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This post discusses pre-award proposal development cost recovery in Federal grants. It is one of an ongoing series on Grant Writing as a Career. Earlier posts discussed other aspects of retaining and paying for grant writing consultant services.


In either of three ways, both as applicants and clients, educational institutions and non-profit organizations, may recover costs for retaining a consultant to develop a proposal for a Federal grant.


Educational Institution Proposal Cost Recovery:

Federal cost principles offer guidance for applicants that hope to pay for a consultant out of a future grant award. In OMB Circular A-21 – Cost Principles for Educational Institutions – the key provisions are J36 (pre-agreement costs) and J38 (proposal costs).


In simple terms, a ‘proposal cost’ is a cost of preparing a proposal on a potentially federally funded project, including the cost of developing data necessary to the proposal. An applicant may recover such a cost if the grant-making agency allows and approves recovery of such ‘pre-agreement costs’ in its request for proposals (RFP).


In a proposed budget, a line item would appear under the cost category of ‘consultants.’ For the benefit of the proposal’s technical reviewers, a meticulous applicant would explain this line item in its budget justification narrative.


Cost Recovery Using Indirect Cost Rates:

A second way for educational institutions to recover costs under OMB Circular A-21 is through an indirect cost rate. Using one, an applicant may recover the pre-application costs of hiring a consultant to develop a proposal to a Federal grant program that does not explicitly pre-approve charging such costs directly to a future grant award in a specific RFP. The applicant must take several steps in order to do so.


First, an applicant must apply to a Federal agency to establish an indirect cost rate. Second, it must spread its pre-application costs (e.g., those for developing a proposal) over its entire indirect cost structure. Third, it must apply its costs for preparing each proposal – as represented in its approved indirect cost rate – to each grant it obtains, but only do so when a grant program allows application of an indirect cost rate, since some programs do not. All such recovered costs must satisfy the test of being ‘reasonable and equitable.’ The applicant cannot allocate pre-application costs incurred during a previous accounting period into a current accounting period.


The use of an indirect cost rate allows the educational institution, as a client and an applicant, to recover its proposal development costs for both successful and unsuccessful grant applications. Federal agencies provide extensive guidance for calculating indirect cost rates.


Non-Profit Organization Proposal Cost Recovery:

A non-profit organization (NPO) must take a third approach in order to recover pre-award costs for proposal development. At present, OMB Circular A-122, Cost Principles for Non-Profit Organizations, does not enable it to adopt the same approach as an educational institution to using indirect costs. Instead, in order to become an allowable cost item, the NPO must propose pre-award proposal development costs as part of an indirect cost rate proposal. In addition, a cognizant Federal agency (i.e., one that negotiates and approves indirect cost rates for a non-profit organization on behalf of all Federal agencies) must approve its proposed indirect cost rate.


Proposal Development as Capacity Building:

A client may also apply for capacity-building grants from private foundations. Among the allowable purposes of such grants is commonly advancing an eligible applicant’s mission through ‘fund development’. This will be the focus of a later post.


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