Philanthropy New York
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 legitimately incur and need to be paid for their indirect costs, often referred to as overhead or administrative expenses. The Uniform Guidance supersedes all previous OMB directives regarding use of federal funds to pay nonprofits for services delivered under grants and contracts and streamlines the rules governing administrative requirements, cost principles and audit requirements on awards of grants and contracts that use federal funds.
Importantly, the new rules expressly require pass-through entities using federal funds (typically state and local governments, as well as some larger nonprofits) and all federal departments/agencies to reimburse nonprofits for the reasonable indirect costs they incur when performing services on behalf of governments. Nonprofits that previously have 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.
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