Reimbursement of Indirect Cost

Reimbursement of indirect costs is allowable under an award, HHS will not reimburse those costs unless the recipient has established an indirect cost rate covering the applicable activities and period of time unless indirect costs are reimbursed at a fixed rate (e.g., HHS indirect cost reimbursement for training grants to other than governmental recipients. Grantees will find this information helpful in negotiating indirect costs rates for their organization.

 



HHS considers activities conducted by recipients that result in indirect charges a necessary and appropriate part of HHS grants. OPDIVs reimburse their share of those costs either as a fixed amount or through use of a rate. The amount may be specified in statute, regulations, or policy or be determined based on a rate negotiated by DCA, DFAS in the Office of Acquisition Management and Policy, NIH (responsible for negotiating indirect cost rates for for-profit entities receiving awards from HHS), or other cognizant Federal agency and reflected in a formal rate agreement. For certain governmental organizations, amounts claimed are based on documentation retained by the governmental organization. State and local governmental organizations also may be eligible for reimbursement of costs associated with provision of central services as provided in Title 2 CFR Part 225.1 If an applicant is advised by the GMO of the need to establish a rate prior to issuance of a NoA, the GMO will indicate the responsible office to be contacted.

If reimbursement of indirect costs is allowable under an award, HHS will not reimburse those costs unless the recipient has established an indirect cost rate covering the applicable activities and period of time unless indirect costs are reimbursed at a fixed rate (e.g., HHS indirect cost reimbursement for training grants to other than governmental recipients) or the applicant is not required to submit a proposal to the Federal government as specified in Title 2 CFR Part 225. The awarding office uses the applicable indirect cost rate covering the award budget period (or part thereof) in calculating the amount to be shown or to be included on the NoA. If, on the basis of statute, regulation, or policy, allowable indirect cost reimbursement is restricted to an amount less than full indirect cost reimbursement, the difference between those two amounts may be used to satisfy a recipient's matching or cost-sharing requirement (see "Matching or Cost Sharing").

Indirect cost proposals must be prepared in accordance with the applicable cost principles and guidance provided by the cognizant office or agency. Further information concerning the establishment of indirect cost rates and the reimbursement of indirect costs may be obtained from DCA or DFAS (see Part III). DCA should be consulted to determine the need to submit a Disclosure Statement (DS-2) pursuant to the requirements of Title 2 CFR Part 220.

If the GMO determines that a recipient does not have a currently effective indirect cost rate, the award may not include an amount for indirect costs unless the organization has never established an indirect cost rate (usually a new recipient) and intends to establish one. In such cases, the award shall include a provisional amount equaling one-half of the amount of indirect costs requested by the applicant, up to a maximum of 10 percent of direct salaries and wages (exclusive of fringe benefits). If the recipient fails to provide a timely proposal, indirect costs paid in anticipation of establishment of a rate will be disallowed.

There are several other limited circumstances under which the GMO may award indirect costs if none were previously awarded or may increase the amount previously awarded. If an award does not include an amount for indirect costs because the recipient did not submit a timely indirect cost proposal and the recipient subsequently establishes a rate, the GMO may amend the award to provide an appropriate amount for indirect costs if the amendment can be made using funds from the same Federal fiscal year in which the award was made. However, the amount will be limited to the indirect costs applicable to the period after the effective date of the rate agreement. This provision does not affect those local governmental agencies that are not required to submit their indirect cost proposals to the Federal government. They may charge indirect costs to HHS grants based on the rate computations they prepare and keep on file for subsequent Federal review.

Rebudgeting within the direct cost category may affect the amount of eligible indirect cost reimbursement, depending on the direct cost base on which indirect costs are calculated (for example, salaries and wages). The recipient is expected to accommodate such changes within the ceiling amount of the award. If permissible direct cost rebudgeting or unobligated balances of Federal funds result in the need for a lesser amount of indirect costs than awarded or a higher permanent rate results in a need for additional indirect costs beyond those awarded, recipients may rebudget between direct and indirect costs (in either direction) to accommodate such an increase or decrease without OPDIV prior approval unless it would constitute a change in the scope of the project (see "Prior-Approval Requirements-OPDIV Prior Approval").

Generally, award amounts will not be adjusted based on a negotiated indirect cost rate different from that used at the time of the award (whether competitive segment or budget period).

If funds are available, a GMO may, but is not obligated to, amend an award to provide additional funds for indirect costs, but only under the following circumstances:

  • An error was made in computing the award. This includes situations in which a higher rate than the rate used in the grant award is negotiated and the date of the rate agreement for the higher rate is on or before 1 calendar month prior to the beginning date of the grant budget period.
  • The awarding office restores funds previously recaptured as part of a recipient's unobligated balance.
  • The recipient is eligible for additional indirect costs associated with additional direct costs awarded, e.g., a supplemental award.

For all recipients other than those subject to Title 2 CFR Part 220, the negotiated rate in effect at the beginning of each budget period will be used as the basis for determining indirect costs for that budget period. For recipients subject to Title 2 CFR Part 220, the rate in effect at the beginning of a competitive segment will be used to determine indirect cost funding levels for the entire segment. If the rate agreement in effect at the outset of the competitive segment does not cover the entire competitive segment, then the rate in effect for the last year of the negotiated agreement will be used to determine indirect cost funding for the duration of the competitive segment. For all recipients, if the rate in effect at the beginning of the competitive segment or budget period, as applicable, was provisional and is superseded by a permanent rate, whether higher or lower, the latter rate will be used to determine indirect cost reimbursement. The award will not be adjusted downward, based on a lower permanent indirect cost rate than a provisional rate used in calculating the award, unless the indirect cost proposal that served as the basis for the negotiation included unallowable costs. The OPDIV also is not required to provide any additional funding to accommodate this situation but may do so if an error was made in computing the award as indicated above.

The recipient is responsible for establishing indirect cost rates for its subrecipients if those subrecipients do not have a current, applicable rate negotiated by a cognizant Federal agency.


[1] OMB Circular A-87 also addresses public assistance cost allocation plans; however, the types of programs eligible for such costs are not covered by this HHS GPS.

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Reimbursement of Indirect Cost. HHS Grants Policy Statement. DHHS. 2007. English.

Last Reviewed: June 2009

Last Updated: August 27, 2014