Uniform Guidance (2 CFR § 200.403) establishes standards for the allowability of costs (aka “Cost Principles”) that can be charged to a federally funded sponsored project. These Cost Principles, along with sponsor and applicant requirements, should form the basis for determining if a cost can be charged to a federal award.     

For a cost to be allowable, it must meet all of the following criteria:

• Be necessary and reasonable for the performance of the federal award and be allocable to the award. A cost is necessary if it supports an item or activity essential to the scope of work and can be allocated to the award, whereas a cost is reasonable if, by 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 (2 CFR § 200.404).
• Conform to any limitations in the federal award.
• Be accorded consistent treatment, meaning a cost may not be assigned to a federal 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.
• Be consistent with policies and procedures that uniformly apply to federally funded activities and other non-federal activities.

In addition to the criteria above, the cost must not also be used to meet a cost sharing or matching requirement on a federally funded program, should be adequately documented, and should be incurred during the approved budget period.

The following example will be used to explore how to apply cost principles for determining allowability:

Dr. Smith has an award from the National Science Foundation (NSF) to study how computers learn. In order to accomplish the proposed scope of work, Dr. Smith proposed 20% effort of her institutional effort to work the project and requested a dedicated computer to study how computer algorithms change over time. Dr. Smith also requested funds to disseminate the project results at the International Society for Performance Improvement (ISPI) annual conference in Austria and funds to cover dependent care costs while she is presenting at ISPI.

Salary and Fringe Benefits

Costs for Dr. Smith’s salary and associated fringe benefits support the proposed work and can be allocated to the project, thereby meeting the definition of ‘necessary.’ In order to meet the definition of ‘reasonable,’ the salary related to Dr. Smith effort should be based on her institutional base salary (IBS) and the amount of time she worked on project activities. More on IBS can be found in CSU Policy: Institutional Base Salary. Fringe benefits should be based on CSU’s negotiated fringe rates.

In general, costs associated with salary and fringe benefits are allowed by the program under which Dr. Smith received her award and therefore meet the test of ‘conformity’. 

Costs associated with Principal Investigator salaries and fringe benefits are consistently treated as direct costs on both federal and non-federal agreements, meeting the definition of ‘consistency’.

Computing Devices

The cost for Dr. Smith’s computer should be justified as being necessary for the performance of the project and should have prior sponsor approval. Costs for computing devices should be charged in accordance with current market values based on computing needs to accomplish the scope of work and allocated appropriately. See OSP’s Guidance on charging computing devices as a direct cost on a federal award.

Travel for Result Dissemination

One might question whether travel to an international conference is necessary for the performance of the proposed work. Most federal sponsors view the dissemination of project findings as an important part of the scholarly process, passing benefits of the federally sponsored project to other researchers, educators, practitioners, and the public. Check sponsor guidance on allowability of costs associated with dissemination of results and estimate costs based on current market values, CSU’s travel guidance, and any award limitations. Additionally, international travel should have prior sponsor approval and comply with the Fly America Act and CSU’s International Travel policy.

Dependent Care Costs

While some sponsors will allow for temporary dependent care above and beyond regular care resulting from travel to conferences, allowability depends on consistency with institutional policies and procedures. CSU does not provide for dependent care during travel, therefore dependent care is not an allowable cost and should not be budgeted or incurred.

Because every charge to a sponsored award must meet the definition of allowability, it is important to be mindful of all of the factors that affect the allowability of costs when deciding allowability.