Thursday, August 15, 2013

Handling Indirect Rates for Sub-grantees and Subcontractors without existing NICRA

USAID recognizes that businesses have indirect expenses. It is willing to pay its fair share of these when it contracts with or issues a grant to a firm subject to some requirements.   The expenses must be reasonable, allowable and allocable, and the Government must be certain that it is paying only its fair share. FAR 31.203 and OMB Circulars like A-122, Indirect Costs, contain guidance on allocating indirect costs.

Prime contractors and grantees are responsible for verifying; establishing and settling all final indirect cost rates with their subs and providing status of final indirect audit for subs at CO/AO’s request. (FAR 52.216-7 (d)(5)).

USAID has a publication called "Best Practices Guide for Indirect Costing" issued as part of Mandatory Help for ADS 300 which is also a useful information piece (Best Practices Guide for Indirect Costing) for proposing and negotiating indirect rates with USAID.

How does it work in practice?

If the sub company has a NICRA (Negotiated Indirect Cost Rate Agreement) with any U.S. Government agency, it should be used (provisional or final rates) with or without rate ceilings and included in the cost reimbursable subcontracts/sub-grants or used to establish pricing in fixed priced subcontracts/subgrants.

For cost reimbursable sub-instruments, the settlement of final indirect rates should then be handled in an appropriate manner and with prior consent of USAID where possible – see discussion below.

However, most local companies and non-US organizations do not have NICRA, which leads us to the reason for this blog post.

There are two ways to handle indirect costs for subs that do not have a NICRA.