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governmental unit claiming indirect costs under Federal awards. Guidelines and illustrations of <br />indirect cost proposals are provided in a brochure published by the Department of Health and <br />Human Services entitled "A Guide for State and Local Government Agencies: Cost Principles <br />and Procedures for Establishing Cost Allocation Plans and Indirect Cost Rates for Grants and <br />Contracts with the Federal Government." A copy of this brochure may be obtained from the <br />Superintendent of Documents, U.S. Government Printing Office. <br />4. Because of the diverse characteristics and accounting practices of governmental units, the <br />types of costs which may be classified as indirect costs cannot be specified in all situations. <br />However, typical examples of indirect costs may include certain State/local-wide central service <br />costs, general administration of the grantee department or agency, accounting and personnel <br />services performed within the grantee department or agency, depreciation or use allowances on <br />buildings and equipment, the costs of operating and maintaining facilities, etc. <br />5. This Attachment does not apply to State public assistance agencies. These agencies should <br />refer instead to Attachment D. <br />B. Definitions. <br />1. "Indirect cost rate proposal" means the documentation prepared by a governmental unit or <br />subdivision thereof to substantiate its request for the establishment of an indirect cost rate. <br />2. "Indirect cost rate" is a device for determining in a reasonable manner the proportion of <br />indirect costs each program should bear. It is the ratio (expressed as a percentage) of the indirect <br />costs to a direct cost base. <br />3. "Indirect cost pool" is the accumulated costs that jointly benefit two or more programs or other <br />cost objectives. <br />4. "Base" means the accumulated direct costs (normally either total direct salaries and wages or <br />total direct costs exclusive of any extraordinary or distorting expenditures) used to distribute <br />indirect costs to individual Federal awards. The direct cost base selected should result in each <br />award bearing a fair share of the indirect costs in reasonable relation to the benefits received <br />from the costs. <br />5. "Predetermined rate" means an indirect cost rate, applicable to a specified current or future <br />period, usually the governmental unit's fiscal year. This rate is based on an estimate of the costs <br />to be incurred during the period. Except under very unusual circumstances, a predetermined rate <br />is not subject to adjustment. (Because of legal constraints, predetermined rates are not permitted <br />for Federal contracts; they may, however, be used for grants or cooperative agreements.) <br />Predetermined rates may not be used by governmental units that have not submitted and <br />negotiated the rate with the cognizant agency. In view of the potential advantages offered by this <br />procedure, negotiation of predetermined rates for indirect costs for a period of two to four years <br />should be the norm in those situations where the cost experience and other pertinent facts <br />available are deemed sufficient to enable the parties involved to reach an informed judgment as <br />to the probable level of indirect costs during the ensuing accounting periods. <br />51 <br /> <br />