Proposed 10% indirect-cost cap would hit small grantees hardest

The Office of Management and Budget has proposed capping indirect costs on federal grants to nonprofit organizations at 10% of direct costs. Senior Policy Manager Farah Qureshi-Lindgren, who tracks NANA's federal-grant files, said the cap would hit small association grantees hardest.

Indirect costs cover overhead a grant doesn't fund directly: rent, accounting, HR, and the staff time spent administering the grant itself rather than doing the funded work. Larger nonprofits typically negotiate a higher indirect-cost rate with the federal government, reflecting the real overhead of running a grant-funded program. The proposed 10% cap would apply the same ceiling regardless of an organization's size or negotiated rate.

A capped rate affects small associations disproportionately, because their overhead doesn't shrink in proportion to a smaller grant. Qureshi-Lindgren pointed to Federal Grant Indirect-Cost Cap for the full policy detail, including the specific proposed language.

Obadiah Fenwick, Executive Director of the Chesapeake Watermen's Cooperative Association, runs a three-person office that relies on federal grants to fund fisheries-monitoring work for its 48 member co-ops. "At our size, indirect costs aren't padding," Fenwick said. "It's the bookkeeper who has to track every dollar to the grant's satisfaction, and the office that has to exist somewhere. A 10% cap doesn't leave room for either."

Qureshi-Lindgren said her office has heard the same concern from associations well outside the fisheries sector, including several with negotiated indirect-cost rates well above 10% today. A capped rate doesn't just squeeze the current grant cycle, she said — it forces small grantees to either absorb the shortfall out of unrestricted funds they typically don't have, or scale back the grant-funded program itself, since the overhead required to run it doesn't disappear along with the funding for it.

Some larger association members have negotiated indirect-cost rates in the 25–35% range, reflecting real audit, compliance, and reporting overhead built up over years of federal grant administration. A blanket 10% ceiling would apply to those organizations too, though Qureshi-Lindgren said the effect is proportionally smaller for an organization that can spread the same overhead across a larger grant portfolio.

Fenwick said the Chesapeake Watermen's Cooperative Association currently operates under a negotiated rate well above the proposed cap, reflecting the cost of the compliance reporting the federal grant itself requires. If the cap takes effect as proposed, he said the co-op association would have three options: cut the fisheries-monitoring program's scope, absorb the shortfall from member dues that are already stretched thin across 48 small co-ops, or decline future federal grants and rely entirely on member funding. None of the three, he said, is a real solution.

• Read the proposed rule and NANA's position at Federal Grant Indirect-Cost Cap

• Calculate what your current negotiated indirect-cost rate is, and how a 10% cap would change it, before commenting

• Small grantees with negotiated rates above 10% should file comments with their own numbers — anecdotal opposition carries less weight than a specific dollar impact

The Fall Policy Forum will include a session on the proposed cap, timed to the comment period. The Federal Grant Indirect-Cost Brief walks through how to estimate your own exposure.