Adjusting for overhead rate cuts

^{Published on 2/14/2025}

As the new administration looks to create greater efficiency in government spending, one area where federal grantees may see spending cuts is in overhead costs. (For example, the NIH has issued a reduction in the overhead applied rate(Opens a new window)(Opens a new window)(Opens a new window)  to 15% for research institutions via notice number NOT-OD-25-068; the change is currently on hold pending a legal challenge, and those potentially affected should monitor developments closely.)  

If your organization could be facing a rate cut, we recommend the following: 

• Revisit your indirect rate structure and undergo an optimization exercise to further analyze your current cost structure.
• Identify areas where costs can be reduced without compromising work quality. 
• Review your cost accounting practices to make sure that all allowable direct costs are being captured and billed as direct instead of indirect (overhead/G&A). 
• Continue billing direct costs as usual, as these are not affected.

Termination of government grants and contracts

^{Published on 2/7/2025}

When facing potential termination, it’s important for government contractors and grant recipients to carefully review their specific terms and conditions, and start planning to mitigate unallowable costs.

Read our full article.

Preparing for potential federal funding pauses

^{Published on 1/31/2025}

While January’s first funding pause memo was rescinded, we expect to see continued changes toward the new administration’s goal of reducing federal spending. 

Therefore, we recommend that government contractors take the following immediate actions:

• Contact the government award officials for guidance on how to proceed with the scope of work. This is critical in order to avoid performance issues that could result in termination for non-compliance with performance requirements. 
• Conduct a review of current grants/loans/financial assistance awards:
  • Understand your compliance requirements and performance obligations. 
  • Outline the scope of purpose and each award. 
  • Assist the agency in identifying ways to continue work on federal grants or awards, aligning with new priorities and requirements. 
  • Provide analytical support to agencies as they review and realign their financial assistance programs in accordance with the new memorandum. 
  • Be prepared to accumulate and track direct costs under separate charge codes in preparation for a potential termination or other impact. 
• Get your invoices in, as outlined in 2 CFR 200.305(b)(3) the agency or pass-through entity must make payment within 30 calendar days after receipt of the payment request. 
• Connect with your government contract or legal advisors on potential next steps and risks associated with those steps.

Find additional guidance in CohnReznick’s broader article Navigating federal funding uncertainty: What to consider.