2 CFR 200.400-475: SUBPART E-COST PRINCIPLES

When a sponsor awards funds to the University in support of specific programs and projects, it requires the University to manage those funds prudently to ensure that any costs incurred directly benefit the project accounts being charged.

The Federal Government is the largest sponsor of externally funded activity at the University. The cost principles relating to expenditures on federal awards are codified within the Code of Federal Regulations (CFR) Title 2 Part 200. These cost principles require that any expense charged to a federally sponsored project be reasonable and necessary, allocable, consistently treated, and conform to any limits or exclusions set forth in 2 CFR 200 or the terms and conditions of the award.

In simplest terms, the CAS are a series of federal regulations that provide guidance on costing practices for institutions in the management of sponsored awards. The Office of Naval Research (ONR) is the cognizant federal agency overseeing the administration of sponsored programs at the University of Delaware.

1. CAS APPLICABILITY

   Sponsored projects will be subject to CAS if any ONE of the following criteria is applicable:

   1. Federal awards
   2. Awards that contain any federal flow-through funds. This is likely determined by the presence of terms and conditions that reference federal guidance from 2 CFR 200 or have been assigned a catalog of federal domestic assistance (CFDA) number. If, after the award period has started, it is discovered that the project is funded with federal flow-through dollars, any unallowable direct charges will need to be removed from the project and charged to a non-federally sponsored purpose code or University purpose code.
   3. Awards where terms and conditions reference CAS.
   4. Funds being used as cost share on a CAS-covered project. Only the individual cost(s) being claimed as cost sharing would be subject to CAS.

   Irrespective of CAS applicability, most awards include either audit clauses and/or financial reporting requirements. These clauses allow for the review of supporting documentation for all expenditures. The supporting documentation should validate the relationship between the expenditure and the purpose of the award.

2. CAS AND F&A

   The University is reimbursed for a portion of those costs categorized as Facilities & Administrative Costs (F&A) 2 CFR 200.414. For Institutions of Higher Education (IHE) F&A costs must be classified within two broad categories, facilities and administration. Facilities are defined as depreciation on buildings, equipment and capital improvement, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses. Administration is defined as general administration and general expenses such as the director’s office, accounting, personnel and all other types of expenditures not listed specifically under one of the subcategories of Facilities. To directly charge those items included in UD’s F&A Cost Rate Proposal would constitute double charging the government for the same cost. In summary, the application of CAS addresses the following:

   • Don’t charge the federal sponsor for the same cost twice, AND
   • Don’t charge the federal sponsor for unallowable costs

   All awards, including those not covered under CAS, are still subject to the specific sponsor requirements listed in the award and to University policies and procedures. Even if an award is not subject to CAS, all expenditures must still be reasonable, allocable, and allowable.

   Costs that would normally be considered as F&A costs, such as administrative and clerical salaries, may be charged directly to non-federal awards if permitted by the sponsor’s policies or otherwise approved by the sponsor.

3. DETERMINING ALLOWABILITY, REASONABLENESS, AND ALLOCABILITY OF COSTS

   Allowable: (2 CFR 200.403) There are several factors affecting allowability of costs. These are found in subpart E : Cost Principles.

   These principles must be used in determining the allowable costs of work performed by the non-Federal entity under Federal awards. These principles also must be used by the non-Federal entity as a guide in the pricing of fixed-price contracts and subcontracts where costs are used in determining the appropriate price.

   All costs must be allowable under federal regulations and sponsor terms and conditions, including program-specific requirements and University policy. To be allowable, costs must be:

   1. Be necessary and reasonable for the performance of the Federal award
   2. Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items
   3. Be consistent with policies and procedures that apply uniformly to both federally-financed and other activities of the non-Federal entity
   4. Be accorded consistent treatment
   5. Be determined in accordance with generally accepted accounting principles (GAAP)
   6. Not included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or prior period
   7. Be adequately documented
      1. Expenditures are not allowable on federal awards if sufficient source documentation is not provided to support the expenditure. An expenditure will be deemed unallowable if it does not meet University of Delaware Procurement policy 3-7 University Travel and Business Hosting and policy 5-22 UD Credit Card regarding the retention of receipts and supporting source documentation.

