USDA 2018 Farm Bill Indirect Cost Limitation Guidance

Page Updated: October 3, 2024

Effective Date: This guidance is applicable to proposals submitted on or after November 1, 2019 and to the awards resulting from those proposals.

Background

Historically, USDA NIFA has had indirect cost limitations as part of their statutory language. Limitations vary by program, and a full listing of NIFA indirect cost guidance is available here.

The guidance that follows is for when 7 U.S.C. 3310 a. and c. are applicable. For decades, the statute was implemented to limit indirect costs to the lesser of:

• The rate in an institution's negotiated indirect cost rate agreement (NICRA) or
• A percentage of total federal funds awarded (TFFA).

Indirect costs were limited to 19% TFFA in the original 1977 legislation, but have increased over the years to 30% TFFA. In the past, when an award included a pass-through entity and subrecipients, this limitation was applied to the pass-through entity and each subrecipient on an individual basis. This enabled the indirect cost limitation to be managed by each institution independently.

With the passage of the 2018 Farm Bill, a new requirement was introduced. The indirect costs for the entire award are limited to 30% TFFA, which means the pass-through entity and each subrecipient may recover no more than the lesser of their NICRA or 30% TFFA for their portion of the budget. This new statutory language forces the pass-through entity and subrecipient to share one pool of indirect costs across all institutions participating in the project. Prior to the 2018 Farm Bill, each institution participating in a collaborative project recovered indirect costs independent of one another; with the 2018 Farm Bill, all institutions are expected to recover a portion of indirect costs from one pool, creating limitations that previously did not exist.

UW-Madison has established a process to comply with the USDA NIFA requirements which minimizes administrative burden. The guidance below describes how UW-Madison will manage requirements at each stage of the award life cycle.

Implementation

Proposal Preparation

UW-Madison will handle USDA NIFA proposal budgets according to the following principles:

• We will ask each subrecipient to create a budget based on a predetermined total amount that includes both direct and indirect costs.
• We will ask each subrecipient to submit their budgets to us well in advance of the proposal deadline, to allow adequate time to perform budgetary analysis across collaborators.
• We will allow each subrecipient to budget the lesser of their NICRA or 30% TFFA for indirect costs.
• We will prepare our portion of the budget using a 42.85% MTDC rate for research or a 38% MTDC rate for public service. The base for the budget will exclude all subaward costs from F&A recovery, in addition to already defined modified total direct cost (MTDC) exclusions.

This approach enables UW-Madison to:

• Comply with USDA NIFA requirements
• Create clear parameters for subaward budgets, facilitating both collaborator and UW-Madison planning
• Use one F&A rate for its portion of the budget for any given project, simplifying budget preparation, as well as award management and campus reporting

A template is available to ensure that the budget conforms to the approach described above.

Award Setup

If a proposal is awarded with outgoing subawards, UW-Madison will:

• Set up one project for UW-Madison using a 42.85% F&A rate and MTDC base
• Set up one project for each outgoing subaward with a 0% F&A rate and None base
• Issue any outgoing subawards according to existing processes

Post-Award Mangement

Per guidance from USDA NIFA representatives, compliance with indirect cost caps will be monitored on an annual basis. As such, RSP Post-Award will monitor compliance on an annual basis and make adjustments to ensure that the award adheres to the 30% TFFA limitation.

Award Closeout

At the time of award closeout, RSP Post-Award will correspond with the department and Dean’s office as needed to ensure that the expenditures comply with award terms.