Federal Cost Principles

Guideline Date: April 2015     Revision: 1     Last Review: August 2017

As governed by the Office of Management and Budget (OMB) Rule, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly called, "Uniform Guidance"), federal sponsored funds may be used to pay, as either "direct " or "indirect" (Facilities and Administrative or F&A) costs, for certain items associated with sponsored projects. Various types of "allowable" and "unallowable" expenditures for federal reimbursement are defined in the General Provisions for Selected Items of Costs section of the Uniform Guidance. "Allowable" expenditures are reimbursable by the federal sponsor.

Whether an item is allowable as a direct cost or an indirect cost is always clearly specified in the General Provisions for Selected Items of Cost. Indirect costs are incurred for a common or joint objective and, therefore, cannot be identified readily and specifically with a particular sponsored project, e.g., secretarial support. Direct costs are associated unambiguously with one or more projects, e.g., lab supplies. To qualify as a direct charge (one that can be posted directly to a sponsored account or accounts), a cost must pass the following tests:

  1. Reasonable - Per §200.404 of the Uniform Guidance, "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." The cost must be necessary to the University's operations and/or the sponsored project's performance, the purchase must be in compliance with established University policies, and the purchaser must be acting with due prudence in carrying out their responsibilities to the University. 
  2. Allocable - Per §200.405 of the Uniform Guidance, "a cost is allocable to a particular federal award or other cost objective if the goods or services involved are chargeable or assignable to that Federal award or cost objective in accordance with relative benefits received." A cost is allocable to a sponsored account if it is incurred solely in order to advance the work on the project.
  3. Adherence to Applicable Regulations and Policies - A cost must adhere to federal and sponsor regulations and to institutional policies and procedures.
  4. Consistent Treatment of Costs - A cost is treated consistently regardless of the source of funds; the University must be consistent in assigning costs to cost objectives. Salary, operating and tuition costs are examples of cost objectives.