   Reasonable: (2 CFR 200.404) 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 must be given to:

   1. Whether the cost is of a type generally recognized as ordinary and necessary for the operations of the non-Federal entity or proper and efficient performance of the Federal award.
   2. The restraints or requirements imposed by such factors as:
      1. Sound business practices
      2. Arm’s-length bargaining
      3. Federal, state and other laws and regulations
      4. Terms and conditions of the Federal award where applicable
      5. Whether the non-Federal entity significantly deviates from its established practices and policies regarding the incurrence of costs, which may unjustifiably increase the Federal award’s costs

   Allocable: (2 CFR 200.405) 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. This standard is met if the cost:

   1. Is incurred specifically for the Federal award
   2. Benefits both the Federal award and other work of the non-Federal entity and can be distributed in proportions that may be approximated using reasonable methods
   3. Is necessary to the overall operation of the non-Federal entity and is assignable in part to the Federal award in accordance with the principles in this subpart
   4. 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.
   5. Any cost allocable to a particular Federal award under the principles provided for in this part may not be charged to other Federal awards to overcome fund deficiencies, to avoid restrictions imposed by Federal statutes, regulations, or terms and conditions of the Federal awards, or for other reasons.
   6. 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 Item 2 of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis.

   Note: Reasonable methods of allocating common use scientific items and supplies may include proportional benefit, specific anticipated use per award, full time equivalents (FTEs) on each award, lab square footage, high correlation to another lab cost that is clearly allocated, and Modified Total Direct Cost (MTDC) proportions (i.e., relative size of non- salary budget, excluding equipment, tuition, and any subcontracts).

   Where the purchase of equipment or other capital asset is 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.

   Consistent: All costs incurred for the same purpose, in like circumstances, are either to be treated as direct costs or as F&A costs. According to 48 CFR 9905.502 this includes consistency in estimating, accumulating and reporting costs and consistency in allocating costs incurred for the same purpose.

4. PRIOR APPROVAL (2 CFR 200.407)

   Under any given Federal award, the reasonableness and allocability of certain items of costs may be difficult to determine. In order to avoid subsequent disallowance or dispute based on unreasonableness or nonallocability, the non-Federal entity may seek the prior written approval of the cognizant agency for indirect costs or the Federal awarding agency in advance of the incurrence of special or unusual costs. Prior written approval should include the timeframe or scope of the agreement. The absence of prior written approval on any element of costs will not, in itself, affect the reasonableness or allocability of that element, unless prior approval is specifically required for allowability as described under certain circumstances in the following sections of this part:

   1. 200.306 Cost sharing or matching
   2. 200.307 Program income
   3. 200.308 Revision of budget and program plans
   4. 200.332 Fixed amount subawards
   5. 200.413 Direct costs, paragraph (c)
   6. 200.430 Compensation – personal services, paragraph (h)
   7. 200.431 Compensation – fringe benefits
   8. 200.438 Entertainment costs
   9. 200.439 Equipment and other capital expenditures
   10. 200.440 Exchange rates
   11. 200.441 Fines, penalties, damages and other settlements
   12. 200.442 Fund raising and investment management costs
   13. 200.447 Insurance and indemnification
   14. 200.454 Memberships, subscriptions, and professional activity costs,
   15. 200.455 Organization costs
   16. 200.456 Participant support costs
   17. 200.458 Pre-award costs
   18. 200.462 Rearrangement and reconversion costs
   19. 200.467 Selling and marketing costs
   20. 200.474 Travel costs

   The university provides a budget justification template and guidelines to assist with requesting budget items that require prior approval in the proposal process. These documents may be found on here.

5. UNALLOWABLE COSTS

   Costs considered “unallowable” in accordance with various authoritative documents and the individual Sponsors must be identified and accounted for separately (CAS 9905.505). These costs must be excluded from federally sponsored awards and may not be budgeted, charged or reported to a sponsor. 2 CFR Section 200.420 through 2 CFR 200.475 “General Provisions for Selected Items of Cost” is to be applied in establishing the allowability of certain items involved in determining costs. These principles apply whether or not a particular item of cost is properly treated as direct cost or indirect (F&A) cost.

