The expenses of a nonprofit organization can be complicated behind the scenes; from electric bills to technical support, they can burden an organization, especially if they are receiving project grants, and not general operating support. That’s where indirect cost (IDC) rates come in; they allow organizations to operate sustainably by covering the operational fees necessary for them to fulfill their project’s objectives.
Today, my colleagues and I are proud to announce that effective January 1, 2023, the Ford Foundation will raise its minimum indirect cost (IDC) rate applicable to eligible project grants from 20% to 25% —or to an even higher rate, under certain circumstances. This increase will allow us to fully cover indirect costs on the vast majority of our project grants and ensure that our grantees have the flexibility and support to cover the true cost of their work.
As ever, our goal is to fund the individuals, institutions, and ideas challenging inequality in all of its forms—and, for too many grantees, indirect costs like utilities and legal assistance are barriers to ensuring the longevity of their work. For many years, funders have largely overlooked indirect costs, perpetuating what’s been dubbed the nonprofit starvation cycle. This cycle centers grantmaking around the allure of new projects without allocating support for basic necessities—in other words, not allowing for vital funds our grantees need to ensure their long-term financial security.
At the Ford Foundation, we are committed to ending that cycle—and we believe adjusting our IDC rate is a significant step towards this and better centering our grantees’ needs. This is also the latest step in our nearly decade-long journey to reckon with the true costs of philanthropy and leverage the full power of our assets to meet them. Since 2016, we have introduced several reforms to increase flexibility and hold ourselves accountable to the needs of our grantees, starting with the ongoing expansion of our unrestricted support and continuing with the launch of our BUILD program, which issues unrestricted support to select grantees in five-year commitments to aid their institutional growth and development. Overall, since 2016, the proportion of our grantmaking made in the form of general or core support has gone from 36% to 81%.
We are not alone in trying to create more funding flexibility for these organizations. As members of the Funders for Real Cost, Real Change collaborative, a consortium of 12 foundations committed to ending the nonprofit starvation cycle, we have worked collaboratively to unlock general support resources and move the sector toward a pay-what-it-takes model that reflects the true expenses needed to advance nonprofit organizations’ work. We are proud to collaborate with this visionary network to share best practices and insights—and we urge other leaders to join us in the years ahead.
Together, let’s continue to do all we can to support and uplift our grantees and sustain the full cost of their leadership, now and into the future.
Please visit our Frequently Asked Questions for more information about our indirect costs commitment.