When you are about to write a federal grant, you want to be sure your agency is ready. What do we mean by this? Let’s dive in.
Readiness factors generally fall into two buckets: grant writing readiness and agency readiness (though there is definite overlap between these). Let’s start with agency readiness.
Types of funding
When you read a federal RFP there are a few things you should watch for that could be red flags. One of these is the funding mechanism – some grants are paid out immediately upon award or upon a set schedule such as quarterly. This means that funds are available right away (the full award) to cover costs like staff salaries and supplies. Or they are available through a regular draw down schedule, such as quarterly. All of us in the nonprofit world who receive federal grants have a deep love for federal funding received immediately through the full award or through regular draw downs. These are the best, and these types of grants should immediately receive more favorable consideration.
Grants may also be provided on a cost reimbursement basis, which is no one’s favorite. You are basically fronting the money for the services you are providing in the grant and are getting reimbursed upon submission of invoices to the funder. In this case your agency requires a financial cushion to carry costs like salaries for at least a month (and sometimes up to three months or more) as you implement the program. You then submit documentation to show what was spent, and the federal agency will then reimburse you (hopefully – be sure all of your costs are allowable or you won’t be reimbursed for all of them!). The overall size of the federal award, combined with your agency’s financial health and reserve funds, may be a deciding factor as to whether you are ready to go after a cost reimbursement federal grant.
Size of Award
Federal grant amounts can range from around $10,000 up to tens of millions of dollars. If your agency has an annual budget of around $1 million, for example, going after a $5 million grant, even one stretched across multiple years, may well exceed your agency’s capacity. This could attract the skeptical eye of a federal reviewer who frankly doubts you can pull it off.
In this scenario, the annual budget of your agency will double immediately – are your Human Resources, Accounting, Payroll, and IT departments (whether they are a single person or many employees) ready to handle a doubling of their responsibilities? Especially when an agency with a $1 million agency budget is unlikely to have fully staffed separate departments.
Speaking from our own experience, our former agency grew pretty dramatically in the past decade, with our budget growing from $13.7 million in 2009 to over $50 million in 2018. This growth came with tremendous challenges to our back office infrastructure (i.e., departments like HR and Accounting), which struggled to keep up. In general, costs like HR or an agency-wide audit cannot be directly charged to grants, so they are considered indirect costs.
Indirect Cost Rate
If your agency already has any federal grants, you may have a federally negotiated indirect cost rate. In that case, your back office is covered (at least in part). If this is your first time pursuing federal grants, you likely won’t have a federally negotiated indirect cost rate, so you’ll have to accept the ‘de minimis’ rate that federal agency allows, which is generally 10%. You’ll need to talk with your Accounting department to determine whether back office costs can be covered by that amount of grant funds or if it will create a burden on the agency.
Federal grants are highly competitive, so if you plan to invest the time and effort needed to write a strong proposal, you want to be sure your agency is positioned to be competitive.
What do we mean by competitiveness? A couple of factors. The first is your agency’s track record in achieving outcomes aligned with the grant you want to pursue.
For example, if you are applying for a grant to support academic tutoring, does your agency already provide this service, and if so, what were the results? If you can point to things like academic proficiency going up for tutored students, then you’re more competitive. If you can only point to things like the number of students who received tutoring (outputs), but not what the impact of tutoring was, you’re going to be a little less competitive.
The other part of your agency’s track record is grants management. Does your agency have appropriate fiscal controls in place to track spending separately for each grant? This is very important to your Program Officer. And, not incidentally, a good fiscal control process can be a wonderful thing to discuss in the agency capacity section of many federal grants. We’ll discuss this more in an upcoming post.
Do you have quality control mechanisms to track the progress of each grant and make improvements if needed? Has your agency completed all required programmatic and fiscal reports on time for any current funders? You want to demonstrate your agency has solid grants management processes and protocols in place. This includes addressing how your program tracks and evaluates progress toward outcomes, how your Accounting department manages funds, your track record in effectively managing all aspects of grants to meet the proposed outcomes, and staying in compliance and submitting all required reports on time.
In our next post, we’ll look at the readiness of your grant writing processes to apply for federal grants. Hint: it’s better to do it sooner. There is no shame in not being awarded a federal grant that you apply for. It still happens to us! But digging in and really considering the nitty-gritty of what is needed to answer sections of a proposal is the best way to learn what is required. And you can request comments and scores of your proposals from reviewers, which potentially is very helpful in improving how your proposals can score and be funded in the future. I say potentially, but that whole discussion really requires its own upcoming post.