Welcome to Feldesman’s Grants Practice Shorts series where we discuss helpful tips and strategies in common areas of federal grant management. Be sure to check out our other installments on our Grants Practice Shorts page.

When pass-through entities issue subaward of federal grant funds, they must identify the subrecipient’s approved indirect cost rate, if applicable. See 2 C.F.R. 200.332.

Types of Indirect Cost Rates for Subawards

Subawards must specify the applicable indirect cost rate. Subject to applicable restrictions in the prime award funding, pass-through entities are generally required to honor a subrecipient’s federally negotiated indirect cost rate agreement. If a subrecipient does not have a federally negotiated cost rate, the pass-through entity may negotiate an indirect cost rate with the subrecipient. Alternatively, the subrecipient may elect to:

• Use the de minimis rate of up to 15% over Modified Total Direct Costs (MTDC)
• Use the cost allocation method to account for indirect costs

See 2 C.F.R. 200.332.

Requirement to Honor Indirect Cost Rate

Pass-through entities may not require a subrecipient with a federally negotiated indirect cost rate to instead use the de minimis rate. At the same time, organizations administering programs subject to statutory or regulatory funding caps should ensure that subrecipient indirect cost recovery remains consistent with applicable funding limitations.

Our federal grant attorneys helps organizations navigate complex grant compliance requirements while supporting operational and business objectives. For additional information, please contact Phillip Escoriaza or Adam Oppenheim.