What is the purpose of the indirect cost rate agreement?

• A. To establish the rate at which indirect costs are charged to federal programs and determine allowable overhead.
• B. To authorize procurement procedures for grant-funded projects.
• C. To set the grant's cash drawdown schedule.
• D. To define audit requirements for the grant.

Answer: (A)

Indirect cost rate agreements establish how a organization's overhead is charged to federal programs and determine what portion of indirect costs is allowable. Indirect costs are overhead like facilities, administration, and utilities that support multiple programs but can't be tied to a single project. The agreement with the cognizant federal agency sets the negotiated indirect cost rate, the base it applies to (for example, as a percentage of modified total direct costs), the period covered, and any applicable exceptions. This provides a predictable, consistent method for allocating overhead to federal awards and ensures the costs claimed meet federal requirements for allowability under regulations. Procurement procedures, cash drawdown schedules, and audit requirements are governed by other policies, not the indirect cost rate agreement.