State and Local Indirect Cost Rates

Cost Allocation

Methods

and

Types

STATE AND LOCAL INDIRECT COST RATES

Computation Methodologies

Short-Form Method – This is the least complex method of computing Departmental indirect cost rates. In this method only State-Wide and Department-Wide indirect costs are identified. All Divisional/Bureau costs are treated as indirect costs and one overall rate for the Department is computed.

Simplified Method – In this method indirect costs are identified at the Division/Bureau level, as well as State-Wide and Department-Wide indirect costs. When using this method it is assumed that all Divisions/Bureaus benefit from the indirect costs in roughly equal proportions and, thus only one overall rate for the Department is computed. This method differs from the Short-Form method only in the identification of indirect cost at the Division/Bureau level.

Alternate Simplified Method – This method provides more definitive costing in cases where indirect costs at the Division/Bureau level are significant and vary from division to division. This computation identifies indirect costs at the Division/Bureau level as in the Simplified Method but, allocates State-Wide and Department-Wide costs to each Division using a single base. These costs are added to each Division’s indirect costs and individual rates are computed for each Division.

Multiple Rate Method – Similar to the Alternative Simplified Method in that State-Wide and Department-Wide indirect costs are allocated to each Division/Bureau and individual rates are computed. However, in this method the State-Wide and Department-Wide costs are identified by their component costs and allocated using various bases. This is the most detailed method and would be used only for large Departments with significant amounts of Federal involvement.

Rate Types

Provisional – A temporary indirect cost rate applicable to a specific period which is used for funding, interim reimbursement, and reporting indirect costs on Federal awards pending establishment of a “final” rate for the period.

Final - An indirect cost rate applicable to a specific past period which is based on the actual allowable costs of the period. A final rate is generally not subject to adjustment.

Provisional/Final rates are usually applied to small organizations with which the grantor agency has little or no experience.

Predetermined – An indirect cost rate, applicable to a specific period, which is based on an estimate of costs to be incurred for that period. Except under unusual circumstances, a predetermined rate is not subject to adjustment. This type of rate is generally negotiated for multiple fiscal periods with organizations with which the cognizant agency has substantial experience.

Fixed – An indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated and actual cost for the period covered by the rate is “carried forward” as an adjustment to future rates.

See OMB Circular A-87, Attachment E, Section B, for more detailed definitions of indirect cost rate types, bases, and cost pools.