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Disallowance of Indirect bc Rates "Predetermined" vs "Fixed"?

  • 1.  Disallowance of Indirect bc Rates "Predetermined" vs "Fixed"?

    Posted 06-14-2019 14:16
    ​Good Afternoon.

    A colleague asks:

    "The legal team in the *Agency* has disallowed our indirect rate that was used for the project period 07/01/2018 to 06/31/2019. The reason I was given (via phone call) was that our rate was 'Predetermined' and not Final. The written reason given for the disallowance is below:

    The easiest way to explain this is your "request to use a predetermined cost rate, it appears that C.F.R. Part 200, Appendix III (c)(4) provides that 41 U.S.C. 4708 authorizes "the use of predetermined rates in determining the 'indirect costs' applicable under research agreements with educational institutions." The cited statute above states that only a "cost-type research and development contract (including a grant) . . . may provide for payment of reimbursable indirect costs on the basis of predetermined fixed-percentage rates . . ." 


    Finally, the NICRA that *University* attached to their email does contain predetermined rates applicable to work other than research, however, the sentence immediately preceding the chart of rates states "The rates approved in this agreement are for use on grants, contracts and other agreements with the Federal Government, subject to the conditions in Section III." 


     Section III of the NICRA provides in pertinent part "The rates in this Agreement are subject to any statutory or administrative limitations and apply to a given grant, contract or other agreement . . ." In other words, 41 U.S.C. 4708 limits predetermined rates to research and development contracts / grants and if *Program removed* is not a research and development grant then *University* cannot use their predetermined rate."


    In conclusion, your sub award is not a research or development grant so the use of a predetermined rate is for budgetary purposes only.  However since the award package has not been executed, you have options.  You can make the adjustments and remove the indirect rate or you can move forward with the sub-award you have submitted, If you chose to move forward with this sub-award package please note we will not be able to make payment until a actual rate has been approved. 

    QUESTION:  Has anyone encountered this reasoning for disallowance of indirects per the rate agreement.  As an aside, they were referencing the OSA rate on the proposal. And this is for federal pass-thru funding.

    Any insights you have will be passed on.  Thanks in advance for your assistance.

    A. Chea Smith
    Director, Cost Analysis & Reporting
    Rutgers, The State University of New Jersey

    2019 NCURA Collaborate Chair
    2019 NACCA Collaborate Co-Chair
    2019 FRA Collaborate Past-Chair

  • 2.  RE: Disallowance of Indirect bc Rates "Predetermined" vs "Fixed"?

    Posted 06-14-2019 14:54
    We have not encountered this reasoning for disallowance of indirect costs. My institution currently negotiates predetermined rates for OSA and Instruction. We have fixed with carry-forward rates for OR, but hope to negotiate predetermined OR rates in our next rate cycle. Our cognizant agency is ONR.

    The argument presented by the "Agency" is interesting to me because I recently asked ONR if I needed to change the language in the Certificate of Indirect (F&A) Costs to indicate that the rate proposed was for predetermined rates. The certificate language is "billing or final indirect (F&A) costs rates" and ONR said we did not need to change any language because "Predetermined rates are final rates, so no need to change the language."

    Perhaps you could reach out to your cognizant agency for help with this argument. They negotiate predetermined rates for most universities, I can't imagine they would want higher education to revert back to fixed with carry-forward rates at this point. That would more than double their work load.

    Gina Hooten
    Financial Analysis Manager
    Utah State University
    Logan, UT

  • 3.  RE: Disallowance of Indirect bc Rates "Predetermined" vs "Fixed"?

    Posted 06-14-2019 16:06

    I would recommend that they talk to CAS (the HHS rep who is listed at the end of the agreement), who should point out that these are the rates approved on behalf of the federal government, unless limited by law, solicitation, or contract that they should be applied accordingly.



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