We are hearing from an increasing number of our federal grantee clients who are facing challenges with their Negotiated Indirect Cost Rate Agreements (NICRAs) as a result of significant staffing shortages at Cost Allocation Services (CAS), the primary federal negotiating office at the Department of Health and Human Services (HHS). CAS has lost more than 50% of its workforce, and two of its four offices have closed.  As a result, many organizations are now confronting:

• The expiration of their NICRAs, or
• An inability to obtain a final rate, particularly for non-profits with provisional rates.

While there is no simple or universal solution, several strategies may help grantees navigate this period. There are viable alternatives to a traditional NICRA, each fully within the grantee’s control, though none free of complications.

Switching to the De Minimis Rate (2 C.F.R. § 200.414(f))

For organizations with expired rates, the most obvious choice is to switch to the de minimis rate. The 2024 changes to the Uniform Guidance allow grantees and sub-recipients, at their option, so long as they do not have “a current Federal negotiated indirect cost rate (including provisional rate) . . .” The organization can select a rate “up to” 15% of modified total direct costs, so long as they apply it consistently to all awards and sub-awards.

Key considerations include:

• The Uniform Guidance does not define “indirect costs,” so organizations should clearly articulate in policy which costs are covered by the de minimis rate and which are not.
• Costs not covered may instead be direct charged to awards through an appropriate cost allocation plan.
• A financial analysis is essential. The Uniform Guidance does not require defining indirect costs so broadly that it produces a loss, but designing a system that reliably produces a surplus is equally unwise.

Dispensing with Indirect Cost Rates

Long-standing guidance from the Office of Management and Budget (OMB) makes clear that organizations do not have to utilize the indirect cost system, either NICRAs or de minimis. Accordingly, an organization could charge all costs directly and for shared costs, use an appropriate cost allocation plan to distribute such costs to its awards, sub-awards and non-federal activities.

Seeking a four-year extension of your current rate, including a provisional rate as allowed under 2 C.F.R. § 200.414(g)

The logic here would be that the staff at CAS or another cognizant agency would welcome a quick and legal way to reduce workload for the foreseeable future. Technically, this option is only available to organizations “current Federal negotiated indirect cost rate …” so it may not be available for those with expired rates, but may still be worth a try, even with an expired rate. Once again good financial analysis would be advised as extending a final rate or a predetermined rate, both of which are fixed, does involve taking some risk.

We discussed these options extensively at our Federal Funding Academy in New Orleans last week. Our next Academy is scheduled for April—join us for another deep-dive into federal grants and compliance. Email us for more information at: training@feldesman.com