TLDR
A NICRA is how a nonprofit formally establishes the indirect cost recovery rate it can charge on federal grants. Without a NICRA, the organization is limited to the 10% de minimis rate — which may understate actual indirect costs significantly. Negotiating a NICRA protects the organization's ability to fully recover the real cost of administering federal programs.
Indirect costs are real costs. Rent, utilities, accounting staff, IT infrastructure, and organizational administration are all costs that make program delivery possible. Without a mechanism for recovering these costs on federal awards, organizations are effectively subsidizing the federal government with unreimbursed overhead — or they are building those costs into direct cost budgets in ways that are less transparent and sometimes unallowable.
The NICRA is the formal mechanism for establishing what the organization can legitimately charge as indirect costs on federal awards.
The Three Rate Types
Predetermined rate. Locked in advance and not subject to adjustment. Provides maximum certainty — the organization knows exactly what it will recover for the period. Appropriate when the organization’s cost structure is stable and predictable.
Fixed rate. Established in advance based on estimated costs, with an adjustment mechanism. If the fixed rate exceeds actual indirect costs for the year, the excess is carried forward as a reduction in the next period. If actual costs exceed the fixed rate, the shortfall is added to the next period’s rate. More common than predetermined because it accounts for cost variability.
Provisional rate. A temporary rate used while the final rate is being determined. Organizations new to the NICRA process often start with provisional rates that are then finalized after the fiscal year closes. Using a provisional rate means the organization does not yet know the final indirect cost recovery for current-year awards until the provisional rate is settled.
The De Minimis Alternative
Organizations that have never negotiated an indirect cost rate may use the de minimis rate of 10% of Modified Total Direct Costs (MTDC) under 2 CFR 200.414(f). This rate may be used indefinitely as long as the organization meets the requirements — but once a NICRA has been negotiated, the de minimis option is no longer available.
The de minimis rate is a floor, not a fair estimate of indirect costs for most organizations. A nonprofit whose actual indirect cost percentage is 30% of direct costs is significantly underrecovering if it uses the 10% de minimis rate. Negotiating a NICRA is generally worthwhile for organizations with significant federal grant revenue once organizational costs are stable enough to support a cost allocation methodology.
See Also
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Q&A
Who issues a NICRA?
The organization's cognizant federal agency — typically the agency providing the largest direct federal funding to the organization — issues the NICRA. For most nonprofit health and human services organizations, HHS is the cognizant agency. For education-related organizations, it may be the Department of Education. If the organization cannot determine its cognizant agency, it may request assignment from the Office of Naval Research or OMB.
Q&A
How long does it take to negotiate a NICRA?
The process varies. Organizations submitting their first indirect cost rate proposal should expect three to twelve months from proposal submission to a finalized NICRA. The cognizant agency may request additional information, revisions to the cost allocation methodology, or supporting schedules. Organizations should initiate the process well before they expect to need the negotiated rate on a specific award.
Q&A
Can an organization with a NICRA still use the de minimis rate?
No. 2 CFR 200.414(f) specifies that the de minimis rate is available to organizations that have never received a negotiated indirect cost rate agreement — once an organization has negotiated a rate, it must use the NICRA.
Frequently asked