Authority/Reference(s) Uniform Grant Guidance (UGG)
Revision Date June 1, 2015


An indirect cost rate is a method for determining, in a reasonable manner, the proportion of indirect costs that each contract should bear. It is the ratio (expressed as a percentage) of the indirect costs to a direct cost base.

DFPS allows contractors to bill indirect cost rates when the rate is:

  • approved by a federal cognizant agency as one method of ensuring proper allocation of indirect costs; or
  • in the absence of a federally approved rate, an entity may request the de minimus rate of ten percent.

The de minimus rate of ten percen can be charged if:

  • a non-federal entity receives a federal award after December 26, 2014; and,
  • the award references the UGG; and,
  • the non-federal entity has never negotiated an indirect cost rate.

State and local governments that receive more than $35 million in direct federal funding must submit an indirect cost rate proposal in accordance with OMB Uniform Guidance; Cost Principles, Audit, and Administrative Requirements for Federal Awards.  Entities with federally approved indirect cost rates can apply for a one-time extension for a period of up to four years.  After the four year period, entities must renegotiate their rate or accept the de minimus rate of ten percent.

Indirect costs are incurred for a common or joint purpose benefiting more than one contract. To facilitate an equitable portion of indirect expenses to the contract served, it may be necessary to establish cost pools.  Indirect cost pools should be distributed to contracts based on the benefits received.  The indirect cost allocation methods depend upon the organization's structure, program functions, and accounting system.