IT IS THE PRIMARY RESPONSIBILITY OF THE PRINCIPAL INVESTIGATOR, WITH SUPPORT OF THE RESPECTIVE DEPARTMENTAL RESEARCH ADMINISTRATOR TO REVIEW THESE BUDGETS AND DETERMINE IF ALL COSTS ARE ALLOWABLE AND ALLOCATED CORRECTLY BETWEEN DIRECT AND F&A COST CATEGORIES.

Listed below are additional clarifications for several specific cost issues on federal awards.

1. ADMINISTRATIVE AND CLERICAL SALARIES/WAGES/FRINGE BENEFITS (2 CFR 200.413 (c))

   The salaries of administrative and clerical staff should normally be treated as indirect (F&A) costs (2 CFR 200.413 (c)). Direct charging of these costs may be appropriate only if all of the following conditions are met:

   1. Administrative or clerical services are integral to a project or activity
   2. Individuals involved can be specifically identified with the project or activity
   3. Such costs are explicitly included in the budget or have the prior written approval of the federal awarding agency
   4. The costs are not also recovered as indirect costs

   The nature of the work or actual functions performed under a particular project should require an extensive amount of administrative or clerical support that is significantly greater than the routine level of such services provided by academic departments.

   The following are examples of when direct charging of administrative and clerical salaries/ wages and fringe benefits may be allowable (with adequate written justification in the proposal narrative and upon approval by the sponsor):

   1. Large, complex programs such as General Clinical Research Centers, Primate Centers, Program Projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions.
   2. Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting (such as epidemiological studies, clinical trials, and retrospective clinical records studies).
   3. Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
   4. Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).
   5. Projects geographically inaccessible to normal departmental administrative services, such as research vessels, radio astronomy projects, and other research fields’ sites that are remote from campus.
   6. Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocols; and multiple project-related investigator coordination and communications.

   All of these circumstances display, with relative ease and a high degree of accuracy, extensive amounts of administrative/clerical effort on a particular project (or in the case of a remote location, inaccessibility to normal departmental services). If the cost does meet the test of an extensive amount of administrative and clerical effort, but cannot meet the direct charge criteria stated above the cost must be recovered as an F&A cost. However, these examples do not constitute an exhaustive list, nor do they imply that direct charging of administrative or clerical salaries would always be appropriate for the situations illustrated in the examples.

   Routine account monitoring, proposal processing, typing of general correspondence, manuscripts or technical reports, ordering of supplies, and meeting/travel arrangements are not considered integral to the project or activity and such costs are recovered through the University’s F&A cost rate. Additionally, projects cannot be grouped together to meet the requirement that there be an extensive amount of support.

2. GENERAL OFFICE SUPPLIES

   The costs for general office supplies, including those incurred in support of routine activities associated with instruction, public service, research and other institutional activities (i.e. paper, pencils, pens, ink, toner cartridges, etc.), are normally treated as indirect (F&A) costs. Exceptions consist of instances where the purchase of the supplies is extensive in nature, specifically identified to the purpose of the project, and meets the definition of a direct charge.

3. COMPUTING DEVICES (2 CFR 200.453)

   Computing devices means machines used to acquire, store, analyze, process, and publish data and other information electronically, including accessories (or “peripherals”) for printing, transmitting and receiving, or storing electronic information (2 CFR 200.20). A computing device is a supply if the acquisition cost is less than the lesser of the capitalization level established by the non-Federal entity for financial statement purposes or $5000, regardless of the length of its useful life (2 CFR 200.94).

   Materials and supplies used for the performance of a Federal award may be charged as direct costs. In the specific case of computing devices, charging as direct costs is allowable for devices that are essential and allocable, but not solely dedicated, to the performance of a Federal award. The request to purchase computing devices on a specific award should be justified in the budget justification of the proposal submission. The justification should include why it is necessary (i.e., essential) to purchase the computing device for the scope of work and how the computing device will be used.

