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At Last – Overhead Myth Fades (a little)

In recent months, there has been buzz about a change made by the Office of Management and Budget that requires that when any local, state or federal agency contracts with a nonprofit, at least 10% of the contract must fund the nonprofit’s administrative costs (“indirect costs” or “overhead”). While 10% is the minimum amount, higher rates can be negotiated. This is actually quite exciting news. Overhead is now not only recognized, but it is mandated as essential to program delivery. And maybe private funders will follow the lead of the OMB. This is all good, right?

There are a couple of questions that arise.

  • First of all, while 10% is certainly better than nothing, is that what your programs cost to operate? What does it really cost? It will take a while for organizations to figure this out, but there are some guidelines that can help with that. And of course it will take a while to convince the OMB and other funders that in fact, what you are claiming is accurate.
  • Secondly, as one of our clients so succinctly put it, this is fine, but will it reduce the amount that we can then use for programs? Or will they add that amount to the grant? The latter is unlikely, and so increased advocacy will be required to educate officials about the need to increase what is allocated.

However, this is a great change, and is something that supporters of the Overhead Myth are surely celebrating!

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