Nonprofit leaders, grant writers, and program managers are high-fiving in response to a new rule governing ‘pass-through’ funding—states, local governments and other entities that use federal funds to hire nonprofits for service delivery are now required to reimburse nonprofit indirect costs. Although some government contracts have allowed for indirect cost rates in the past, rates vary widely by state, and most were set at less than 10 percent of the actual costs nonprofits incur.
The change to OMB’s Uniform Guidance rules reflects growing recognition that failing to fund the true indirect costs of service provision leaves a big (and unfair) gap for nonprofits. In fact, over half of organizations participating in Urban Institute’s 2013 survey about nonprofit work under government contracts said that uncovered administrative costs were a significant problem for them. Further, 24 percent of respondents reported operating under contracts that provided no funds at all for indirect expenses.
What’s left for nonprofits to do?
The National Council of Nonprofits gives several recommendations, including accurately tracking your nonprofit’s indirect costs, advocating at the state level for any changes needed to comply with new requirements, reporting back your experiences, and holding pass-through entities accountable for following through. (Note: the interim final rule says the right to indirect cost reimbursement cannot be waived. So, if a pass-through entity asks you to sign off on a waiver, stand up for your rights.)
Learn more by checking out this guide that helps assure nonprofits understand their rights and know how to benefit from these changes. To comment on the interim final rule that covers Uniform Guidance modifications, submit remarks online by February 17.