Grants and cooperative agreements generally limit the government’s ability to pay to “allowable” costs and impose other specific cost principles. As a result, it is critical for that grantees and their contractors understand applicable cost principals to ensure they can maximize their recover of government dollars for programmatic activities.

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In one cost-cutting effort, the President’s proposed FY18 budget seeks to reduce costs by imposing a cap on indirect cost rates at just 10% for all grants issued by the NIH. While indirect costs are currently negotiated between grant recipients and a cognizant agency, a budget-related document, issued by HHS, explains that the Administration wants to do away with the time and paperwork associated with this negotiation in lieu of a uniform indirect cost rate of just 10%. In part, this effort is being couched as relieving the indirect cost rate negotiation burden on grantees. However, what is odd is the fact that the relatively new Uniform Guidance allows some grantees the option of selecting a 10% indirect cost rate in lieu of going through the process of obtaining a negotiated rate, which may be higher. Therefore, under the current structure, some grantees are given the ability to decide for themselves whether they want the lower 10% rate or find it more useful to go through the more labor-intensive negotiation process to capture a greater amount of their indirect costs. Instead, the Administration is proposing to uniformly limit grantees in their ability to recapture all of their costs. A compromise could be to allow more organizations to opt out of the indirect cost rate negotiation process in lieu of a flat rate, yet the currently proposed approach takes that decision away from the grantee recipients, which may well impact organizations’ willingness to take on NIH grants, thereby potentially slowing the important and critical scientific and medical research of this agency.

We will be following and updating our readers on this, among many other aspects of the President’s budget.

On February 17, 2016 the FAR Council proposed to amend the FAR to implement Section 857 of the National Defense Authorization Act for Fiscal Year 2015 (NDAA 2015). Section 857 of NDAA 2015 amended 10 U.S.C. § 2324(e)(1) to make unallowable “[c]osts incurred by a contractor in connection with a congressional investigation or inquiry into an issue that is the subject matter of a proceeding resulting in a disposition,” such as a criminal conviction, a determination of contractor civil liability for fraud, a penalty for whistleblower reprisal, suspension or debarment, rescission of a contract, termination of a contract for default, or a settlement of an action that might have resulted in any of these penalties. 10 U.S.C. § 2324(e)(1)(Q), (k)(2). The proposed rule would amend FAR 31.205-47 to add as unallowable those costs incurred in any congressional investigation or inquiry that is associated with a criminal conviction, suspension or debarment, termination for default, etc., the costs of which are already unallowable under FAR 31.205-47. Even though Section 857 of NDAA 2015 applies only to DoD, NASA, and Coast Guard contracts, the proposed rule would make Section 857 applicable to all agencies subject to the FAR.

While this particular change is restricted to the FAR, nonprofits should keep a wary eye on whether a similar change is made to the Uniform Guidance’s Cost Principles, which currently provide that certain types of costs associated with congressional inquiries are allowable. See 2 C.F.R. § 200.450.