Indirect Cost Agreement Template for the United States

An Indirect Cost Agreement is a formal legal document that establishes your organization's approved rates for recovering overhead costs from federal funding. Under United States federal law, specifically 2 CFR Part 200, organizations receiving federal awards must have documented agreements with their cognizant federal agency to claim indirect costs. This agreement ensures consistent application of cost principles across all your federal grants, contracts, and cooperative agreements.

When do you need this document?

You need an Indirect Cost Agreement when your organization receives federal funding and wants to recover indirect costs beyond direct project expenses. Universities, research institutions, non-profit organizations, and state and local governments typically negotiate these agreements with agencies like the Department of Health and Human Services or the Department of Defense. The agreement becomes essential when you're managing multiple federal awards and need standardized overhead rates. Organizations often require updated agreements when their cost structure changes significantly or when existing agreements expire. Federal agencies may also require current agreements before approving new awards or continuing existing funding.

Key legal considerations

Your agreement must comply with federal cost principles under 2 CFR Part 200, which replaced previous OMB Circulars A-21, A-87, and A-122. The document must clearly define your indirect cost pools, allocation bases, and calculation methodologies. You'll need to distinguish between facilities and administrative costs, ensuring proper treatment of fringe benefits and equipment depreciation. The agreement should specify rate types, whether provisional, predetermined, fixed, or final rates apply to your organization. Documentation requirements are critical - you must maintain detailed cost accounting records that support your proposed rates. Consider exclusions and limitations on certain cost categories, as federal regulations restrict recovery of some administrative expenses and require special treatment of student services at educational institutions.

Legal requirements in United States

Federal law mandates that your Indirect Cost Agreement undergo formal negotiation and approval by your cognizant federal agency. Under 2 CFR Part 200, you must submit detailed cost proposals with supporting documentation, including organizational charts, accounting system descriptions, and historical cost data. The cognizant agency will conduct reviews to ensure your proposed rates reflect actual costs and comply with federal cost principles. Your agreement must specify the period of applicability, typically covering fiscal years during which the rates remain valid. You're required to maintain cost accounting standards that consistently treat similar costs across all federal and non-federal activities. The Federal Acquisition Regulation (FAR) Part 31 may also apply if your organization holds federal contracts. Regular audits ensure ongoing compliance, and you must notify the cognizant agency of significant changes to your cost accounting practices or organizational structure that could affect your indirect cost rates.