Federal Agencies

Indirect Cost Recovery

Under Uniform Guidance (2 CFR 200), there is a general rule that federal awarding agencies and pass-through entities should not compel cost sharing, including the reduction of indirect costs, on recipients or subrecipients. 

When submitting an application for federal assistance, there is an expectation that it will be submitted with the appropriate rate from one of UC's federally-negotiated rate agreements and that the federal agency will honor this rate. Specifically, 2 CFR 200.414 (c) states:

(1)  “The negotiated rates must be accepted by all Federal awarding agencies. A Federal awarding agency may use a rate different from the negotiated rate for a class of Federal awards or a single Federal award only when required by Federal statute or regulation, or when approved by a Federal awarding agency head or delegate based on documented justification as described in paragraph (c)(3) of this section.”

Direct recipients or subrecipients of federal funding "must not be encouraged or coerced in any way by the Federal awarding agency or passthrough entity" to "waive indirect costs or charge less than the full indirect cost rate," according to the Council on Financial Assistance Reform (COFAR) September 2015 Frequently Asked Questions.

Prior to proposal submission, particularly when the prime source of funds is a federal grant-making agency, it is prudent to confirm whether a proferred policy has been authorized through a Federal statute, regulation, or through a Federal awarding agency authorized deviation.

F&A Rate Agreements and Pass-Through Entities 

A pass-through entity, a non-Federal entity that provides a subaward to a subrecipient to carry out part of federal project, is not authorized to make unilateral restrictions of indirect cost recovery. 2 CFR 200.331 states:

"All pass-through entities must: (a) Ensure that every subaward is clearly identified to the subrecipient as a subaward and includes the following information at the time of the subaward and if any of these data elements change, include the changes in subsequent subaward modification. When some of this information is not available, the pass-through entity must provide the best information available to describe the Federal award and subaward. Required information includes: […] (4) An approved federally recognized indirect cost rate negotiated between the subrecipient and the Federal Government."

If a "subrecipient already has a negotiated F&A rate with the Federal government, the negotiated rate must be used" in a subaward, according to the Chief Financial Officers Council's  Frequently Asked Questions (July 2017).  Additionally, per the FAQ:

"If a non-Federal entity receiving a direct Federal award or a subrecipient voluntarily chooses to waive indirect costs or charge less than the full indirect cost rate, Federal awarding agencies and pass-through entities can allow this. The decision must be made solely by the non-Federal entity or subrecipient that is eligible for IDC reimbursement, and must not be encouraged or coerced in any way by the Federal awarding agency or passthrough entity."

More Background