4. Postage

   Postage costs incurred in support of routine communication activities associated with instruction, public service, research, and other institutional activities should not be charged directly to sponsored accounts. Exceptions include cases where extensive postage is required in support of the technical goals and objectives of the sponsored award. For example, if the purpose of the project were to survey 1,000 high school students to determine their attitudes on violence in the school system, postage for the survey may be an allowable direct charge. These costs should be written in the proposal budget justification with an explanation as to the reason these should be direct charges and not treated as indirect (F&A).

   Mailing technical reports and other project deliverables are considered part of normal, routine business expenses and therefore are considered F&A costs. Postage costs include US Mail, Federal Express, UPS, etc. The difference between postage (F&A) and freight/shipping (direct) is driven by the item(s) being sent, not the means by which they are sent.

5. TELEPHONE AND VARIOUS OTHER COMMUNICATIONS

   Communication costs incurred in support of routine activities associated with instruction, public service, research and other institutional activities should not be charged directly against sponsored projects. For example, installation charges, recurring monthly use charges, local access calls, pagers, cell phones, etc., are normally considered F&A costs. Some exceptions may include: long distance calls, and fax long distance charges that are specific to a project and incurred for the sole direct benefit of the technical goals of the project.

6. MEMBERSHIPS and SUBSCRIPTIONS (200.454)

   Cost of an entity’s (UD’s) membership in business, technical, professional organizations/periodicals are allowable. Costs of (individual) memberships in civic or community organizations are allowable with prior approval by the Federal Awarding agency or pass through entity. Membership must be allocable and programmatically related to the project. These costs should be written in the proposal budget justification with an explanation as to the reason these should be direct charges and not treated as indirect (F&A).

7. PRINTING, BINDING, PUBLICATION AND COPYING (200.461)

   These costs are normally direct charges to sponsored awards given that the definition of a direct charge can be met. Publication costs for electronic and print media, including distribution, promotion, and general handling, are allowable. If these costs are not identifiable with a particular cost objective, they should be allocated as indirect costs (F&A) to all benefiting activities of the non-Federal entity.

   Page charges for professional journal publications are allowable where:

   1. The publications report work supported by the Federal award
   2. The charges are levied impartially on all items published by the journal, whether or not under a Federal award
   3. The non-Federal entity may charge the Federal award before closeout for the costs of publication or sharing of research results if the costs are not incurred during the period of performance of the Federal award

   With respect to copying costs, if using an external copy service, the invoice should be retained as documentation to support the charge. If using a departmental copier, charges must be a per copy charge and must be based on a cost study. In other words, you cannot charge the associated expenses of the copy machine such as toner cartridge, paper, etc. directly to a contract or grant due to allocation challenges among the many uses of the machine (i.e., contradicts “relative ease and a high degree of accuracy”). The per copy cost must be based on total utilization of all activities (research, instruction, public service and other), not just research usage. In addition you must maintain documentation of the use through a log. Copying of proposals or general correspondence not related to a specific project are not to be charged as direct costs.

8. EQUIPMENT (2 CFR 200.33, 2 CFR 200.89, 2 CFR 200.48, and 2 CFR 200.439)

   UD has defined equipment (versus supplies) for sponsored awards as follows:

   1. Capitalized Equipment – nonexpendable, tangible, personal property having a useful life of two years or greater and an acquisition cost of $5,000 or greater per individual item.Equipment Fabrication – occurs when multiple items that could be classified as supplies (some items may have acquisition costs of $5,000 or less) are purchased to create/fabricate an integrated unit of equipment having a total value of $5,000 or more. In these instances, the individual purchases should be budgeted and accounted for as capitalized equipment.

   Non-capitalized equipment, or supplies, is defined as nonexpendable, tangible, personal property having a useful life of less than one year AND an acquisition cost of less than $5,000 per individual item.

9. SERVICE CENTERS

   Costs identified to a particular sponsored project for the use of University-owned labs and other service centers should be budgeted, charged, and reported as direct costs. These charges must be based on actual utilization supported by adequate documentation. These charges must also be based on a usage rate approved by the Office of the Vice President for Finance & Deputy Treasurer. The rate must be approved before the charge is incurred by the sponsored projects.

