- What Is a NICRA, and Who Needs One?
- Preparing the Indirect Cost Rate Proposal
- Negotiating With Your Cognizant Agency
- Implications for Research Offices and What Comes Next
Every research administrator eventually confronts the same negotiation: how to persuade a federal cognizant agency that the true overhead cost of running a laboratory, a sponsored programme, or an entire research enterprise deserves fair reimbursement. The indirect cost rate that comes out of that negotiation — formalised in a Negotiated Indirect Cost Rate Agreement, or NICRA — determines how much of an institution’s administrative and facilities burden is actually recovered on every federal award it holds. This guide walks through the mechanics: how to choose a rate type, build a defensible proposal, and manage the negotiation itself.
This is a process guide, not a policy explainer. For background on the funding-cap debate around indirect cost recovery under the OMB Uniform Guidance, see CASRAI’s separate coverage of that policy story. Here, the focus is what a research office actually has to do — and in what order — to walk out of a negotiation with a usable rate agreement.
What Is a NICRA, and Who Needs One?
A NICRA is a formal, signed agreement between an organisation and its cognizant federal agency — generally whichever agency provides the largest share of that organisation’s direct federal funding — that fixes the percentage rate used to recover indirect costs on federal awards. For most US colleges and universities, cognizance sits with either the Department of Health and Human Services’ Division of Cost Allocation or the Department of the Navy’s Office of Naval Research; nonprofits and other award recipients are typically assigned a cognizant agency by whichever federal funder they draw the most direct money from.
Once negotiated, a NICRA is binding across all federal agencies, not just the one that negotiated it — a single rate agreement travels with the organisation to every subsequent federal award. Organisations that have never held a NICRA, or whose rate has lapsed, have a fallback: 2 CFR 200.414(f) permits use of a de minimis rate of up to 15% of modified total direct costs (MTDC) without negotiation, though that rate must then be applied consistently across every federal award until a negotiated rate is obtained.
Preparing the Indirect Cost Rate Proposal
Before submitting anything, the research office has two decisions to make: which rate type to request, and what documentation the proposal will need to withstand review.
| Rate type | Definition | Adjustable later? |
|---|---|---|
| Provisional | Temporary rate used for interim billing pending a final rate for the same period | Yes — reconciled against actual costs |
| Final | Rate set once actual costs for a completed fiscal year are known | No |
| Predetermined | Fixed rate set in advance for a future period, based on a prior representative period’s actual costs | No, for that period |
| Fixed with carry-forward | Predetermined rate with a built-in adjustment for the gap between estimated and actual costs | Adjusted in the following period |
Organisations that have never negotiated a rate should generally submit their first proposal within three months of receiving a federal award; organisations with an existing NICRA must submit an updated proposal within six months of the close of each fiscal year covered by that agreement. Missing this window can force an organisation back onto the de minimis rate until a new proposal is accepted.
A complete indirect cost rate proposal package typically includes:
- A cover letter stating the fiscal period, rate type requested, and allocation base
- An organisational chart and description of each unit’s functions
- Audited financial statements or a Single Audit Report for the fiscal year under review
- A cost policy statement setting out which costs are charged directly versus indirectly
- The indirect cost rate calculation itself — indirect cost pool divided by the chosen direct cost base — reconciled line-by-line to the financial statements
- A schedule of salary and wage allocation between direct and indirect functions
- A statement of employee fringe benefits
- A complete listing of federal grants and contracts active during the fiscal year
- A signed Certificate of Indirect Costs and lobbying certification
Every unallowable cost — entertainment, alcohol, lobbying, fundraising — must be scrubbed from the indirect cost pool before submission; a proposal that includes unallowable costs, even inadvertently, is the single most common reason negotiations stall.
Negotiating With Your Cognizant Agency
Once a proposal is accepted for review, a negotiator or auditor at the cognizant agency is assigned to check compliance with the applicable federal cost principles — 2 CFR Part 200 (the Uniform Guidance) for nonprofits, colleges, and local governments, or FAR Part 31 for commercial organisations under agencies such as the Defense Contract Audit Agency. Expect an iterative back-and-forth: requests for supporting documentation, clarification of allocation methodologies, and questions about specific cost pool line items.
If agreement is reached, the cognizant agency issues the NICRA for signature. If it is not — because of disputed pool expenses or a disagreement over the allocation base — the agency may instead issue a unilateral rate agreement. An organisation that disagrees with a unilateral rate typically has a defined window (30 days, under NSF’s published appeal procedures) to invoke formal appeal procedures before the unilateral rate takes effect by default.
What is the difference between direct and indirect costs?
Direct costs are expenses specifically identifiable with a single project — a piece of equipment, a research assistant’s salary. Indirect costs, sometimes called facilities and administrative (F&A) costs, are shared expenses — utilities, general administration, facilities maintenance — that benefit multiple projects and cannot be assigned to just one.
How do you calculate an indirect cost rate?
An indirect cost rate is calculated by dividing the total indirect cost pool by a chosen direct cost base, typically modified total direct costs (MTDC). The resulting percentage is applied to that base on each award to determine how much indirect cost recovery the project generates.
What percentage should indirect costs be?
There is no single “correct” indirect cost rate — negotiated rates vary widely by institution type, facilities intensity, and cost base. Organisations without a negotiated rate may instead use the de minimis rate of up to 15% of modified total direct costs under 2 CFR 200.414(f).
What is an example of an indirect cost?
Common examples include administrative salaries, building depreciation, utilities, general liability insurance, and shared IT infrastructure — costs that support the whole organisation rather than any single sponsored project.
Implications for Research Offices and What Comes Next
Negotiating a NICRA is resource-intensive: it typically demands sustained input from finance, sponsored programmes, and facilities staff over several months, and the resulting rate directly shapes how much overhead recovery an institution can budget against every subsequent federal award. Institutions weighing whether negotiation is worth the administrative overhead should treat the de minimis 15% MTDC rate as a genuine fallback for smaller or first-time federal recipients, not a permanent compromise — most organisations with significant sustained federal funding recover meaningfully more through a negotiated rate over time.
Because a signed NICRA binds every federal agency, not just the one that negotiated it, getting the proposal right the first time avoids repeat renegotiation cycles. As indirect cost recovery policy continues to attract political scrutiny at the federal level, research offices that maintain clean, well-documented cost pools and submit proposals on schedule will be best placed to defend their negotiated rates regardless of how the broader policy debate resolves. Robust research administration practice — accurate cost allocation, disciplined recordkeeping, and early engagement with the cognizant agency — remains the most reliable lever an institution controls in this process.
