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What's this OMB thing I keep hearing about?

It's a new set of regulations from the federal Office of Management and Budget (OMB) that establishes rules for government grants and awards to nonprofits. It's important to nonprofits mainly for two reasons:

· The new regulations require that any nonprofit agreement with government -- that contains federal money, whether direct or pass-through -- must provide a minimum of 10% for overhead costs.

· If a nonprofit has a federal Negotiated Indirect Cost Rate (NICR), all governments, including state and local pass-through, must honor that rate in grants and contracts that contain federal money.

Many nonprofits currently have agreements -- for example, a county department of human services -- with indirect cost rates of 0%, 3%, and so forth. Such indirect cost rates mean that the government-funded program is not paying its fair share of essential costs such as administration, utilities, rent, audit, technology costs, etc. In short, the OMB Uniform Guidance is a huge step forward for nonprofits in the quest to obtain fair rates of reimbursement for indirect costs.

What are the key points I need to know about the new OMB UG?

· What it's applicable to: The new Guidance is applicable to recipient and sub-recipient agreements (often called contracts) that include federal money: it may be a contract between a nonprofit and the county, but at least some of the funding is federal in origin. For example, a county may contract for a meals-on-wheels program, with the funding coming in part from the county's General Fund and partly from the federal Older Americans Act.

· Replaces many old rules: The OMB Uniform Guidance replaces many of the old OMB Circulars such as A110 and A122, and eliminates many of the conflicting and unclear rules of the past

· The OMB Uniform Guidance became effective for contracts beginning after December 26, 2014.

· Use of federal Negotiated Indirect Cost Rate; Many nonprofits have established NICRs with a federal agency such as the Department of Labor (perhaps workforce development) or the Department of the Interior (conservation). These rates are commonly between 18% and 35% -- it's worth noting that Harvard's NICR is 68%. If your nonprofit has an NICR of say 22% and you have a contract with the county that includes federal funds, the county must give you an indirect cost rate of 22% as well.

·  Minimum rate of 10%: If you don't have an NICR, any contract containing federal money must provide a minimum indirect cost rate of 10%. Remember that this is a minimum, not a guideline. And the 10% is 10% of Total Modified Direct Costs, not 10% of the contract total.

·  New rules for purchasing: New procurement regulations in the Uniform Guidance mean that nonprofits with such grants and contracts that include federal funds have to follow new guidelines. For instance, if you plan to subcontract some of the work for $150,000 or more, you must use either a sealed bid process or a competitive bid process (two year grace period).

·  Supervision of program staff: In the past, a social worker in a contracted program would be a direct cost, but that person's supervisor might have been considered an indirect cost. The new Uniform Guidance recognizes that supervision time of direct program staff should also be considered a direct cost.

· Treating small technology costs as expenses: Previously the purchase of a computer for say $2,000 would need to be capitalized. The new Uniform Guidance allows for computer purchases of less than $5,000 to be expensed, making them eligible for reimbursement as part of the contract.

As you can see, these changes can mean very significant improvements in fair reimbursement to nonprofits...but only if they are implemented at all levels of government.

We're getting less than 10% in my agreement with the county that includes federal dollars. What do we do?

We have a federal indirect rate but our county government is refusing to honor it. What do we do?

First, check to see that the contract in mind is one that included federal funds awarded to the county  after December 26, 2014. If you don't know whether a contract contains federal funds, ask your contract officer. One of the new rules in the OMB Uniform Guidance is that the sources of funds in contracts must be made known.

Bring the OMB Uniform Guidance to the attention of your contract officer, perhaps along with other nonprofits in the same situation. You may need to speak to higher-ups in the department.

Remember that the Uniform Guidance prohibits a granting or contracting governmental pass-through agency from awarding you points or money as a condition of your accepting a rate lower than 10%. (Some nonprofits have told us that they are being offered such conditions.) Ultimately you can also contact the OMB directly and ask them for help.

Like many new sets of regulations, the OMB Uniform Guidance is rolling out fairly slowly and unevenly throughout California. In addition to insisting on having it properly implemented with your contracts, consider:

· Contact other nonprofits who have contracts with the same government agency and ask for their help and advice. If many of you are experiencing the same problems, it may be a good idea to speak to the government agency as a group.

· Ask a member of your county Board of Supervisors for help

· Ask your auditor to contact the government agency

· Contact us at the California Association of Nonprofits

I'm getting more than 10% in my government contract. Should I be worried they'll lower it to 10%?