10. COST SHARING

    A cost used to meet the cost-sharing commitments of a sponsored project will be allowed only to the extent that the charge would meet the criteria as a direct charge. In addition to the specific criteria discussed above, the charge must be allowable under the particular facts and circumstances of the award. If the cost would be classified as an F&A charge, it will not be allowed to meet the cost sharing commitments of that particular project.

11. FUNDING DELAYS

    Direct or F&A costs should only be charged to a particular project if they relate to the project. Delays in receipt of future funding are not justification for charging costs to an unrelated project. If charges are necessary before the receipt of the funding, a request for a pre-award should be made through established procedures.

1. QUESTIONS REGARDING ALLOWABILITY OF COSTS

   If you have a question regarding the allowability or allocability of a cost to a sponsored project, please utilize the resources below to determine an answer:

   1. Department Administrator
   2. College Business Officer
   3. OSP Contract and Grant Specialist
   4. OSP Sponsored Research Accountant

   If there is a disagreement between the individuals listed above regarding the allowability or allocability of a cost to a sponsored project, please send an email to the Associate Deputy Provost for Research Administration, Jeff Friedland at jeffreyf@udel.edu. The Associate Deputy Provost will engage the appropriate individuals to make a determination regarding allowability and/or allocability of the cost to a sponsored project. The individuals who may be engaged in this determination are the Manager, Federal Cost Accounting in the Office of the Vice President for Finance & Deputy Treasurer; the Associate Deputy Provost, Research & Regulatory Affairs; and the Deputy Provost, Research & Scholarship.

2. PROCEDURE FOR ALLOCATING UNALLOWABLE COSTS

   If, prior to charging a cost to a project, the cost is determined to be unallowable or unallocable and therefore not appropriate to be charged to a federal award, it must be charged to a non-federal sponsored project as appropriate, which may include a faculty discretionary, department, college, or university purpose code. If a cost that has been charged to a federal award is later determined to be an unallowable or unallocable cost for that federal award, the cost must be immediately transferred to an appropriate non-federal sponsored project.

If there are unusual circumstances, the costs normally considered to be indirect costs may be charged as direct costs. These would typically be listed in your budget and a justification provided for unlike circumstance.

*May be charged as direct costs if ‘predominant usage is tied to the specified objectives of the award.’

Additionally, costs that provide direct benefit to a sponsored project’s scientific or technical scope of work are considered direct costs. A few examples of technical expenses are the salaries, wages, and fringe benefits of the PI(s) and technical or research employees, laboratory supplies, travel, subcontractor costs, patient/animal care costs, etc.

Facility and Administrative Costs (F&A or indirect costs) – costs that are incurred for and benefit common or joint objectives, and therefore cannot be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity are considered F&A costs. Based upon the specific items included in UD’s F&A Cost Rate Proposal, the University negotiates with the government (through ONR) to determine the percentage (rate) at which F&A costs will be reimbursed. Some typical F&A costs include salaries and related benefits of those employees who perform non-technical support activities, office supplies, postage, local telephone costs, memberships/subscriptions, and other expenses used to provide clerical or administrative project support. These costs may not normally be charged directly to CAS-covered projects. However, given the presence of certain ‘unlike circumstances,’ these costs may on occasion be charged directly to a CAS-covered project.

Consistent Treatment of Costs – costs incurred for the same purpose, in like circumstances, are treated uniformly either as direct costs or as F&A costs. Consistent treatment of costs is a basic cost accounting principle and is specifically required by 48 CFR 9905.502 to assure that the same types of costs are not charged to federally sponsored awards both as direct costs and again as F&A costs recovered through a negotiated rate. This concept is further reinforced and emphasized in a Cost Accounting Standard that universities are required to follow.

Cost Sharing – that portion of total project costs contributed to a sponsored award not borne by sponsor but rather by the University or third parties. Committed cost sharing is the amount of project costs that UD agrees to contribute as part of the performance of the sponsored agreement. This commitment is most often made in the proposal or stipulated in the award documentation.