Grants and Indirect Costs for Private Foundations and Corporations

Private Foundation Grantmakers

With private foundation grantmakers, you will encounter one of three different situations.  Some will say they don’t allow for indirect costs (rarely do they use the terminology “Facility and Administration” costs, which is principally federal language).  In other cases, they will indicate they have a fixed indirect cost rate. More frequently, however, is the case where the private foundations just don’t state what their policy is.  Experienced grantseekers have strategies to deal with each of these three situations.

If no indirect costs are allowed, rather than “eat” those costs, use the “deconstruct” strategy described with state government grantmakers; that is, include your typical indirect cost items in your budget as direct cost items. Most private funders understand, for example, that you need to have electricity in the room where you would conduct your grant project and if you didn’t have it, carrying out the project successfully would be difficult if not impossible. This strategy has worked well for us over the years.

If the private funder has a fixed rate, say 10% of total direct cost, then you may wish to accept that figure as your indirect cost rate.  If your actual rate is higher than the fixed rate, then you can either cost share the difference or partially deconstruct your actual indirect cost rate and include the difference as direct costs.  If you choose this latter option, you need to make it clear in your budget narrative what you include in both direct and indirect cost calculations.

Perhaps the most common situation with private foundations is that they simply don’t say what their policy is regarding indirect costs. As grant writers, you may feel in the back part of your noggin “I don’t want to ask the question because I might not like the answer.”  If you don’t want to specifically ask the program officer about their indirect cost policy, there is another option.

You can do as we sometimes do and request the same indirect cost rate that the funder has.  Really!  What could be fairer than adopting their indirect cost rate?  To put this idea into practice, look at their tax records (990s), which are available free at www.guidestar.org.  Let’s take an example. The latest 990 available for the Helen Bader Foundation (2009) showed that they paid out $9,968,114 in grants and their total expenses for the year (including grants) was $12,347,152. Question:  what happened to the remaining $2,379,038 that was not spent on grants?  Answer:  it covered their operating costs such as foundation salary and waves, pension, legal fees, accounting, taxes, depreciation, rent, travel, and printing.  In round numbers, they had to spend $2 million to give away $10 million.  When you divide their actual indirect costs by their total costs ($2,379,038/$12,247,152), the quotient is 19%.  If submitting a proposal to the Helen Bader Foundation, you might indicate, “In addition to our request for $xxx,xxx in direct costs, we are seeking 19% additional in indirect costs, the same rate as the Foundation, based on the 2009 990s.” They cannot deny spending funds to operate their foundation, just as you must spend funds to conduct their project. We’ve been quite successful gaining indirect costs using this strategy while other nonprofits have just absorbed those costs.

Corporate Grantmakers

All corporate officers are intimately familiar with the concept of “overhead.”  They know you have to spend a dollar to make two dollars, so-to-speak.  It’s simply a part of the culture of business.  Accordingly, we find widespread acceptance of the request for indirect costs in our corporate grant budgets, although we use the more familiar term “overhead” in the corporate world.

Our standard practice has been to use the same rate as our federally negotiated rate. Occasionally, corporations will ask us the basis for our calculations.  In response, we explain it is not a “grab number” but rather a figure audited and approved by the federal government.  We go on and offer to share the paperwork that the federal government approved, which they usually decline.

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