Probably not, although we have heard of some instances of government agencies reducing indirect reimbursement to 10%. In most cases when government agencies are aware of the Uniform Guidance, they usually also understand its emphasis on the 10% as a minimum, not a maximum.

My governmental funder is saying that their contracts with nonprofits are exempt from the OMB Uniform Guidance. Is this true?

It might be. There are a few cases where a lower indirect or administrative cost rate has been written into the statute passed by Congress; in these instances the rate in the bill supersedes the Guidance. Unfortunately there is no easy way to find out what funding streams are exempt and which are not.

There are handful of funding streams that are exempt, most notably block grants established under the Reconciliation Act of 1981 with the exception of Community Service block grants. We are keeping a list of those we have learned are exempt, available on our website here. If you learn of others, please let us know so we can add them to this page.

The governmental entity may also be treating your agreement as being a vendor/contract rather than a sub-award – it makes a big difference under the Uniform Guidance. If they tell you this, ask them to explain their reasons why they are making this interpretation.

Who is advocating for full implementation?

In California there are many individuals from nonprofits, foundations, audit firms, and government actively supporting full implementation of the OMB Uniform Guidance. Just a few efforts:

· In Los Angeles County, Supervisors Hilda Solis and Sheila Kuehl sponsored a bill (passed unanimously!) asking the County Administrator to develop a plan for full implementation in contracts with nonprofits

· CalNonprofits convened a statewide CFO Task Force which is connecting nonprofits with concerns to others with similar concerns, and advising our advocacy efforts

· The California State Association of Counties sponsored a workshop for county employees on the OMB Uniform Guidance

· California Government Operations Agency (CalGovOps) head Marybel Batjer initiated a study of state contracts with nonprofits

· Advocacy coalitions in many California cities have worked with CalNonprofits about advocacy and educational strategies in their areas

Where can I get more help on OMB UG?

There are many online resources, including:

The regulation itself: Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) 2 C.F.R. 200 - See more at: https://www.councilofnonprofits.org/omb-uniform-guidance#sthash.POcKENgV.dpuf
The Office of Management and Budget Uniform Guidance

FAQs and resources from COFAR: the Council on Financial Assistance Reform

California Association of Nonprofits Nonprofit Overhead Project

National Council of Nonprofits resources on the OMB Uniform Guidance
Nonprofits and the New OMB Uniform Guidance: Know Your Rights…and How to Protect Them

Here is a 5-minute video of Victoria Collins of OMB recapping the point that a pass-through funding entity must either negotiate an indirect rate with the sub-recipient nonprofit or use the 10% minimum rate for indirect costs. She notes that this process is designed to help remove barriers to smaller organizations. 

This article was written by Jan Masaoka of the California Association of Nonprofits with assistance from Beth Bowsky of the National Council of Nonprofits and Kay Sohl.
More Resources

What are the funding streams exempted from the OMB Uniform Guidance?

In 2014, the National Center for Nonprofits and Philanthropy (at the Urban Institute) and the National Council of Nonprofits collaborated on a study of nonprofit-goverment contracting practices. Responses from California nonprofits represented 31% of the total. California ranked 8th worst in the country for government not paying the full costs of contracted services. Here is the summary page on California, as well as additional data comparing California results with national results.

Federal Negotiated Indirect Cost Rate: Consultants
Although some nonprofits work through the process of obtaining a Federal Negotiated Indirect Cost Rate themselves, many others find it worthwhile to work with an experienced NICR consultant. Your auditor may have good suggestions for consultants, and here are some that our members have found helpful:
Hydeh Ghaffari at DZH Phillips: based in the Bay Area, works nationally
Alex Weekes: based in Connecticut, works nationally
Cheryl Olson at Clark Nuber: based in Washington, works nationally
Janet Johnson at WIPFLi: a national CPA firm focused on nonprofits receiving federal funds

NONPROFIT OVERHEAD UPCOMING EVENTS
OVERHEAD WEBINAR SERIES
Register here for one or all three


May 11 - Thursday, Session 1
Real Costs – Realistic Strategies: Understanding, Communicating, and Funding the Full Cost of Your Services

June 1 - Thursday, Session 2
Recovering Overhead Costs in Government Contracts: New Opportunities

June 15 - Thursday, Session 3
Negotiating a Federal Indirect Cost Rate: Step by Step Guide to Preparing Your Indirect Cost Rate Proposal
Also now available:
"Getting Your Full Costs Funded"
3 Webinar series
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"Don't Say That, Say This: New Research on Talking to Funders about Overhead" Webinar
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