The Texas Health and Human Services requires all awards of state and federal grants from the Department of State Health Services or Health and Human Services Commission to have an established and approved rate in place to recover indirect costs. Charging indirect costs without an approved indirect cost rate may result in cost disallowance and the grantee may be required to reimburse the funding agency.
Direct versus Indirect Costs
Direct costs are expenses that can easily be traced back to a specific grant, contract, activity, project or program.
Indirect costs are expenses that are necessary for general and administrative operation of the organization and are not easily traced back to a specific grant, contract, activity or project function. Indirect costs are commonly referred to as overhead or facilities and administration costs. These costs are considered common or shared and are incurred in support of more than one cost objective.
All costs that are not classified as direct are indirect costs.
Common Examples of Direct Versus Indirect Costs
- Direct Salaries and Wages
- Material and supplies for use on grant or contract
- Travel of (direct labor) employees
- Accounting Department
- Executive Director
Indirect Cost Options
The HHS Indirect Cost Rate Group in the Federal Funds Office is responsible for reviewing, negotiating, and approving requests for indirect cost rates.
Entities must pick an indirect cost rate option.
- Decline Indirect Costs.
- Use the de minimis.
- Provide a copy of a currently approved federal or state negotiated indirect cost agreement.
- Negotiate an indirect cost rate with the HHS Indirect Cost Rate Group.
Submitting a Request
Subrecipients, or entities can complete requests, submit documentation, contact the HHS Indirect Cost Rate Group or get help with indirect cost rates through the Federal Funds Office Landing Page for Subrecipients. Entities are contacted within three business days of a request being submitted.
The following is provides an overview of the type of requests available through the Federal Funds Office Landing Page for Subrecipients.
- Indirect Cost Rate Questionnaire: Pick the method your entity will use to recover indirect costs.
- Indirect Cost Rate Proposal: Submit a completed Indirect Cost Rate Proposal Packet.
- Technical Assistance: Ask questions or ask for help.
- Upload Additional Documents: Submit supporting documentation.
- ICR Dispute Form: Ask for a re-evaluation of the indirect cost determination.
Indirect an Cost Rate Questionnaire
The Indirect Cost Rate Questionnaire is required to initiate and establish an approved method to recover indirect costs. The questionnaire allows entities to pick an indirect cost rate option.
- Decline indirect costs.
- Request the de minimis rate.
- Submit a federally-approved rate.
- Submit an approved rate agreement from another state agency.
- Request to negotiate a rate agreement directly with the HHS Indirect Cost Rate Group.
The indirect cost rate questionnaire must be submitted to the HHS Indirect Cost Rate Group through the Federal Funds Office Landing Page for Subrecipients. The questionnaire must be completed by the executive director, chief financial officer, county judge, or entity equivalent.
When a questionnaire is submitted, a unique identification number is provided. The unique number is called a Request ID and is used to track the status of your submission.
Declining Indirect Cost Recovery
Declining an indirect cost rate informs the HHS System that the entity will not request an indirect cost reimbursement for any DSHS or HHSC state or federal awards. This option prevents the entity from using unrecovered indirect costs as a match or for cost sharing.
A letter documenting the choice to decline an indirect cost rate will be sent to the subrecipient.
A de minimis rate is 10 percent of the modified total direct cost and can be used indefinitely. The modified total direct cost is the base to which a de minimis rate is applied. This base can include direct costs such as salaries and fringe benefits, program materials and supplies, and travel.
The following items are excluded when calculating the modified total direct cost.
- Equipment and capital expenditures
- Rental costs
- Participant support costs
- Amount of each subaward over $25,000
- Any other distorting items
Requesting the De Minimis
This option is available for entities that currently don’t have an approved or provisional federal or state negotiated indirect cost rate.
The de minimis certification form must be submitted to the HHS Indirect Cost Rate Group through the Federal Funds Office Landing Page for Subrecipients. Once the HHS Indirect Cost Rate Group makes a determination regarding the request, a letter documenting the choice to use the de minimis will be sent to the subrecipient.
