The Center selected the MacArthur Foundation to receive the Nonprofit Excellence Award for nearly doubling the indirect cost recovery of 29% of project costs on all new project grants.
The new policy is based on a research study the Foundation commissioned using IRS Form 990 data from more than 130,000 U.S.-based nonprofit organizations. The study sought to establish a benchmark for the Foundation’s grantmaking by understanding the indirect cost rates of financially healthy organizations. The study found that the minimum indirect cost rate associated with financially healthy organizations in the dataset is 29%.
MacArthur Foundation President John Palfrey said, “Nearly two years ago, MacArthur set out with four peer foundations to determine whether we were doing enough to help our grantees cover indirect costs when we award grants for specific projects. Through this work, we learned that our Indirect Cost Policy fell short. The essential costs necessary to operate and run the projects we supported were not being covered.”
By adopting this policy, the Foundation aims to be explicit, transparent, and equitable across fields and organizations. More learning and iteration are anticipated to improve this policy over time. Their goals include:
- Supporting grantees to accomplish the purposes of the project
- Structuring awards according to financial need and costs associated with a project
- Paying the direct costs of grant projects plus a fair share of associated indirect costs
- Promoting effective and efficient allocation of resources
- Acting with consistency and fairness across grantees
This Indirect Cost Policy applies only to project grants awarded to nonprofit organizations.
Grants not eligible for indirect cost recovery include (1) general operating support grants; (2) endowment grants; and (3) grants made to large, well-established organizations for the purposes of supporting the general operations of a separately managed center.
Over time, the funder collaborative the MacArthur Foundation is part of will seek to engage more funders, grantees, and intermediaries. Their hope is that the collective efforts of several funders committed to examining the true cost of project grants and working to destigmatize and correct misconceptions regarding overhead expenses will lead to more funders adopting similar approaches.
These basic expenses are not only necessary to carry out the work but to grow and increase the impact of that work. The MacArthur Foundation hopes to partner with their peers to help the sector clarify an indirect cost calculation — so grantees are better positioned to tell their financial story to funders and foundation staff are well-equipped to support grantees’ work.
Click here to view the MacArthur Foundation’s Changing How We Support Indirect Costs or the full Indirect Cost Policy.
About The Nonprofit Excellence Award
The Nonprofit Excellence Award was created by The Center to celebrate the nonprofits, funders, and industry experts who inspire us and change the world. Recipients are automatically entered into an exclusive lottery for a complete suite of OpX360® Smart Tools to use themselves or to donate to the nonprofit of their choice.
Co-Founder Bob Lipps says, “We are committed to nonprofit excellence and celebrating the bright spots is one way we can help develop a thriving nonprofit community. John Palfrey and the MacArthur Foundation are attempting to write a new standard of excellence in foundation giving and an example worth following. Kudos to John and his team!”
Do you know a nonprofit, funder, or industry expert deserving of the Nonprofit Excellence Award?
If you do, please leave a comment or message me. Recipients of the Nonprofit Excellence Award must demonstrate excellence in nonprofit breakthrough, boldness, or benevolence and preferably all three.
