Indirect Cost Rate Proposal

An indirect cost rate proposal is the documentation package an institution of higher education (IHE) prepares and submits to its cognizant federal agency for indirect costs in order to negotiate an indirect (F&A) cost rate. It is governed by 2 CFR Part 200 Appendix III (“Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education”). The proposal is the submission; the Indirect Cost Rate Agreement (NICRA) is the signed outcome the cognizant agency issues after reviewing and negotiating that submission. The two are frequently used interchangeably in casual conversation but are distinct documents produced by distinct parties at different points in the process: the institution prepares and submits the proposal; the cognizant agency reviews, negotiates, and issues the agreement.

What Appendix III requires the proposal to contain

Appendix III is organized into sections covering general cost-identification principles, the identification and assignment of indirect costs to cost pools (facilities, administration, and any other functional groupings the institution uses), and the determination and application of the resulting rate. A proposal built under the standard (non-simplified) method must identify each indirect cost pool, select an appropriate allocation base for each pool, and show the calculation that produces the proposed rate(s) — commonly separate on-campus, off-campus, instruction, and other-sponsored-activities rates, mirroring the structure that later appears on the NICRA itself. Institutions submit the proposal using the standard format referenced in Appendix III (published by OMB), together with supporting financial schedules — typically an adjusted trial balance or equivalent financial statement reconciliation showing how each cost pool ties back to the institution’s books.

Simplified method for smaller institutions

Appendix III provides a simplified method for institutions whose total direct costs do not exceed a threshold set in the regulation (commonly cited around $10 million annually, though institutions should confirm the current figure against the regulation text before relying on it for a specific proposal). Under the simplified method, an institution divides its total indirect costs by a single distribution base — typically salaries and wages or Modified Total Direct Cost (MTDC) — instead of building out multiple functional cost pools with separate allocation bases. This substantially reduces the documentation burden for institutions with a smaller, less complex federal award portfolio.

Certificate of Indirect (F&A) Costs

Every indirect cost rate proposal must include a signed Certificate of Indirect (F&A) Costs. Appendix III requires this certificate to be signed by the institution’s chief financial officer, or by another individual at a level no lower than vice president or chief financial officer if the CFO delegates the signature. The certificate affirms that all costs included in the proposal are allowable under 2 CFR 200 Subpart E, are properly allocated to the correct cost objectives, and exclude costs that are unallowable (or that have already been claimed as direct costs elsewhere, avoiding double-counting). This certification requirement gives the proposal legal weight beyond an internal cost estimate — a signing institutional official is personally attesting to its accuracy.

Submission timing and cognizant agency

An institution with an existing negotiated rate generally must submit its next indirect cost rate proposal within six months after the close of the fiscal year the proposal covers, so the cognizant agency can negotiate a new rate before the current agreement’s covered period runs out (institutions commonly start this process while relying on a provisional rate for the gap). The proposal goes to whichever agency — typically the Department of Health and Human Services’ Division of Cost Allocation, or the Department of Defense’s Office of Naval Research — is that institution’s cognizant agency for indirect costs, assigned based on which agency has provided the largest share of the institution’s federal funding over a recent multi-year period. An institution establishing federal funding for the first time submits an initial proposal before any NICRA exists, and commonly operates on a provisional rate while that first proposal is reviewed.

How the proposal relates to other cost-accounting documents

A rate proposal is often prepared alongside, but is not the same document as, an institution’s Cost Accounting Standards Disclosure Statement (DS-2), which describes the institution’s underlying cost-accounting practices (direct vs. indirect cost treatment, depreciation, leave, and similar policies) and has historically supported rate negotiations for institutions above the $50 million Cost Accounting Standards threshold. The proposal is also distinct from the negotiated rate percentage itself (the F&A rate) and from the NICRA, the signed agreement that results once negotiation of the proposal concludes. An institution that instead elects the de minimis indirect cost rate under 2 CFR 200.414(f) avoids preparing a rate proposal entirely, since that election requires no negotiation.

Related CASRAI vocabulary

• Indirect Cost Rate Agreement (NICRA) — the negotiated outcome the proposal seeks to produce
• Indirect Cost Rate (F&A Rate) — the percentage the proposal calculates and the NICRA later authorizes
• Cost Accounting Standards Disclosure Statement (DS-2) — a related cost-accounting-practices document, distinct from the rate proposal itself
• Cost Accounting Standards (CAS) — the consistency rules an institution’s cost-accounting practices must follow above the $50 million threshold
• MTDC (Modified Total Direct Cost) — the distribution base commonly used in both the simplified method and the resulting NICRA rate lines
• Indirect cost recovery — the institutional revenue that results once a negotiated rate is applied

References

• US Office of Management and Budget, Uniform Guidance, 2 CFR Part 200, Appendix III to Part 200 (Indirect (F&A) Costs Identification and Assignment, and Rate Determination for Institutions of Higher Education).
• 2 CFR 200.414 (Indirect costs) and 200.414(f) (de minimis rate election).
• NSF, “Indirect Cost Rate Proposal Submission Procedures” (nsf.gov/awards/indirect-cost-proposals) — agency-level procedural guidance corroborating the six-month post-fiscal-year-close submission window.