Indirect Cost Rate (F&A Rate)

The indirect cost rate — called the Facilities & Administrative (F&A) rate in US federal terminology — is the percentage applied to a defined direct-cost base to recover an institution’s overhead costs: the facilities, administration, and other costs that support a sponsored project but cannot be charged to it directly (building depreciation, utilities, library services, general and departmental administration, sponsored-projects administration). It is the counterpart to direct costs, which are specifically identifiable to one project.

How the rate is negotiated

F&A rates are negotiated periodically between an institution and its cognizant federal agency — normally the US Department of Health and Human Services (HHS) or the Department of the Navy’s Office of Naval Research (ONR), assigned per institution based on which agency has historically provided the larger share of its federal funding (HHS is cognizant for the large majority of US institutions of higher education). The institution submits a detailed F&A rate proposal documenting allowable indirect cost categories (depreciation, operations and maintenance, library, general administration, departmental administration, sponsored-projects administration, student services) under 2 CFR Part 200, Appendix III (indirect cost rate determination for institutions of higher education). Research universities typically negotiate on-campus F&A rates between 50 and 70 percent of Modified Total Direct Cost (MTDC); off-campus rates — applied when a majority of a project’s work happens away from institution-owned facilities — are lower, often 25 to 30 percent. Once agreed, the negotiated rate must be accepted by every federal agency awarding to that institution (2 CFR 200.414(c)); a sponsor may still apply a lower programmatic payment cap, but that is a separate constraint from the negotiated rate itself, which remains the ceiling for what could be recovered.

Negotiated rate vs. the de minimis rate

Not every organization has, or wants, a negotiated rate. Under 2 CFR 200.414(f), a recipient or subrecipient that does not currently hold a federally negotiated indirect cost rate may instead elect a de minimis rate — currently up to 15 percent of MTDC government-wide, following OMB’s April 2024 Uniform Guidance revision (effective for awards issued on or after October 1, 2024; the rate had previously been 10 percent). See de minimis rate for the full mechanics: no formal proposal or agency approval is required, and once elected the rate applies to all of that recipient’s federal awards. The two mechanisms answer the same question — how is overhead recovered — differently. A negotiated rate reflects one institution’s actual, documented cost structure; a de minimis rate is a flat substitute for organizations without the cost-accounting history or infrastructure to negotiate one, typically smaller nonprofits, community organizations, and newer research-performing entities.

Individual federal agencies can diverge from the government-wide de minimis figure where a separate statute or long-standing appropriations rider requires it. NIH is the clearest current example: an appropriations provision keeps NIH’s indirect-cost rules tied to 45 CFR Part 75 rather than the general 2 CFR 200 figures, and NIH’s April 2026 notice (NOT-OD-26-072) reverted its own de minimis rate back to the longstanding 10 percent of MTDC, rescinding a brief 2025 alignment with the 15 percent government-wide rate — see CASRAI’s coverage of that notice. That is a separate action from NIH’s earlier, since-enjoined attempt to cap negotiated F&A rates at a flat 15 percent for all institutions — see NIH’s 15% indirect cost cap: current status for that specific, contested policy history. Because agency-specific figures move, always confirm the current rate against the awarding agency’s own current guidance rather than assuming the 2 CFR 200.414(f) government-wide default applies uniformly.

Related CASRAI vocabulary

• Indirect costs (overheads) — the broader concept this rate recovers
• MTDC (Modified Total Direct Cost) — the base the rate is applied to
• Indirect cost recovery — the resulting institutional revenue
• Cost Accounting Standards Disclosure Statement (DS-2) — documents the cost-accounting practices behind a negotiated rate proposal
• Uniform Guidance (2 CFR 200) — the governing federal cost-principles framework

References

• US Office of Management and Budget, Uniform Guidance, 2 CFR Part 200, Subpart E (Cost Principles) and Appendix III (Indirect Cost Rate Determination for Institutions of Higher Education); 2 CFR 200.414(c) and 200.414(f) specifically.
• Council on Governmental Relations (COGR) F&A guidance; NIH Notice NOT-OD-26-072 (April 20, 2026).