible to receive the 15 percent de minimis rate?
A: Yes . The availability of the de minimis rate is specifically limited to a non-Federal entity that does not have a current indirect cost rate (200.414(f)).
De Minimis Rate and Period of Applicability
Q: If an organization elects the 15 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: A non-Federal entity may use the 15 percent de minimis rate indefinitely until it elects to negotiate or develop 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 if a rate is developed mid-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.
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 15% de minimis rate if they currently charge all costs as direct costs to Federal programs?
A: No, the 15% 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 15% 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.
Providing Proof of Indirect Costs for De Minimis Rate
Q: Does a non-Federal entity that uses the 15 percent de minimis indirect cost rate need to provide documentation to prove that its indirect costs are at least 15 percent of its organization’s modified total direct costs?
A: No. A non-Federal entity that has not received current a negotiated indirect cost rate and that uses the 15 percent de minimis rate does not need to provide proof of its indirect costs. However, they do need to document their decision to use the de minimis, and that the 15% was correctly applied to its actual MTDC under the award. The 15 percent de minimis rate was designed to reduce burden for small non-Federal entities.
Is the De Minimis rate the de facto rate?
Q: Many pass-through entities are willing to pay only the 15 percent of modified total direct costs (MTDC) to subrecipients. Is the 15 percent de minimis rate meant to be the de facto indirect cost rate?
A: No. The 15 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 the federal government or,
2) If no such rate exists, either a rate negotiated between the pass-through entity and the subrecipient or the 15 percent de minimis rate.
Frequently Asked Questions
What constitutes approval by the Federal awarding agency of an NFE's use of the 15% de minimis rate?
Typically, the NFE informs the Federal awarding agency in the application proposal of its eligibility and intent to charge the de minimis rate. Barring any statutory or regulatory restrictions, the Federal awarding agency must approve the use of the de minimis rate.
Does the non-Federal entity have to submit documentation supporting that their indirect costs are at least 15% of its MTDC to be charged to the award?
No. There is no requirement for the NFE to provide documentation showing that its indirect costs are at least 15% of its MTDC, although they are required to maintain appropriate documentation of all allowable costs charged to the award per 2 CFR 200.403 Factors affecting allowability of costs, and that the 15% was correctly applied to its actual MTDC.
Are State fish and wildlife agencies eligible to charge the 15% de minimis rate for indirect costs?
Yes. As long as the State fish and wildlife agency does not have a current indirect cost rate negotiated and approved by its cognizant Federal agency and it meets the requirements established under Appendix VII to Part 200—States and Local Government and Indian Tribe Indirect Cost Proposals (i.e., receives less than $35 million/year in direct Federal funding).
Which non-Federal entities cannot charge the 15% de minimis rate for indirect costs?
There are two groups of non-Federal entities that cannot use the de minimis rate:
- Non-Federal entities that have an approved indirect cost rate are not eligible to use the 15% de minimis rate.
- A governmental department or agency unit that receives more than $35 million in direct Federal funding.
Is the 15% de minimis rate option available for subrecipients?
Yes, provided the subrecipient is not one of the two groups of NFEs in the previous question above. Prime recipients who subaward some or all of the Federal award to eligible subrecipients must approve either the 15% de minimis rate, or negotiate an indirect rate with the subrecipient, in lieu of a Federally-negotiated indirect cost rate. see 2 CFR 200.332(b)(4).
Do FEMA funds count towards the $35 million annual Federal funding criteria for using the 15% de minimis rate?
Yes. FEMA funds are considered Federal funds.
How do I determine if my State fish and wildlife agency has an approved indirect cost rate?
Typically the budget office would have record of the State fish and wildlife agencies approved indirect cost rate. If not, the State fish and wildlife agency could consult with the OCI Regional Office. Additionally, the Interior Business Center would also be able to inform the State fish and wildlife agency if they have an approved indirect cost rate.
Towards which types of indirect base can you apply the 15% de minimis rate?
2 CFR 200.414(f) states that an eligible non-Federal entity who elects to charge the 15% de minimis rate may only apply the rate to their modified total direct costs.
Modified Total Direct Cost (MTDC) means all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award).
MTDC excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000. Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs and with the approval of the cognizant agency for indirect costs.
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