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Domain: Grant Award

Lesson 3: The award: terms and conditions, cost principles under 2 CFR 200

What an award agreement contains, and how indirect costs work · 14 practice questions

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Reading

Once an applicant is selected, the award itself becomes the governing document. NGMA's Grant Award domain covers what goes into that document and how the cost principles under 2 CFR 200 Subpart E shape what can actually be spent under it. This is the lesson where indirect costs, only introduced in lesson 2, get their full treatment, since the mechanics matter for both winning a competitive budget review and surviving an audit later.

What a grant agreement typically contains

A grant award document (sometimes called a notice of award, an award agreement, or a grant agreement depending on the funder) typically states the award amount, the period of performance (the start and end dates during which costs can be incurred), the approved budget, the specific terms and conditions that apply (both the funder's general terms and any specific conditions added under 200.208, for example because of the applicant risk assessment under 200.206), the reporting schedule and format, and the authorized representatives on each side. Reading the full award document, not just the funding amount, matters because specific conditions can change what would otherwise be routine: a higher-risk awardee might be paid by reimbursement instead of advance, have additional prior-approval requirements, or face more detailed financial reports or added monitoring than a standard award.

Direct costs versus indirect costs, revisited

Lesson 2 introduced the distinction: a direct cost benefits one specific award and can be identified specifically with it (a project coordinator's salary charged entirely to the program they run), while an indirect cost benefits multiple programs or the organization as a whole and cannot be readily assigned to one award without an allocation method (a portion of the executive director's time, the finance department, rent on a shared office). Indirect costs are real costs of doing business, not padding, an organization that only ever charges direct costs to its grants is quietly subsidizing every award out of its own unrestricted funds.

Recovering indirect costs: the negotiated rate

An organization that receives significant direct federal funding can negotiate an indirect cost rate directly with its federal cognizant agency (the federal agency responsible for negotiating and approving indirect cost rates on the organization's behalf, usually the agency that provides the most direct federal funding). The result is a Negotiated Indirect Cost Rate Agreement, a NICRA, a formal agreement fixing the percentage rate the organization can apply to its direct cost base to recover indirect costs, usually for a period of a few years before it must be renegotiated. Once an organization holds a NICRA, every federal awarding agency generally has to honor that negotiated rate rather than imposing a different one, which is the point of centralizing the negotiation with one cognizant agency instead of negotiating separately with every funder.

Recovering indirect costs without a NICRA: the de minimis rate

An organization that does not have a current negotiated indirect cost rate does not have to go without indirect cost recovery while it works toward a NICRA. Under 2 CFR 200.414(f), an organization with no current federally negotiated rate (including a provisional rate) can elect a de minimis rate instead, applied against modified total direct costs, MTDC (direct salaries and wages, fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward, but not equipment, capital expenditures, rental costs, tuition remission, scholarships and fellowships, participant support costs, or the portion of each subaward beyond $50,000). As of the 2024 revision to the Uniform Guidance, effective October 1, 2024, that government-wide de minimis rate is up to 15 percent of MTDC, raised from the 10 percent rate that applied before that date, and the first $50,000 subaward amount in MTDC is raised from $25,000. The organization chooses the rate up to that limit. The de minimis rate does not require documentation to justify its use and may be used indefinitely, and it cannot be applied to cost-reimbursement contracts issued directly by the federal government under the FAR. Once elected, it must be used for all federal awards until the organization chooses to receive a negotiated rate. The test in 200.414(f) is whether the organization has a current negotiated rate, not whether it ever had one, so an organization whose earlier NICRA has lapsed can elect the de minimis rate too; older summaries that say only organizations that have never held a negotiated rate qualify describe the pre-2024 wording.

Why this matters for GCHS specifically

An organization the size of GCHS, running CDBG and HOME administration alongside its construction management, inspection, and estimating services, is a realistic candidate for the de minimis rate if it has not yet negotiated its own rate, and a realistic candidate to eventually negotiate a NICRA if federal direct funding grows enough to justify the negotiation effort. A CGMS holder on staff should be able to tell the difference between "we have no indirect cost recovery mechanism, so indirect costs go unrecovered" (a real and common mistake at smaller nonprofits) and "we are eligible for the de minimis rate and are simply not using it," since the second one is money the organization is leaving on the table.

Two paths to recovering indirect costs A decision diagram: does the organization have a current negotiated indirect cost rate (including a provisional rate) from a federal cognizant agency? If yes, it operates under its NICRA rate. If no, it may elect the de minimis rate of up to 15 percent of modified total direct costs, or pursue negotiating its own NICRA. Have a current negotiated rate? Yes Operate under NICRA Rate fixed with cognizant agency No Elect de minimis rate Up to 15% of MTDC (since 10/1/2024)
An organization without a current negotiated rate is not stuck; 200.414(f) lets it recover indirect costs at the de minimis rate instead, no separate funder approval required.

