Alert

Exception for Treatment of Certain CARES Act Funds in Indirect Cost Rate Proposals

On November 2, 2021, the Office of Management and Budget (OMB) provided guidance to the Department of Interior (DOI) Business Center on the treatment of Coronavirus Aid, Relief, and Economic Security (CARES) Act funds in indirect cost rate proposals.

The guidance ultimately allows an exception to the general rules guiding the types of costs that are required to be included in an entity’s direct cost base and used to negotiate a federal indirect cost rate (FICR).

Background

Typically, the guidance would require all funds that benefit from the services and activities provided through an entity’s indirect cost pool be included in its direct cost base when negotiating a FICR.

However, this caused significant concern about the impact to future indirect cost rates. This is because several large programs provided to Tribal, state, and local governments under the CARES Act—including the Treasury Coronavirus Relief Funds—didn’t fund, allow, or otherwise limit indirect cost recoveries.

New Guidance

The guidance issued by OMB allows for an exemption and provides entities with the option to exclude any CARES Act funding that denied or limited indirect cost recovery from their indirect rate calculations.

The DOI Business Center posted this information in the policy update section of its website, acknowledging this change is applicable to Tribal, state, and local governments. The DOI also noted that this subset of CARES Act funding shouldn’t be counted toward the threshold amount for indirect cost rate proposal submission requirements.

The Department of Health and Human Services (DHHS) Cost Allocation Services Center also published this guidance and provided contact information for entities that negotiate their rates with the DOI or DHHS.

Next Steps

This is good news for the many Tribal, state, and local governments that were concerned about their in-progress indirect cost rate agreements and negotiations.

Government entities that have already finalized an indirect cost rate that included CARES Act funding affected by this guidance in the indirect cost base should reach out to their lead negotiator to determine their options.

We’re Here to Help

If you have any questions about the new guidance, please contact your Moss Adams professional.

Additional Resources

For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources:

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