Indirect Cost - Contracts and Agreements

Indirect costs are overhead expenses incurred by the contracting agency as a result of the project but that are not easily identified with the specific project. Generally, indirect costs are defined as administrative or other expenses that are not directly allocable to a particular activity or project; rather they are related to overall general operations and are shared among projects and/or functions. (Indirect costs are sometimes referred to as “overhead costs” and more recently by the government as “facilities and administrative costs.”) Examples include executive oversight, accounting, grants management, legal expenses, utilities, technology support, and facility maintenance.

The Department of Education is often considered a minimum funded state when receiving federal grants and therefore receives a limited amount of funding that can be used for carrying out the administrative and state level required services.

Grants

It is the policy of the Department of Education that the indirect cost rate paid in grants with external agencies will be restricted to the federally negotiated indirect cost rate unless prohibited by federal statue (200.331 & 200.414).

If the external agency does not have a federally negotiated indirect cost rate, the Department of Education shall negotiate with the external agency or allow the de minimis indirect cost rate of 10% (if applicable, 200.414(f);Appendix VII.D.1.B) for all grants administered by the South Dakota Department of Education.


Contracts & Agreements

It is the policy of the Department of Education that the indirect cost rate paid in contracts and agreements with external agencies will be restricted to the de minimis indirect cost rate of 10% or lower.

The Department of Education is not obligated to use the federally negotiated indirect cost rate. “Grantees are not required to honor a negotiated rate when it enters into a contract to provide services on behalf of the grantees. The rules for Cost Principles in the Uniform Guidance (2 CFR Part 200 Subpart E) only apply to Federal Awards” (The Administrator’s Handbook on EDGAR, 3rd Edition)

Contracts that are reimbursed on an hourly or daily rate will not include indirect cost as a separate budget line item. Contracts that are reimbursed on actual expenditures can include a separate budget line item for indirect cost.


Contact

For more information, contact the Department of Education's Office of Finance and Management at 605-773-3248.