Policy on Indirect Costs for Project or Program Grants
PurposeThe Hewlett Foundation is committed to working with grantees in a collaborative fashion –treating them as partners and seeking to facilitate rather than dictate what they do. As part ofthat commitment, we provide long-term, general operating support whenever possible and fundgrantees’ true costs when making restricted project or program grants. This policy statement on
indirect costs is intended to provide greater clarity for organizations submitting proposal
applications and budgets for project or program grants.
The Hewlett Foundation does not employ a fixed minimum or maximum rate for indirect costs.
When proposals require grantees to submit budgets with indirect costs estimates, we want theproposals to reflect the prospective grantees’ actual indirect costs for the project or program inquestion. Grant budgets that do not fully cover the indirect costs needed to support a grantee’swork – whether submitted because the grantee does not know the true costs, or because of anassumption that funders won’t pay them – give rise to what has been aptly named the non-profit
starvation cycle. That cycle is aggravated when funders accept these unrealistically low estimates
at face value, refuse to pay indirect costs, or impose arbitrary caps on what costs can berecovered. We want to avoid this pernicious cycle with our grantees.
We recognize that every grant has a unique purpose and structure and that costs vary dependingon many factors. We set each grant’s total amount in the context of our overall grantmaking
budget and funding priorities, and through a consultative process with the grantee. As part ofthat process, we intend for grantees to take the lead in determining how best to allocate those
grant dollars to direct and indirect costs.
Below we provide guidance for specific types of organizations and special cases, but weencourage grantees and potential grantees who have questions to consult with their Program
Officer at any time.
Definitions
The key differentiating factor between “direct” and “indirect” costs is whether the cost is
specifically required for the project or program to meet its objectives:
Direct costs are expenses directly incurred for the specific project or program being
funded. Examples include salaries for program staff, travel expenses, materials, and1August 2019consultants required to execute the grant. Expenses like these would not be incurred if
the project or program did not exist.
Indirect costs are overhead and administration expenses necessary to support anorganization’s general operation, which are thus shared across projects or programs.
Examples include rent and utilities, office furniture, computers and information systems,
and the costs of functions like development, finance and accounting, IT, HR, and legal.
Expenses like these would be incurred in some amount with or without a specific projector program grant. But, while not incurred solely because of a project or program, they
are necessary for the organization to execute it.
Policy by Type of Grantee Organization⎯ U.S. nonprofit organizations: We will either accept the indirect cost rate presented
in a grantee’s proposal or discuss it further with them if we need to learn more. We do
not set a fixed maximum or minimum allowable rate for cost recovery.
⎯ Universities: We will presumptively accept an indirect cost rate of 10% of the total
grant amount. If an indirect cost estimate exceeds 10% in ways that can be reasonably
and transparently attributed to costs fairly associated with the program or project inquestion, we may make an exception and accept an indirect cost amount greater than10%. Grantees should discuss such an exception with their Program Officer.
⎯ Regranting organizations: Grantees with regranting programs should include anindirect cost rate appropriate to the effort required to execute their sub-granting. We
strongly encourage these grantees to examine their own policies on indirect costs andfollow a similar practice of funding grantees’ actual indirect costs in their grantmaking.
⎯ Fiscal sponsors: Grantees serving as fiscal sponsors should include an indirect cost
rate appropriate to the specific project for which they are acting as sponsor and sufficient
to cover the administrative costs of that project.
⎯ Organizations located outside the U.S.: Accounting standards vary in othercountries, but we encourage grantee organizations working outside the U.S. to provide
an indirect cost estimate that fully covers the indirect costs needed to support their work.
⎯ For-profit organizations: The U.S. tax code requires that any grant funds awarded bya private foundation to a for-profit organization be dedicated to accomplishing acharitable, educational, or scientific purpose. The indirect cost estimate from for-profit
organizations should reasonably and transparently reflect all indirect costs attributable
to the charitable purpose of the grant, but only those specifically attributable to that
purpose.

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FAQs
Does this indirect cost policy apply to general operating support (GOS) grants?
No. Grants with the purpose of providing general operating support are flexible funds thatgrantees can use across their organizations. The indirect cost policy does not apply.
What is the difference between an “indirect cost rate” and an “overhead rate”?
This calculation of the rate differs according to which number is used as the denominator – i.e.
an indirect cost rate = indirect costs/direct costs, while an overhead rate = indirect costs/totalorganizational costs.
For purposes of simplicity we use indirect costs as the basis for this policy, but grantees may becreating budgets using an overhead calculation. We support either approach if the budget
adequately covers all the costs associated with executing a project or program.
What if I need help determining my direct versus indirect costs?
Here are two resources to help with cost allocation and creating a budget:• Program-Based Budget Builder: https://www.wallacefoundation.org/knowledgecenter/resources-for-financial-management/pages/program-based-budgettemplate.aspx• Cost Allocation Tool: accessible through the webinar “Untangling Multiple Views ofCost”: https://nff.org/learn/webinars
We also encourage grantees and potential grantees to consult with their Program Officer at anytime regarding the scope and budget for their project or program grant.
In what format should I submit my budget?
You can find a suggested budget template on our website. Please consult with your Program
Officer if you have questions about the format for your budget.
What is the difference between a “project” and a “program” grant?
Project grants are intended to support a defined and limited set of activities with a specificoutcome. The grantee is expected to develop and implement a work plan, which will be specified
in the grant proposal, and grant funds may be spent only on activities defined in that proposal.
Program grants are intended to support a body of related work, typically defined as a “program,”within an organization’s whole portfolio of activities. The grantee has flexibility to devote thegrant resources across activities within that body of work. Your proposal should explain theobjectives of the program and does not need to specify how Hewlett Foundation funding (versus
other sources of funds) will be spent within the program.

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August 2019