The Foundation supports organizations whose work advances the Foundation’s mission and the goals of the organization. The Foundation adopts this Indirect Cost Policy in recognition that nonprofit organizations have indirect costs that are not directly attributable to projects or activities being funded by Foundation grants but are necessary to support grant-funded projects or activities.
The policy is based on a research study that the Foundation commissioned using IRS Form 990 data from over 130,000 US-based nonprofit organizations. The study sought to establish a benchmark for the Foundation’s grantmaking by understanding the indirect cost rates of financially healthy organizations. The study found that the minimum indirect cost rate associated with financially healthy organizations in the dataset is 29 percent.
In adopting this policy, the Foundation aims to be explicit, transparent and equitable across fields and organizations. More learning and iteration will be needed to improve this policy over time, but the goals include:
It is the policy of the Foundation to provide an indirect cost recovery of 29 percent of project costs on all project grants.
This indirect cost policy applies only to project grants to nonprofit organizations. Grants not eligible for indirect cost recovery include: 1) general operating support grants; 2) endowment grants; and 3) grants made to large, well-established organizations for the purposes of supporting the general operations of a separately managed center.
This policy is effective January 1, 2020.
The following are guidelines for grant applicants to identify project costs and seek recovery of indirect costs for project grants.
Project grant requests to the MacArthur Foundation should include a project budget that sums project costs (defined below), to which MacArthur’s 29 percent indirect cost rate would then be applied.
Project costs are the portion of a grant intended to fund project activity costs, which include both the costs specific to an individual project and those shared organizational costs from which a project directly benefits. Both examples below are covered in project costs.
Indirect Cost Recovery is the portion of a grant intended to cover indirect costs.
*Costs of shared resources should be allocated across activities based on an estimate of the utilization of the resources by each activity. As most service-oriented nonprofit work is primarily personnel driven, most shared costs may use a staff level of effort (measured by full-time equivalents) methodology for allocation. For occupancy-related costs (e.g., rent) and when physical space is specific to particular programs or activities, costs may be allocated based on space utilization. Other bases for allocation may be appropriate in particular circumstances to provide a better approximation of actual use of the resource. The methodology for allocating shared costs used in the preparation of organizational financial statements should generally be reflected in grant budgets.
**In this document we use “administrative costs” to refer to those costs classified as “Management and General” (M&G) in financial statements and the IRS Form 990.
Below are some of the most common examples of specific and shared costs that could be included in Project Costs, as well as examples of the types of costs that would be covered as part of a grant’s Indirect Cost Recovery. (Note that this is not an exhaustive list and some costs may be categorized differently depending on factors specific to each project and organization.)
A more detailed summary of common costs and their typical categorization is included as Attachment 1. As noted in the attachment, certain costs may be budgeted as either Project Costs or Indirect Costs depending on the nature of the activity and of the expense.