VIII. Common Challenges for Partnerships
Indirect Costs Assessments
When Forest Service personnel do work for partners, the agency incurs indirect costs associated with general management and administration. Unless a waiver is appropriate under the federal law or authority cited in the agreement, the Forest Service recovers the indirect costs from the partner. It is best to work with local experts early on to calculate the indirect costs associated with a partnership and incorporate this information into the planning stages.
The amount the agency recovers is based on the national average of indirect costs compared to total agency expenses. Currently, the average indirect cost across the agency is approximately 17 percent. This percentage, which the agency terms “burden rate” is applied to the total value of the partnership agreement unless parts of the agreement qualify for a waiver.
Interim Directive FSH – ID 1909.13-2004-1, issued in 2004, provides the current direction for indirect cost assessments. However, the agency is still clarifying certain aspects of the interim directive. For more information on current policies, refer to:
- The 2005 Program Direction. This is an annually-issued Forest Service document that clarifies current practices for administering Forest Service programs. It is available to Forest Service employees on the agency's intranet (internal) website.
- Interim Directive FSH – ID 1909.13-2004-1.
When the Forest Service Recovers Indirect Costs
As illustrated in the table at the end of this section, some statutes require payment by the partner for all costs associated with a project and others allow the costs to be waived. Even if the authority allows for waiving indirect costs or some portion of them, Forest Service personnel still must go through the appropriate steps to document the rationale, as illustrated in the flow chart at the end of this section.
Whenever the Forest Service provides a service to another party without mutual benefit, full costs must be recovered. The need for full cost recovery was set forth in the Economy Act of 1932, the Granger-Thye Act, and the resulting Granger-Thye Collection Authority.
When mutual benefit exists for both parties involved, the Cooperative Funds Act of June 30, 1914 , says that there is no mandate for total cost recovery. For a partnership documented under this authority, the Forest Service is not required to collect indirect costs from the partner.
In the past, the agency recovered indirect costs on cost share agreements with mutual interest and benefit between the parties. The two authorities commonly cited for these arrangements were Public Law 102-154 (Challenge Cost Share), and Public Law 94-148 (Participating Agreements). Under Interim Directive FSH – ID 1909.13-2004-1, these assessments are no longer required.
Calculating Indirect Costs
Depending on the situation, the Forest Service currently uses either the national burden rate or the marginal burden rate to calculate and recover indirect costs from partners. The national burden rate applies to Forest Service work that is normal, recurring, and outlined in an existing long-term agreement. The marginal burden rate applies to projects in which the work is not considered normal and recurring and is not part of a unit's typical annual program of work. For 2005, the national burden rate is 17.8 percent, and the marginal burden rate is 3.3 percent.
The burden rate is assessed against the total value of services being provided. The base costs that the burden rate is applied against may be reduced if:
- Agreements include contracts or procurements.
- A previous national agreement specifies a reduced burden rate, such as interagency fire agreements.
- The national burden rate does not accurately reflect the true indirect costs of operations, such as a research station.
- The agreement represents a pass-through of funds directly to another organization.
- FSM 1580 or the Program Direction for the current Fiscal Year identifies a specific situation, other than those above, where a reduction of the burden rate may be considered.
Forest Supervisors and Research Station Directors now have the authority to waive the agency's indirect costs under the following circumstances:
- For work performed on behalf of or in cooperation with other federal agencies, provided the waiver is applied mutually between the respective agencies and the work is in the interest of the cooperating agencies.
- For work performed in cooperation with state or local agencies, if funds for the performance of this work are provided by other federal agencies to the state and local agencies.
- If the indirect burden is less than $1,000.
If a waiver is granted, it must be clearly documented and stated in the agreement. Forest Service personnel are required to make every attempt to negotiate and recover indirect costs, and exemptions should be the exception rather than the rule.
The agency's indirect costs cannot be waived under the following circumstances:
- For work performed for a third party as required by contract or permit.
- For work performed to restore or rehabilitate lands affected by the partner's activities.
- When the financial burden on the Forest Service is more than the benefits received by the agency.
These are expenses that can be specifically attributed to the delivery of a Forest Service program or its output and accomplishments. Because program management is an integral part of the production of an output, it is considered a direct cost. Direct costs are charged directly to a program. Direct costs include, but are not limited to:
- Personnel costs including salary and benefits, training, travel, Office of Workers' Compensation Program, and Unemployment Compensation Insurance for employees involved in the production of outputs.
- Material, supplies, and equipment costs incurred in the production of outputs.
- Other costs associated with these employees such as office space, computer equipment, and utilities.
These are joint or common expenses that are necessary for the operation of the Forest Service, but not specifically identifiable with or traceable to a specific output. Indirect costs may include the following:
- Personnel costs including salary and benefits, training, travel, Office of Workers' Compensation Program, and Unemployment Compensation Insurance for certain employees involved in general management, business management, budget, and finance.
- Material, supplies, and equipment costs incurred by more than one program area for the employees described above.
- Other costs associated with these employees such as office space, computer equipment, and utilities.
This is an agreement between parties where the performing entity agrees to provide the resources and perform services on behalf of the paying entity. The paying entity pays for the resources and services provided on its behalf by the performing entity. Costs are borne initially by the performing entity. They are forwarded to the paying entity for reimbursement, in accordance with the terms of the agreement (see also FSM 1580).
Examples
The following examples describe how the agency would calculate indirect costs for typical situations involving grants.
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A wildlife biologist applies for a $100,000 grant for wildlife surveys. The grant does not restrict funds and therefore can be applied to indirect costs. The wildlife biologist includes the indirect rate in the project budget submitted. The grant is awarded. This is the optimal situation as total cost recovery is achieved.
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A wildlife biologist applies for a $100,000 grant for wildlife surveys. The grant criteria state that grant funds cannot be used for indirect costs. The grant is awarded and the funds are used to hire seasonal employees through the Forest Service. The national burden rate is assessed at 17.8 percent. Because the burden rate cannot be waived, the program benefiting from the work is required to recover $17,800 from the program account.
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A wildlife biologist applies for a $100,000 grant for wildlife surveys. The proposal states, “$80,000 of the grant will fund a third party contractor and $20,000 will fund Forest Service labor activities.” The grant is awarded. In this case, only the grant funds assigned to the Forest Service workforce ($20,000) would be assessed the 17.8 percent rate, or $3,560.
Determining the Appropropriate Indirect Cost to be Borne by a Potential Cooperator
This flowchart illustrates the steps that Forest Service personnel go through to calculate or waive indirect costs.