When a grant applicant includes a sub-awardee in a proposal, the budget must account for the direct costs of the sub-awarded work, the indirect costs each party is entitled to recover, and the amount of each subaward that the grant applicant is entitled to count toward their federally negotiated indirect cost rate (NICRA) or de minimis rate. Confusing these issues or applying the wrong rate is one of the most common budgeting errors we see in the proposals we review. This can significantly affect your proposal scoring by reviewers and the allowable funds in your awarded budget, if funded.
Direct costs are those that can be specifically identified with a single project: the sub-awardee’s personnel, travel, materials, and equipment. Indirect costs (facilities, administration, overhead) are recovered through a NICRA or de minimis rate that the federal government allows you to use in federal budgets if you do not have a NICRA. Both grant applicants and their sub-awardee can apply their NICRA-approved rate to their direct costs. A prime or sub-awardee without a NICRA typically can use a de minimis rate of up to 15% of Modified Total Direct Costs (MTDC) under 2 CFR 200.414(f), effective for awards issued on or after October 1, 2024, unless the Request for Proposals (RFP) specifies otherwise.
A frequent mistake is applying the prime applicant’s indirect rate to the sub-awardee’s budget. Each entity recovers indirect costs under its own approved rate. Another common error by the grant applicant is failing to realize that only the first $50,000 of each subaward is included in their NICRA or de minimis rate when calculating MTDC. Any amount over this $50,000 threshold is automatically excluded from the indirect/de minimis calculation. These details matter because reviewers check the math, and an incorrectly calculated budget signals weak fiscal management and can lose points in the review as well as disallow incorrectly calculated indirect funds even if the proposal is awarded.
Fortunately, Grants Republic offers a De Minimis and Negotiated Indirect Rate with MTDC Calculator that not only helps you avoid charging over $50,000 of each sub-award to your indirect rate in the grant budget but also allows you to see exactly what budget categories are included in MTDC when calculating this indirect or de minimis rate. This way, you avoid calculating an MTDC amount that is too high and an indirect or de minimis rate that will be disallowed.