The current approved indirect cost rate methodology allows for the full total expenditures of regular purchased service contracts to be used in calculating and applying indirect cost rates.  Further, only the first $30,000 of expenditures of purchased services deemed subawards are to be used in calculating and applying indirect cost rates.

Therefore, each school district, open-enrollment charter school, and educational service cooperative must submit a list of all subawards to the ADE Federal Finance Unit each year.  ADE will exclude expenditures above $30,000 for each of these identified items from its process when calculating the indirect cost rates for the LEA.  This list should match what the district excluded when applying the 2021-22 indirect cost rate.

The difference between a regular purchased service contract and a subaward is found in the level of administrative work required by the LEA when executing the arrangement.  A subaward requires little to no administrative effort by the LEA.  A regular purchased service requires more administrative effort by the LEA.  An actual subaward would resemble an independent contractor arrangement, where an outside vendor works autonomously to complete the tasks assigned them by the agreement with the LEA.  Additionally, to be a subaward, the contract should involve specific program objectives, not an organization-wide support function, and not provide an auxiliary service normally provided in-house.

ADE has assembled some written guidance from USDE Indirect Cost Group and attached to this memo as “Subaward Guidance” in an effort to assist LEAs in making this distinction within their expenditure data.  Also attached is a short list of “Subaward/Non-Subaward Examples” that are being compiled as new instances are reported. While these are basic guidelines, determining what constitutes a subaward is subjective and will differ from district to district.

ADE Federal Finance is now beginning work on 2023-2024 indirect cost rates.  These rates will be based on expenditures from fiscal year 2021-2022.  The LEAs must provide ADE Federal Finance with the subaward data contained in the 2021-22 expenditures for consideration in these rate calculations.  The “Schedule of Subcontracts/Subawards” form is available at https://dese.ade.arkansas.gov/Offices/fiscal-and-administrative-services/school-funding/indirect-cost .  The form must be received from every school district, educational cooperative, and open-enrollment charter school. 

ADE Federal Finance will provide as much assistance as possible to districts working to identify subawards.  If specific situations require case-by-case examination, the LEA is encouraged to contact the unit directly.

Completing the form:

1. Select name from dropdown list at the top of the form
2. Confirm the fiscal year of expenditures being reported on the third line
3. Fill in information required in the first six columns, one line for each individual purchased service contract determined to be a subaward with expenditures over $30,000 in the year
4. If no subawards are active in the expenditure data for the year, check the box indicating the LEA has no subawards

Return to ADE Federal Finance by December 30, 2022

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