What is an indirect cost rate?
An indirect cost is an expense that you incur that is necessary to implementing the grant, but may be difficult to identify with your grant. For example, indirect costs may include money spent for heat, light, rent, telephone, security, accounting, and Internet use. If your organization prefers to use all of its grant funds for direct project costs, you are not required to charge the grant for indirect costs. If you wish to charge indirect costs, however, you must use a federally negotiated indirect cost rate for this competition. The indirect cost rate is the negotiated rate between the applicant and cognizant federal agency. For the majority of institutions of higher education, the cognizant federal agency will be the Department of Health and Human Services (in other cases, it may be the Department of Education, Department of the Interior, or the Office of Naval Research). For more information, please visit http://www.ed.gov/about/offices/list/ocfo/fipao/abouticg.html.
An indirect cost rate is simply a mechanism for determining fairly and conveniently within the boundaries of sound administrative principle, what proportions of Departmental/organization administration costs each programs should bear. An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying unallowable costs, and extraordinary or distorting expenditures. (i.e., capital expenditures and major contracts and subgrants). The indirect costs in the numerator of the equation should bear a reasonable relationship to the direct costs from the denominator. This will allow for each program or activity represented in the direct costs base to assume their fair share of indirect costs when the rate is applied.
