Careful consideration of the costs, both direct and indirect, is required for extramural funding requests. These criteria not only apply to Federal awards, but also by definition costs on all sponsored programs must be treated under “like circumstances and with consistency”. Failure to follow jeopardizes all future funding. All costs included in a sponsored program budget must be evaluated against the following criteria as listed in the OMB Circulars.
To be allowable under Federal awards, costs must meet the following general criteria:
(a) Be reasonable for the performance of the award and be allocable thereto under these principles.
(b) Conform to any limitations or exclusions set forth in these principles or in the award as to types or amount of cost items.
(c) Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the organization.
(d) Be accorded consistent treatment.
(e) Be determined in accordance with generally accepted accounting principles (GAAP).
(f) Not be included as a cost or used to meet cost sharing or matching requirements of any other federal award.
(a) A cost is allocable to a particular Federal award if the goods or services involved are chargeable or assignable to that award in accordance with relative benefits received.
(b) All activities which benefit from the non-Federal entity’s indirect (F&A) cost, including unallowable activities and donated services by the non-Federal entity or third parties, will receive an appropriate allocation of indirect costs.
(c) Any cost allocable to a particular Federal award under the principles provided for in this guidance may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by law or terms of the Federal awards, or for other reasons. However, this prohibition would not preclude non-Federal entities from shifting costs that are allowable under two or more awards in accordance with existing program agreements, Federal legislation, or regulation.
(d) Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects 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, then, notwithstanding paragraph (c), the costs may be allocated or transferred to benefitted projects on any reasonable documented basis.
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. In determining reasonableness of a given cost, consideration shall be given to:
(a) Whether the cost is a type generally recognized as ordinary and necessary for the operation of the non-Federal entity or the proper and efficient performance of the Federal award.
(b) The restraints or requirements imposed by such factors as: sound business practices; arm’s-length bargaining; Federal, state and other laws and regulations; and terms and conditions of the Federal award.
(c) Market prices for comparable goods or services for the geographic area.
(d) Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, the public at large, and the Federal government.
(e) Significant deviations from the established practices and policies of the non-Federal entity regarding the incurrence of costs, which may unjustifiably increase the Federal award’s cost.