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:
- Supporting grantees to accomplish the purposes of the project
- Structuring awards according to financial need and costs associated with a project
- Paying the direct costs of grant projects plus a fair share of associated indirect costs
- Promoting effective and efficient allocation of resources
- Acting with consistency and fairness across grantees
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:
- General operating support grants;
- Endowment grants; and
- Flexible support project grants, such as grants made to large, well-established organizations for the purposes of supporting the general operations of a separately managed center.
The policy also does not apply to grants made under the Foundation’s expedited small grants program.
This policy is effective January 1, 2020 and was updated September 23, 2021.
The following are guidelines for grant applicants to identify project costs and seek recovery of indirect costs for project grants.
Grant Budgets Including Indirect Cost Recovery
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.
- Project costs (specific)—Specific costs are those costs that are specific to a grant-funded project, such as salaries for project staff and materials required for the project. These costs would not be incurred if the project being funded did not exist. For example, any personnel time that can be unambiguously identified as having been spent on the grant-funded project would be considered a specific cost.
- Project costs (shared)—Shared costs are those costs that benefit multiple programs or projects and can be assigned or allocated across programs or projects in a reasonably consistent and accurate way. These costs are just as integral to the delivery of the grant-funded project as are the “Specific” costs. Examples of such costs include occupancy and facilities, utilities, telephone/internet access, etc. (Note that these costs are generally non-personnel costs.) An appropriate share of these costs should be allocated to the grant-funded project and specified by line item in the budget.*
Indirect Cost Recovery
Indirect Cost Recovery is the portion of a grant intended to cover indirect costs
- Indirect Costs—Indirect costs are costs for activities or services that support the organization as a whole rather than any particular program or project, including administrative and fundraising costs.** These are not costs associated with the delivery of program services; nonetheless, they are essential costs of maintaining and managing the organization through which program services are delivered. Examples of such costs include finance and accounting support, human resources, bank fees, board meetings, and fundraising. In submitting a project budget, grantees will not be required to quantify these indirect costs. MacArthur’s indirect cost rate of 29 percent is applied to Project Costs to make up the total grant amount.
*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.
Examples of Specific, Shared and Indirect Costs
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.)
- Personnel costs (wages and benefits) of staff working on grant-funded project
- Professional fees for consultants working on grant-funded project
- Travel expenses directly related to the grant-funded project
- Supplies and materials used for the grant-funded project
- Meetings and conferences associated with the grant-funded project
- Sub-grants made to other organizations to directly support work on the grant-funded project
- Rent and occupancy costs allocated to the grant-funded project
- Utilities, telephone and internet costs allocated to the grant-funded project
- Depreciation of fixed assets used in common across the organization
Indirect Cost Recovery
- Personnel costs (wages and benefits) of administrative and fundraising staff
- Professional fees for consultants working in administrative and fundraising functions
- Rent and occupancy costs for facilities (including office space) occupied by administrative and fundraising functions
- Utilities, telephone and internet costs utilized by administrative and fundraising functions
- Corporate insurance costs, bank fees, credit card fees and interest expenses
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.