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Indirect vs. Direct Costs

Mott Foundation Policy Regarding Indirect Costs

The Mott Foundation does not have a written indirect cost policy. Mott prefers to fund direct project costs, but understands that, particularly with smaller organizations, the recovery of indirect costs is a necessity. The Foundation calculates indirect costs as a percentage of direct project costs. Indirect cost percentages are up to the discretion of the program officer. If the percentage appears reasonable, the Foundation usually approves the inclusion of indirect costs in the budget.

If indirect costs exceed 20 percent of direct costs, the program officer will pursue the matter with the grantee. If the grantee can provide justification for the amount, it may be accepted and the grant approved. If the grantee's explanation is insufficient to justify the higher rate, the grantee will be notified that its grant request may not be approved.

Indirect vs. Direct Costs

Direct costs are those for activities or services that benefit specific projects, e.g., salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.

Indirect costs are those for activities or services that benefit more than one project. Their precise benefits to a specific project are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the director of an organization benefit a specific project.

It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor costs, for example, can be indirect, as in the case of maintenance personnel and executive officers; or they can be direct, as in the case of project staff members. Similarly, materials such as miscellaneous supplies purchased in bulk — pencils, pens, paper — are typically handled as indirect costs, while materials required for specific projects are charged as direct costs.

Examples

Costs usually charged directly

  • Project staff
  • Consultants
  • Project supplies
  • Publications
  • Travel

Costs either charged directly or allocated indirectly

  • Telephone charges
  • Computer use
  • Project clerical personnel
  • Postage and printing
  • Miscellaneous office supplies

Costs usually allocated indirectly

  • Utilities
  • Rent
  • Audit and legal
  • Administrative staff
  • Equipment rental