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November 18, 2019; NYN Media

For nonprofits, this is a dream come true: The City of New York is planning to help pay indirect costs.

Because the State and City of New York do not cover all costs of the nonprofits with whom they contract, those organizations start out each time with a deficit. If they borrow money in advance for government reimbursement later, after the work is done, they are operating at a greater loss with interest incurred. For-profit vendors do not have this crippling fiscal hole.

Following years of complaints from the contracted providers, in June, the New York City Council and mayor agreed to fund established indirect cost rates of human service providers. These rates must be calculated in accordance with the City of New York Health and Human Services Cost Policies and Procedures Manual (Cost Manual).

Indirect costs are usually, but not necessarily, general overhead expenses, such as utilities. The Cost Manual, developed in partnership with nonprofit providers through the Nonprofit Resiliency Committee, provides the definition—“for a common or joint purpose that cannot be readily identified with a particular Final Cost Objective”—and examples of indirect costs.  The definitions within the Cost Manual are based on 2 CFR 200, the Federal Guidance.

The City of New York Health and Human Services Cost Manual, which provides the guidance for covered expenses, has two pages of Table of Contents, six pages of definitions and acronyms, and 80 pages of descriptions and policies to “standardize cost definitions” and clarify that phrase, “cannot be readily identified.” The Cost Manual, with all of its legalese and all the many definitions that say what it is not, will make any grant writer who is familiar with the process and has learned the intricacies of the manual worth their weight in gold.

An example of an indirect cost that would be permitted is commercial general liability insurance for an organization. Another would be office supplies, like staplers, even if they are for the entire organization and not just that contracted program. (The absurdity of some of the current requirements was brilliantly parodied last year in this video produced by New York’s Human Services Council, which we are re-featuring today in honor of the occasion.)

Health and human services contracts in city agencies such as the Department of Education that were effective as of July 1, 2019, can apply for the indirect cost initiative. The initiative does not apply to discretionary contracts that come from individual city councilmembers, nor does it apply to state or federal contracts that expressly prohibit application of the city Cost Manual.

If the indirect cost rate for an organization is 10 percent or less, the organization does not have to submit verification documentation for the City to review and approve their organization’s rate. However, any additional funding requires a contract amendment. The organization begins this process by filling out an Entryway form, found here. In order to access the ICR funding over 10 percent, the city requires the costs to be verified by a Negotiated Indirect Cost Rate Agreement (NICRA) or an Independent Accountant’s Report which must be signed by a CPA and states the Cost Manual has been adhered to.

There is a temporary conditional option for those who need time to document their ICR under the new initiative. For those up to 12 percent ICR, they have up to year-end 2020 to submit verification paperwork. The first step for requesting ICR funding is to complete and Entryway Choice Form which is accessed on the City’s Indirect Implementation Webpage.  The Form is available now to all organizations.

It’s not known at this point how long it will take for an organization to receive approval for ICR, and subsequently, to obtain payment. To receive funding retroactive to July 1, 2019, organizations must submit an established indirect cost rate and funding claim or submit a claim for a Conditional Indirect Cost Rate by June 30, 2020. Indirect Cost Rate and funding claims received between July 1, 2020 and December 31, 2020 will be retroactive to July 1, 2020.

As Curtis Klotz has persuasively argued, the entire way nonprofits (and government partners) look at “overhead costs” is in desperate need of a revisioning. The New York City policy is more modest. But it is certainly progress. At least the City of New York is getting closer to admitting that nonprofits, just like for-profit firms, must be able to cover their indirect costs to get their work done.—Marian Conway

Correction: This article has been altered from its initial form. We thank the NYC Mayor’s Office of Contract Services for their clarified and updated information.