This report, Investing for Impact: Indirect Costs are Essential for Success, addresses how governments that hire charitable nonprofits to deliver services and then reimburse them for less than reasonable indirect costs undermine the ability of nonprofits to deliver high quality services. It reviews research documenting that such an approach erodes communities and contracting relationship while ensuring higher-performing partners and cost savings for taxpayers.

Studies reveal that the usual range of overhead rates for for-profit companies and nonprofit organizations alike is approximately 25 percent to 35 percent. Yet, governments have historically treated nonprofit organizations differently, imposing arbitrary restrictions on reimbursement rates that undercut the ability of their partners to succeed on behalf of taxpayers. Unrealistic limits on reimbursement of a nonprofit’s legitimate costs undermine its efficiency, effectiveness, and ability to perform vital services on behalf of the governments.

• Full Report

Additional Resources

• Toward Common Sense Contracting: What Taxpayers Deserve (May 2014)
• A Dozen Common Sense Solutions to Government-Nonprofit Contracting Problems (December 2013)
• “Treatment and Reimbursement of Indirect Costs Vary among Grants, and Depend Significantly on Federal, State, and Local Government Practices,” Government Accountability Office (May 2010).
• “Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform,” William Bedsworth, Ann Goggins Gregory, Don Howard, The Bridgespan Group, (April 2008).

State by State

• State-Specific Grantmaking and Contracting Reform Resources