If a Grantee wishes to be reimbursed for its indirect costs under a Federal award it must substantiate those costs with an indirect cost calculation. The calculation is in the form of a cost allocation plan/indirect cost proposal. There are three types of cost allocation plans presented in 2 CFR Part 225.
The term ‘cost allocation plan’, as defined in 2 CFR Part 225, means central service cost allocation plan, public assistance cost allocation plan, and indirect cost rate proposal. Public assistance cost allocation plans relate to State public assistance agencies.
“Central service cost allocation plan” means the documentation identifying, accumulating, and allocating or developing billing rates based on the allowable costs of services provided by a governmental unit on a centralized basis to its departments and agencies. The costs of these services may be allocated or billed to users. Many governmental units that provide centralized services to its departments or agencies may incur indirect costs that could be allocated or billed to grantees.
“Indirect cost rate proposal” means the documentation prepared by a governmental unit or component thereof to substantiate its request for the establishment of an indirect cost rate as described in Attachment E of 2 CFR Part 225.. The indirect cost rate proposal is a financial document, at the operating agency level, which distributes the indirect costs of that agency to the programs (and the grants and contracts) that benefit from them.
2 CFR Part 225 requires that the indirect cost rate proposal be submitted to a Grantee’s Federal cognizant agency for approval.