Full Implementation of OMB Guidance on Indirect Costs in New York State and City

Official Statement of Philanthropy New York on:

Full Implementation of OMB Guidance on Indirect Costs in New York State and City

In December 2014, the federal Office of Management and Budget formally recognized, in new rules called the Uniform Guidance, that when governments hire nonprofits to provide services, those nonprofits incur indirect costs (often referred to as overhead or administrative expenses) and that government should pay for those costs. The Uniform Guidance supersedes all previous OMB directives regarding use of federal funds to pay nonprofits for services delivered under grants and contracts. 

The new rules expressly require pass-through entities using federal funds – typically state and local governments – to reimburse nonprofits for the reasonable indirect costs they incur when performing services on behalf of governments. Nonprofits that have previously negotiated a federal indirect cost rate must be paid using that rate. Nonprofits that have never had a federally approved indirect cost rate can elect either the minimum rate of 10 percent of their modified total direct costs or to negotiate a higher rate in accordance with federal cost principles.

As of June 2016, the State of New York and New York City have not implemented contracting procedures that are consistent with the new rules and continue to develop RFPs and contracts with overhead rates that are significantly less than those to which nonprofits are entitled by the federal rules.

Philanthropy New York urges New York State and New York City to immediately act in compliance with OMB Guidance on Indirect Costs.

Date of recommendation by the Public Policy Committee: June 20, 2016

Timeframe of open member commentary period: June 29 - July 22, 2016

Date of official approval by Board of Directors: August 3, 2016