Practice questions

1. What is a NICRA?

  1. A federal audit report
  2. A type of subrecipient agreement
  3. A Negotiated Indirect Cost Rate Agreement, fixing the indirect cost rate an organization can apply to its direct cost base
  4. A closeout certification

2. What is a "cognizant agency" in the context of indirect cost rate negotiation?

  1. The single federal agency, usually the largest direct federal funder, that negotiates the indirect cost rate for all federal funders
  2. Any agency that has ever given the organization a grant
  3. NGMA
  4. A state government oversight office that reviews the organization's indirect costs on behalf of every pass-through entity and funder in the state

3. Under 2 CFR 200.414(f), what is the current government-wide de minimis indirect cost rate, and since when has it applied?

  1. 5% of total costs, unchanged since 2014
  2. 10% of MTDC, effective 2020
  3. 25% of total direct costs, effective 2024
  4. Up to 15% of modified total direct costs (MTDC), effective for awards issued on or after October 1, 2024, up from a prior 10%

4. Which organizations are eligible to elect the de minimis indirect cost rate?

  1. Only organizations that already hold a NICRA and are choosing a lower rate for one particular award, with its cognizant agency's sign-off
  2. Organizations without a current federally negotiated indirect cost rate, including a provisional rate
  3. Only state governments
  4. Only organizations receiving construction grants

5. What does MTDC stand for, and why does it matter for the de minimis rate?

  1. Modified total direct costs, the base the de minimis rate is applied to
  2. Maximum total direct compensation, a cap on what personnel costs the organization may charge to one award
  3. Minimum threshold for direct cost, a floor for what can be charged
  4. Monthly total drawdown ceiling

6. An organization negotiated a NICRA five years ago, let it expire, and now has no current negotiated rate, including a provisional rate. Under 200.414(f), can it elect the de minimis rate?

  1. No, having once held a NICRA permanently bars the de minimis rate
  2. Only with prior written approval from each funding agency
  3. Yes, because the test is whether it has a current negotiated rate; it may elect up to 15 percent of MTDC
  4. Yes, but only if it documents and justifies the rate to every funder and then gets each one's written approval

7. What is a "period of performance" in a grant award document?

  1. The time NGMA takes to review a CGMS application and confirm that the applicant's experience qualifies
  2. The start and end dates during which costs can be incurred under the award
  3. The length of the Single Audit engagement
  4. The waiting period before a retake exam

8. Why might a grant award include "special conditions" beyond the funder's standard terms?

  1. Because a risk assessment found the applicant higher-risk, leading to conditions like added reporting or payment limits
  2. Special conditions are added at random to a sample of awards each year so agencies can test whether recipients' financial systems hold up
  3. Because the applicant requested extra conditions for fun
  4. Special conditions only apply to construction grants, or to awards made to institutions of higher education and tribes

9. Which of the following is an example of an indirect cost, as opposed to a direct cost?

  1. A project coordinator's salary charged entirely to the one federal program they run, supported by time records
  2. Construction materials for one specific rehab project
  3. A portion of the executive director's time and the shared finance department, allocated across programs
  4. Travel for a site visit tied to one specific award

10. Why is it a mistake for an organization to assume it "has no way to recover indirect costs" if it lacks a NICRA?

  1. It isn't a mistake; without a NICRA, indirect cost recovery is genuinely unavailable to a nonprofit of any size
  2. Because 200.414(f) lets an organization without a current negotiated rate elect the de minimis rate
  3. Because NGMA reimburses indirect costs directly
  4. Because indirect costs are always waived for nonprofits

11. Once a federal agency issues a NICRA to an organization, do other federal awarding agencies have to honor that rate?

  1. Generally yes, other federal agencies have to honor a negotiated rate rather than imposing a different one
  2. No, every awarding agency negotiates its own separate rate with the same organization for each of its own awards
  3. Only if the organization asks each agency individually
  4. Only for awards over $1,000,000

12. What is the risk of an organization only ever charging direct costs to its grants and never recovering indirect costs at all?

  1. There is no risk; charging only direct costs is the most compliant approach and avoids allocation disputes with funders
  2. It automatically violates 2 CFR 200
  3. It triggers a mandatory Single Audit
  4. The organization quietly subsidizes every award from its own unrestricted funds, since indirect costs are real

13. Under 200.414(f), what must an organization do once it elects the de minimis rate?

  1. Switch between de minimis and negotiated rates award by award, using whichever produces the higher recovery
  2. Use the de minimis rate for all federal awards until it chooses to receive a negotiated rate
  3. Renegotiate the rate with its cognizant agency every year
  4. Submit a written justification for the rate to each funder

14. Where in 2 CFR 200 are indirect costs specifically addressed?

  1. Section 200.414, within Subpart E, Cost Principles
  2. Section 200.344, within Subpart D
  3. Section 200.112, within Subpart B
  4. Section 200.501, within Subpart F

Glossary

Period of performance
The start and end dates during which costs may be incurred under an award.
NICRA
Negotiated Indirect Cost Rate Agreement; a formal rate agreement between an organization and its federal cognizant agency.
Cognizant agency
The single federal agency, usually the largest direct federal funder, responsible for negotiating an organization's indirect cost rate on behalf of all federal funders.
De minimis rate
Under 2 CFR 200.414(f), a rate (up to 15% of MTDC as of October 1, 2024) that an organization without a current negotiated rate may elect, with no documentation needed to justify it.
MTDC
Modified total direct costs; direct costs minus items like equipment, capital expenditures, and the part of each subaward beyond the first $50,000.
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