Federally- or State-Approved Rate
Federally- or state-approved rates will be honored by the HHS Indirect Cost Rate Group. Additional documentation might be requested to justify the submitted indirect cost rate.
Entities must provide the HHS Indirect Cost Rate Group with a copy of the current approved negotiated indirect cost rate agreement. The agreement must be provided within 30 days or the request will be cancelled, and indirect costs might be disallowed.
When the federally-approved indirect cost rate is accepted by the HHS Indirect Cost Rate Group, an acknowledgement letter will be sent to the subrecipient to confirm acceptance and use of this rate.
Once a rate is acknowledged it is effective until the entity requests a new rate or notifies HHS of changes to the existing rate. When there are changes to your federal or other state agency approved rate(s), you must notify the HHS Indirect Cost Rate Group through the Federal Funds Office Landing page for Subrecipients within 30 days of the change.
If your federal or state agency has not approved your rate before it expires, entities should submit a technical assistance request through the Federal Funds Office Landing page for Subrecipients.
Negotiating an Indirect Cost Rate
Negotiating a rate requires an indirect cost rate proposal and supporting documentation be submitted to the HHS Indirect Cost Rate Group. Entities must complete the HHS Indirect Cost Rate Group templates when requesting a negotiated rate.
If the entity wants to use unrecovered indirect costs as a match or for cost sharing, a negotiated rate must be obtained. The indirect cost amount is used to determine how much of the indirect cost the entity can use as a match or for cost sharing. Prior approval from HHS is required.
The indirect cost rate proposal must be submitted to the HHS Indirect Cost Rate Group through theFederal Funds Office Landing Page for Subrecipients.
An indirect cost rate agreement is issued once the indirect cost rate is approved. The indirect cost rate agreement provides timelines for submitting the entity’s next proposal.
HHS offers various rate types to help recover indirect costs. These options are available for entities requesting a negotiated rate. Restrictions on indirect cost rates if any may be found in the notice of funding opportunity for each state or federal grant.
Provisional rates are the primary rate type issued by the HHS Indirect Cost Rate Group. Provisional rates are temporary estimates of the indirect cost rate and are used for a specified period. Provisional rates are required to be trued-up annually to determine final actual amounts. Truing up a provisional rate will result in a final rate being established.
A final rate is established once actual costs for the fiscal year are known. Final rates are issued after the true-up process is conducted at the end of the provisional rate period. A final rate cannot be adjusted.
Final rates are used to adjust indirect costs that were claimed and might include a refund or payment if the final rate is less or greater than the provisional rate that was temporarily used.
A fixed carry-forward rate is an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual, allowable costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period. When the actual costs for this period are determined, an adjustment will be made to a rate of a future year(s) to compensate for the difference between the costs used to establish the fixed rate and actual costs.
A predetermined rate is based on estimated costs for a current or future specified period. A predetermined rate is based on the entity’s actual indirect costs. A predetermined rate can only be issued if there is a high level of assurance that this rate will not be exceeded.
The predetermined rate cannot be adjusted except under unusual circumstances. If the entity’s total expenditures increase or decrease by more than 25 percent within a 90-day period of the predetermined rate, the entity must submit a rate proposal. The rate proposal is based on the new expenditure data resulting from the increase or decrease.
For more information email the HHS Indirect Cost Rate Group or visit the Federal Funds Office Landing Page for Subrecipients.
- Applying for Grants Overview (PDF)
- Electronic Code of Federal Regulations (2 CFR 200)
- Federal Uniform Grant Guidance
- Grants.Gov Fraud Overview
- HHS Acronyms (PDF)
- HHS Brand Guide
- Introduction to Block Grants (PDF)
- Texas e-Grants
- Texas Grant Management Standards (PDF)
- Texas State Auditor’s Office Online Fraud Reporting