1. Darth DFAS arrives at 123 Easy, Inc. for a site visit

2. Hi, I am Darth DFAS and I’m here to review your indirect cost rate proposal.

3. Please Darth! Don’t question any costs!

4. We will have no problem as long as you have followed the FAR.

5. What is the FAR?

6. What! You don’t know about the FAR?

7. Let me show you the dark side of the FAR!

8. Indirect Costs/Audits Ruth Bishop NIH Division of Financial Advisory Services

9. WHAT ARE INDIRECT COST RATES???? – Indirect Cost Pool-How Deep? – Indirect Cost Base-How Large? –Indirect Cost Rate-How High?

10. AGENDA Who Are We- Indirect Cost Branch Definitions Why Indirect Cost Rates Are Needed; Including An Example The Negotiation Process; Including How To Start The Process

11. INDIRECT COST BRANCH The Office At NIH With The Responsibility Of Negotiating INDIRECT COST RATES With COMMERCIAL ORGANIZATIONS Receiving Awards (Grants & Contracts) With DHHS –SBIR & STTR

12. TYPES OF COSTS DIRECT COSTS: Easily Identified With A Specific Project: –Direct Salaries & Wages –Materials & Supplies –Consultants & Subcontracts

13. TYPES OF COSTS INDIRECT COSTS: Not Easily Identified With A Specific Project –Fringe Benefits –Overhead –G&A

14. FRINGE BENEFITS Allowances And Services Provided To Employees –Pd Abs (Vacation, Holiday & Sick Leave) –Payroll Taxes –Pension Plan –Group Ins (Health, Life & Disability)

15. OVERHEAD COSTS Indirect Costs Relating To The Performance Of A Project –Overhead Labor (e.g.; supervision, general meetings) –Fringes On Overhead Labor –Facility Costs & Depreciation –General Lab Supplies

16. G&A COSTS Indirect Costs Associated With The Overall Management Of The Company –Executive & Administrative Labor –Fringe Benefits On G&A Labor –Professional Fees (CPA) –Office Supplies

17. FAR 31.2 FEDERAL ACQUISITION REGULATIONS FAR – COST PRINCIPLES APPLICABLE TO COMMERCIAL ORGANIZATIONS AUDITORS’ “BIBLE” TO DETERMINE IF COSTS ARE : –ALLOWABLE –ALLOCABLE –REASONABLE

18. IDC RATES ARE NEEDED To Provide A Uniform Method –Funding Indirect Costs –Charging Indirect Costs To Provide An Equitable Allocation Of Indirect Costs Across All Projects

19. INDIRECT COST RATE A Method For Allocating Indirect Costs To Projects Ratio Between Indirect Costs (Pool) And An Equitable Base

20. TYPES OF RATES Three Types Of Rates –Provisional Rates Based On Projections For Current FY Used For Funding & Charging –Final Rates Based On Actual Costs Charges Adjusted To Reflect Final Rates –Ceiling Rates Final Rates Cannot Exceed

21. INDIRECT COST RATE SYSTEMS One Tier System: One Pool – Fringe Benefits, Overhead & G&A Two Tier System: Two Pools - Typically –Fringe Benefits – Indirect (Overhead and G&A)

22. INDIRECT COST RATE SYSTEMS Three Tier System: Three Pools –Fringe Benefits –Overhead –G&A

23. NEGOTIATION PROCESS CONTACT INDIRECT COST BRANCH-RUTH BISHOP: –When: Notification Grant/Contract Is Going To Be Awarded –How: Via E-Mail: rb17i@nih.gov Fax: 301/402-7180

24. NEGOTIATION PROCESS –Information Needed: Representative Name & E-Mail Address Company Name & Address Grant/Contract Number Grant/Contract Specialist’s Name

25. NEGOTIATION PROCESS Indirect Cost Branch Requests Indirect Cost Proposal: –Letter: Via E-mail

26. NEGOTIATION PROCESS Indirect Cost Proposal Submitted Indirect Cost Branch Reviews Proposal Indirect Cost Branch Follows-up With Questions To Company

27. RATES ARE NEGOTIATED POOL: We Want POOL SHALLOW; Company Wants POOL DEEP BASE: We Want BASE LARGE; Company Wants BASE SMALL RATE: We Want RATE LOW; Company Wants RATE HIGH

28. NEGOTIATION PROCESS NEGOTIATES RATES WITH COMPANY –Typically By Phone –Rate Agreement Is Issued

29. FINALLY WE ARE DONE! NOW THAT WAS NOT SO BAD! WAS IT? GUESS WHAT? WE ARE GOING TO DO IT AGAIN NEXT YEAR!

30. SBIR PHASE I - If GRANTEE DOES NOT HAVE A NEGOTIATED RATE; INDIRECT COSTS FUNDED AND CHARGED CANNOT EXCEED 40% OF TOTAL DIRECT COSTS (NO EXCLUSIONS)

31. SBIR PHASE II - IF PROPOSED INDIRECT COSTS ARE 25% OR LESS OF TOTAL DIRECT COSTS (NO EXCLUSIONS), GRANTEE DOES NOT NEED TO PROVIDE SUPPORTING DOCUMENTATION THE 25% SHOULD NOT BE USED TO FUND PHASE II GRANTS UNLESS PROPOSED BY GRANTEE-NOT A TEMPORARY RATE

32. WEB SITES http://oamp.od.nih.gov/dfas/dfas_links.asp http://www.arnet.gov/far/

33. May the FAR be with you!