October 1, 2024 marked the effective date for exciting changes to the Office of Management and Budget (OMB) Guidance for Grants and Agreements, which is now referred to as the OMB Guidance for Federal Financial Assistance.
The OMB revised several parts of the overall guidance, but this article focuses on Part 200 – Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards, otherwise referred to as the Uniform Guidance, and, more specifically, changes to Section 200.414 – Indirect costs.
OMB Guidance for Federal Financial Assistance Background and Timeline
The OMB periodically reviews the Uniform Guidance, which was first established in 2013 to assist programs in delivering more positive outcomes while reducing administrative burden and fraud, waste and abuse risk. In February 2023, the OMB announced it was initiating the process of reviewing the Uniform Guidance for potential revisions, which was then followed by issuance of a Notification of Proposed Guidance in the Federal Registrar in October. Public comments to the proposed guidance brought forth additional revisions in the notification of final guidance issued on April 22, 2024.
One objective among the OMB’s final revisions was the concept of reducing agency and recipient burden. Several changes evidenced the OMB’s attempt to achieve this objective, including the increase in the guaranteed de minimis rate for indirect costs from 10 percent to 15 percent of modified total direct costs.
De Minimis Rate Increase and Impact
The OMB explained that the change would allow for a more reasonable and realistic recovery of indirect costs, particularly for new or inexperienced organizations that may not have the capacity to undergo a formal rate negotiation but still deserve to be fully compensated for their overhead costs. It’s important to note that recipients still have discretion in applying a lower than 15 percent, but federal agencies may not compel those recipients to use a lower rate.
Application for Affected Recipients
The Council on Federal Financial Assistance (COFFA) contextualized the application of the indirect cost changes in its August 15, 2024 publication FY 2024 Revisions to 2 CFR: Federal Agency Implementation:
“Indirect Costs Negotiated Indirect Cost Rate Agreements (NICRA) negotiated prior to October 1, 2024 must continue to be honored by both federal agencies and recipients, however cognizant agencies for indirect costs may – but are not required to – renegotiate existing NICRAs (i.e., issue revised or amended agreements) to reflect the new MTDC base. OMB encourages cognizant agencies for indirect costs to accommodate requests to renegotiate existing NICRAs that are in effect beyond October 1, 2025.”
With respect to de minimis rates, COFFA summarized the recipient application as follows:
New Awards: Recipients may elect to use the new 15 percent de minimis indirect cost rate for any award executed on or after October 1, 2024. All federal agencies must honor the new de minimis rate after this date unless a different rate is required by law (such as federal statute or regulation) or otherwise allowed by 2 CFR part 200. Recipients submitting applications to federal agencies before October 1, 2024 for programs with an anticipated award date that occurs on or after October 1, 2024 may use the 15 percent de minimis rate in calculating the budget in that application even if the Notice of Funding Opportunity does not yet indicate that the 2024 Revisions will apply.
Existing Awards: Federal agencies may allow a recipient to apply the 15 percent de minimis rate to an existing award if the agency determines that there are sufficient funds to support the 15 percent de minimis rate. In these instances, the recipient must charge the 15 percent de minimis rate only to costs incurred after the effective date of the amendment to implement the 15 percent de minimis rate. Recipients may not retroactively apply the de minimis rate to costs incurred prior to the effective date of the amendment.
Conclusion
The increase in de minimis rate presents opportunity for recipients to review and renegotiate existing awards and provides more cushion on newly awarded federal funds going forward with respect to indirect costs. Impacted nonprofit organizations that are agile and proactive can experience tremendous cost recovery improvements and enhance their financial stability while also advancing program impact and mission. Navigating compliance changes can be cumbersome, but leaders need to continue to contemplate how their organizations are affected and act accordingly in order to experience the true benefit.
Resources
Federal Register :: Guidance for Federal Financial Assistance
OMB Uniform Guidance | National Council of Nonprofits
FY-2024-Revisions-to-2-CFR-Supplementary-Information-for-Federal-Agency-Implementation.pdf
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