Relating to indirect costs charged to state-funded grants, and including applicability provisions

This bill provides that indirect costs, as defined in the bill, charged to a state-funded grant awarded or amended on or after July 1, 2026, must not exceed 5 percent of the total grant amount and prohibits a department or establishment from approving a budget or reimbursement request that would exceed that limit unless expressly authorized by law. A grantee is prohibited from reclassifying an indirect cost as a direct cost and from charging an indirect cost on top of a direct cost that includes an allocable share of indirect costs. For purposes of Code chapter 8, a department or establishment is an executive department, commission, board, institution, bureau, office, or other agency of state government, that uses, expends, or receives any government funds, excluding the courts and the general assembly. A grant budget must list indirect costs and direct costs separately and a budget narrative must explain the basis for the indirect cost calculation. A grantee must maintain records related to indirect costs for a minimum of 10 years. An allocation method that allocates indirect costs across multiple funding sources must be reasonable, consistent, and compliant with generally accepted cost allocation principles. The methodology must be documented and provided to the department or establishment upon request. The bill requires a department or establishment to incorporate the provisions of the bill into each grant solicitation and agreement, ensure grant budgets are compliant, and implement controls to prevent payment of indirect costs in excess of the cap. The department of management (DOM) must adopt rules to implement the bill and DOM’s office of grants enterprise management must issue implementation guidance to promote uniform application of the bill. The bill requires a department or establishment to recover amounts paid for disallowed indirect costs through offsets against future payments under the grant, repayment by the grantee, or other means provided in the grant agreement and applicable law. A department or establishment may require a grantee that exceeds the cap to implement a corrective action plan and revised allocation methodology. The bill authorizes a department or establishment to adopt a lower cap on indirect costs under certain circumstances if the cap is stated in the grant solicitation and agreement. The bill’s provisions do not supplant federal requirements for federal moneys included in a grant.