Date:
Name:
Address:

Subject: Indirect Cost Rates

Dear:

The Division of Financial Advisory Services (DFAS) of the Office of Acquisition Management and Policy is the central organizational component authorized to negotiate indirect cost rates with commercial concerns awarded contracts and grants by the Department of Health and Human Services (HHS).

The enclosed material pertains to the development of indirect cost rates. In order to establish an indirect cost rate, your organization should provide our office with an indirect cost proposal(s) and supporting financial data for each of your fiscal years covering the subject contract and/or grant period(s). If your organization has approved indirect cost rates with another Federal agency, please provide copies of such agreements. We will accept the rates negotiated with other Federal agencies, adjusted for HHS’s treatment of IR&D (see paragraph 4).

The indirect cost proposal should be based on company wide cost data and it should be accompanied by a completed Indirect Cost Submission Checklist. (PDF require Acrobat Reader. Click here to download). An illustration of how indirect cost rates can be developed, a list of unallowable costs and other pertinent information can be found on the Indirect Cost (IDC) Submission page at the DFAS website. If your organization does not have an established accounting system for the development of indirect cost rates, we suggest you consult your accounting staff and/or outside accountant when preparing your submission. Please Note: Although it is not required, we strongly suggest that the rate proposal be prepared in the same format as contained in one of the following Excel spread sheets:

IDC Two Tier Example (i.e., Fringe Benefit Rate and Indirect Cost Rate)
IDC Three Tier Example (i.e., Fringe Benefit Rate, Overhead Rate and G&A Rate)

It is a long standing HHS policy not to participate in or contribute to the cost of independent research and development (IR&D). Also, it is HHS policy that IR&D costs shall bear a proportionate share of overhead and G&A costs; therefore, IR&D costs should be excluded from indirect expense pools and included in the appropriate distribution bases. If your organization has no IR&D costs, a statement to that effect should be included with your indirect cost rate proposal.

It should also be noted that HHS has specified requirements for non-Federal audits of for-profit (commercial) organizations. For additional information on these audit requirements see the related Frequently Asked Questions (FAQs) “Non-Federal Audit Requirements for Commercial (For-Profit) Organizations” at the DFAS website.

Should you have any questions pertaining to this letter, please contact our office at (301) 496-2444.

Sincerely yours,

Raphael A. Woodruff, Chief
Indirect Cost Branch
Division of Financial Advisory Services
Office of Acquisition Management and Policy