Guiding Cost Principles

Overview

This provides an overview of the Guiding Cost Principles related to Federal Sponsored Awards. Please see the Cost Principles Directives & Procedures on the University General Counsel’s website for the full Directives and for more information.

The guiding principles or criteria from the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards; Final Rule – 2 CFR Part 200 (i.e., the Uniform Guidance) shall be used to determine whether a cost can be charged to a Federal Sponsored Award. All factors must be met for a cost to be allowable to be charged to a Federal Sponsored Award.

In addition to the principles of reasonableness, allocability, and consistent as further described below, all charges must also:

1. Conform to any limitations or exclusions in the Federal award as to types or amount
2. Not be included as a cost or used to meet cost sharing or matching requirements of any other Federal Sponsored Award
3. Be adequately documented
4. Related to an action and/or in an amount deemed within the norms of business conduct (i.e., passes the “prudent person” test)
5. Consistent with established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost

Reasonable Costs

A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. For a cost to be considered reasonable, it must be:

1. Recognized as necessary for the performance of the Federal Sponsored Award
2. Consistent with the requirements imposed by arms-length bargaining, federal or state laws and regulations, and ethical business practices, and terms and conditions of the Federally Sponsored Award
3. Consistent with market prices for comparable goods or services for the geographic area
4. Related to an action and/or in an amount deemed within the norms of business conduct (i.e., passes the “prudent person” test)
5. Consistent with established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost

Allocable Costs

A cost is allocable to a Federal Sponsored Award if the goods or services involved are chargeable or assignable to that Federal Sponsored Award in accordance with the relative benefits received. For a cost to be considered allocable, it must:

1. Be incurred solely to advance the work under a Federal Sponsored Award, or
2. Benefit both the Federal Sponsored Award and other work of the institution, in proportions that can be approximated through the use of reasonable methods; and
3. Be assignable to the benefiting activities without undue effort or cost. Any cost allocable to a Federal Sponsored Award may not be charged to other sponsored awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal Sponsored Award, or for other reasons

Proportional Benefit Rule

Under some circumstances, a direct expense may benefit two or more sponsored awards or activities. When the cost’s proportional benefit towards each sponsored award and/or activity can be determined without undue effort or cost, then the cost should be allocated based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, the costs may be allocated on any reasonable documented basis. Where the purchase of equipment is specifically authorized under a Federal Sponsored Award, the costs are assignable to the Federal award regardless of the use that may be made of the equipment or other capital asset involved when no longer needed for the purpose for which it was originally required.

Costs Consistent in Treatment

For a cost to be considered consistent in treatment, it must:

1. Be consistent with policies and procedures that apply uniformly to both Federal Sponsored Awards and other activities of the University; and
2. NOT be assigned to a Federal Sponsored Award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost

Thus, since certain types of costs, such as the salaries of administrative and clerical staff, office supplies, and postage are normally treated as indirect costs, the same types of costs cannot be charged directly to Federal Sponsored Awards, unless the circumstances related to that award are clearly different from the normal operations of the institution. For salaries of administrative and clerical staff, these costs must be specifically included in the proposal budget or have prior written approval of the Sponsor.

Resources

2 CFR 200 Quick Reference Guide

Uniform Guidance 2 CFR 200

48 CFR 9905 – Cost Accounting Standards (CAS) for Education Institutions

Training

RSH260: Cost Principles

RSH206: Cost Principles Advanced Topics

Contacts

Cost Analysis: (352) 392-5778