Dear Members:
Several months ago, our members debated in Connect the allowability of 2 CFR 200.414(f) de minimis rates by non-profits under FAR-governed contracts. The primary inquiry was whether the de minimis is a "cost plus a percentage of cost type contract" prohibited by FAR 44.203(b)(2). Members noted that 2 CFR 200.324(d) also prohibits cost plus a percentage of cost methods of contracting under assistance. And, that 2 CFR 200.401(b) establishes that CAS takes precedence over the cost principles under federal cost reimbursable contracts in certain circumstances.
Some opined that the use of de minimis by non-profits is not in conflict with CAS, in reference to 200.401(b)), as CAS reinforces the need for consistency in accumulating and reporting costs. In addition, 2 CFR 200.414(f) requires the de minimis method, once elected, be used consistently for all federal awards. From 2 CFR 200 definitions, a cost reimbursable contract under FAR is a federal award: Federal award has the meaning, depending on the context, in either paragraph (1) or (2) of this definition: (1) (i) The Federal financial assistance that a recipient receives directly from a Federal awarding agency or indirectly from a pass-through entity, as described in § 200.101; or (ii) The cost-reimbursement contract under the Federal Acquisition Regulations that a non-Federal entity receives directly from a Federal awarding agency or indirectly from a pass-through entity, as described in § 200.101.
HOWEVER, others reasoned that use of de minimis rate is not allowable in such circumstances because: FAR takes precedent for federal contracts and a non-profit cannot use the de minimus rate under acquisition, as cost plus percentage of cost contracts are prohibited by statute. A non-profit will not be penalized for proposals under FAR regulations as long as they remain consistent for their assistance awards. The non-profit would need to compute an indirect rate (based on out-year budgets or prior year actual costs) and use it in their contract proposal. They don't have to have a NICRA to propose an indirect cost rate. They do need to be prepared to demonstrate the basis for the rate calculation. This exercise would also be beneficial for the non-profit in order to assess whether they want to go forward and request a NICRA from the USG.
When Humentum raised this question with OMB, they committed to reviewing it further and circling back to us. In informal conversations I have had with OMB recently, OMB has told me they have had several internal meetings on the matter, involving their procurement policy folks, grants team, and general counsel. In these conversations, they recognized that a CO who points to the FAR and wants verification of costs is entirely within their warranted legal authority to make a determination that the de minimis is not allowable; that unlike the FAR, 2 CFR is not statutory so it carries less weight than the FAR in such a determination and the FAR prohibits the use of the de minimis rate in such circumstances; but that despite these truths, OMB does not like the ambiguity that the differing language in the FAR and 2 CFR creates for implementing partners and COs alike.
All that said, it doesn't appear that OMB envisions resolving this ambiguity in the near-term. Why? Because they would need to change 2 CFR language to clarify, which is only updated every 7 years, and this issue hasn't been raised enough before now to justify the regulatory burden of doing so any sooner. Again, this is not a "determination" per se or the final word on the matter, as they are still meeting internally on it as time permits. Nonetheless, it is a window into the ongoing thinking at OMB on the issue.
Thank you.
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Cynthia Smith
Director, Government Affairs and Advocacy
Humentum
cynthia.smith@humentum.org------------------------------