We answer your most frequently asked questions about Negotiated Indirect Cost Rate Agreement (NICRA), how the NICRA is applied to your organization, how federal funding cutbacks affect NICRA processing times and more:
Is the NICRA applied to the organization’s direct cost base or the project’s direct costs?
The NICRA is applied to a specific “base” defined in the agreement, which may not include all direct costs of the project. The base is usually a subset of direct costs, such as “modified total direct costs” (MTDC) or direct salaries and wages, as specified in your NICRA. Only the costs included in the base are multiplied by the negotiated rate to determine the allowable indirect costs for a project.
How do restricted vs. unrestricted grants affect eligibility for the de minimis rate?
Restricted grants must be used for specific purposes defined by the donor, with stricter reporting requirements, while unrestricted grants offer flexibility for operations or emergencies.
It is almost unheard of for federal money to be awarded for unrestricted purposes. However, unrestricted funds can come from other funding sources. The nature of an organization’s funding does not affect its eligibility to opt to use the de minimis rate. The key to using either the de minimis rate or a NICRA is to apply it consistently across all cost centers, regardless of the nature or source of the funding.
If an organization’s true indirect cost rate exceeds the rate allowed by some funders, the organization can only recover the amount of indirect costs permitted under the award terms. To manage this, the organization should book its true rate against all awards, which will reveal which awards are covering true costs and which need to be subsidized by other, unrestricted sources of revenue.
Can you switch to the de minimis rate after having a NICRA?
Organizations with expired or terminated NICRAs can now use the de minimis rate of 15% of MTDC:
- The 2019 revisions removed the prior restriction that barred entities with any history of a negotiated indirect cost rate agreement (NICRA) from using the de minimis rate. As long as an organization does not have an active NICRA, it may elect the 15% de minimis rate, even if it previously had a negotiated rate.
Are federal workforce and funding cutbacks affecting NICRA processing times?
Yes, reductions in federal workforce and funding are likely to slow NICRA processing times. Some agencies have reported delays due to staff shortages, affecting how quickly NICRAs are issued. Some agencies have imposed a temporary pause in accepting NICRA proposals and approving new rate agreements. And some agencies are considering limiting indirect costs to the de minimis 15% of MTDC for all awards made going forward.
Can you use a negotiated rate from email while waiting for the formal NICRA?
If your cognizant agency has provided a new rate via official email, it is generally acceptable to use that rate for new proposals while waiting for the formal NICRA document, especially if confirmed in writing by the agency. Always keep documentation of the approval for your records.
What is an average NICRA rate for nonprofits?
The default de minimis rate is 15% of MTDC which is usually lower than an organization’s true indirect cost rate. Actual negotiated rates vary widely, but many nonprofits see rates between 15% and 35% or more, depending on their cost structure and negotiation history.
Remember that the rate also hinges on the base that is used with lower bases (like salaries and wages) yielding higher indirect cost rates for the same dollar value of indirect costs.
If an organization’s calculated indirect cost rate is below 15% of MTDC, it will benefit by using the de minimis rate (once the current NICRA expires, if one is in place.)
How do you create a NICRA proposal for a new project without actual costs?
A NICRA proposal is based on an organization’s overall financial activity, not that of a single project. Once a rate and its structure are established, the rate is applied to the direct cost base selected and documented in the rate agreement. For startup organizations without prior financial history, it is acceptable to base an initial NICRA proposal on pro forma estimated costs.
Meals and entertainment: what’s allowed?
Meals for travel that are part of budgeted and approved program costs are generally allowable on federal awards. Some items, like alcohol, must be excluded.
Meals and entertainment for fundraising or non-program activities are not allowable as indirect costs.
What is the best time of the year to apply for a NICRA?
There is no seasonality to NICRA approvals. Schedules vary by cognizant agency. You must submit a proposal for a NICRA on a new award within 90 days after the initial federal award is received. NICRA renewals are due within 6 months after the end of the organization’s fiscal year. If the audit is delayed, you can request an extension of time to submit a proposal to finalize a prior year’s rate and renew for future periods.
Where is the admin cost in a NICRA?
The admin costs should be included in your indirect cost pool. If not transparent, check your chart of accounts or consult your finance team for how admin costs are determined and tracked.
Can a higher NICRA impact award competitiveness?
Yes, a higher indirect cost rate can sometimes make your proposals less competitive if funders prefer lower overhead. However, federal grants must honor your negotiated rate.
If you elect to use a lower base such as salaries and wages or salaries, wages and fringe, you can work with your development team to help them explain that the negotiated rate is high because of the rate structure that has been used. However, for this reason, many organizations choose to use the MTDC base as that will yield the lowest indirect cost rate for the same dollar value in the indirect costs pool.
Can faith-based organizations without a 990 apply for NICRA?
Yes, faith-based organizations that do not file IRS Form 990 can still apply for a NICRA, as long as they meet federal requirements and have appropriate financial documentation. They may be required to submit a financial audit to substantiate their true costs.
What if an organization has a high percentage (70%-90%) of administrative and fundraising costs compared to program costs? Will this prevent them from winning federal funding?
If your Statement of Functional Expenses yields an unusually high indirect cost rate, it is time to reexamine your cost allocation approach. You may be classifying valid program/direct expenses into the administrative functions or need to allocate more indirect costs to programs and fundraising, as examples.
Does an organization have to use a NICRA across all grants?
Yes, and no. Non-federal funders seldom recognize a Federal NICRA. However, you should be using the same allocation methodology across all funding sources to assure the government funders that they are paying only their fair share of indirect costs.
Even with a NICRA in place, you should allocate and record true costs, not the costs calculated using the NICRA, in your general ledger. The NICRA is a maximum rate that can be claimed on federal awards, and does not increase the amount of funding available from the funders.
When using the de minimis rate, must an organization provide detailed records of its indirect costs?
No, the de minimis gets applied somewhat like per diem. You can claim the full 15% of MTDC whether your true costs are above or below that rate. The auditors’ only job is to validate that you’ve applied the rate correctly.
The YPTC Federal Awards Team is here for you as you navigate NICRA and federal funding for your organization. Reach out to use with further questions at federalawards@yptc.com.
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