Program Letter 2021-01

Indirect Costs and Special Grants
Lynn Jennings, Vice President for Grants Management
March 12, 2021


Beginning with special grants awarded after January 2021, LSC will allow grantees to charge both direct and indirect costs to newly awarded LSC special grants. Entities applying for or receiving special grants should follow their normal accounting practices for both indirect and direct costs associated with special grants. For special grants awarded before January 2021, grantees will follow their already approved budgets, unless instructed otherwise by the LSC staff liaison for the grant.


“Basic field grants” are grants awarded by LSC to support the provision of general civil legal assistance in a geographic area and, in some cases, to specific populations in that area such as Native American communities or agricultural worker communities.

“Special grants” are grants other than basic field grants that are awarded by LSC to support the provision of legal assistance with funds appropriated by Congress. Currently, LSC awards the following categories of special grants:

  • Technology Initiative Grants
  • Pro Bono Innovation Fund Grants
  • Disaster Relief Emergency Grants
  • Pandemic Relief Grants (COVID-19 Response Grants and Telework Capacity Building Grants)

“Direct costs” are defined at 45 C.F.R. § 1630.5(d) as costs “that can be identified specifically with a particular grant award, project, service, or other direct activity of an organization.”

“Indirect costs” are defined at 45 C.F.R. § 1630.5(e) as costs “that have been incurred for common or joint objectives and cannot be readily identified with a particular final cost objective.”

“Indirect cost rates” are ratios between the total indirect costs of an applicant and some equitable direct cost base (e.g., modified total direct costs (MTDC) are used in federal grants as part of determining and distributing indirect costs—2 C.F.R. Part 200).

45 C.F.R. Part 1630 provides additional information regarding direct and indirect costs chargeable to LSC grants. Part 1630 applies equally to both basic field grants and special grants.

Policy Change

Since 2000, LSC has prohibited charging indirect costs to most special grants. When it applied, the prohibition appeared in the budget instructions in the application materials. That policy focused the use of special grant funds on the direct costs of the funded activities. Upon review, LSC has determined that the benefits of this prohibition are not significant enough to justify deviating from the normal cost rules in Part 1630. LSC will discontinue the categorical prohibition on indirect costs for special grants awarded after January 1, 2021. Nonetheless, LSC may set caps or additional rules regarding costs, direct or indirect, in specific special grants, as needed.


A.    Special Grants Awarded After January 1, 2021

For special grants awarded after January 1, 2021, both direct and indirect costs may be charged to the grant pursuant to Part 1630 and following a grantee’s normal accounting and cost allocation practices. Unless stated otherwise, special grants will not prohibit charging indirect costs to the grant.

Special grant budgets are proposed in applications and reviewed by LSC staff. Awarded special grants include a budget, as agreed to by LSC and the grantee. Charges to the special grant must follow all LSC requirements and any additional requirements for the special grant.

Special grant budgets should include all direct and indirect costs associated with the grant activities in the same way that the grantee would charge those costs to a basic field grant. Grantees should apply their budgeting and cost rules uniformly to all LSC grants.

Because special grants do not normally fund a full range of services (unlike basic field grants), grantees should determine indirect costs using their current cost allocation practices as applied to the activities supported by the special grant. For example, grantees using indirect cost rates should determine an appropriate modified total direct cost base for the special grant. Thus, a special grant that funds solely the purchase of equipment will normally have much lower indirect costs than a special grant that funds solely staff.

Grantees should no longer exclude indirect costs from special grant budgets. Grantees should not plan to pay for a special grant’s indirect costs with LSC basic field grant funds unless instructed to do so by LSC and referenced in the approved special grant budget.

Grantees should consult with LSC’s programmatic and fiscal staff with any questions about budgeting in special grant applications.

B.    Special Grants Awarded Before January 2021

Special grants awarded before January 2021 already have LSC-approved budgets. Grantees should continue to follow those budgets unless directed otherwise by their LSC grant liaison.


Please contact LSC with any questions about this program letter.

General questions about costs:
Stuart Axenfeld
Deputy Director for Fiscal Compliance
Office of Compliance and Enforcement
(202) 295-1539
For specific questions regarding any special grant program, please contact your special grant liaison (for awarded grants) or the contact listed in the grant application materials (for grant applications).