Washington State University
BUSINESS POLICIES AND PROCEDURES MANUAL

SPONSORED AGREEMENTS
40.09
Revised 1-16
Office of Grant and Research Development
509-335-9661
Sponsored Programs Services
509-335-2058

Cost Determination Guidelines

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OVERVIEW

The guidelines in this section take into account the unique needs and requirements of the University's research community in order to comply with the requirements of the federal and University rules and agreements described below. The applicable guidelines depend upon the grant award date:

GRANTS AWARDED PRIOR TO DECEMBER 26, 2014

Rules and Agreements

The following federal and University rules and agreements apply to grants awarded prior to December 26, 2014:

This circular (A-21) provides principles for determining costs applicable to research and development, training, and other sponsored work performed by the University on federally-funded sponsored agreements.

This circular (A-110) outlines requirements for written procedures for determining the reasonableness, allocability, and allowability of federally-funded award costs.

Future modifications to this and other internal policies may be necessary as the federal government issues further adjustments and interpretations.

Responsibility

The University delegates considerable authority and responsibility for fiscal compliance to principal investigators (PIs) and departments. See 40.01. This requires the development of significant expertise at the department level and relies heavily on PIs and departmental fiscal staff to comply with WSU policies and various sponsor rules and regulations.

Definitions

Reasonableness

Project costs may be considered reasonable if the nature and amount of the goods or services acquired or applied reflect a prudent person's decision under similar circumstances to incur such costs.

See OMB Circular A-21 Section C.3 for major considerations involved in the determination of the reasonableness of a cost.

Allocability

Allocable costs are expenses which may be assigned or charged to one or more sponsored project cost objectives, in accordance with the relative benefits received or other equitable relationship. Project costs must advance, benefit, or be necessary for the sponsored agreement to be allocable. See OMB Circular A-21, Section C.4.

Allowability

According to OMB Circular A-21, a cost may be charged to a sponsored agreement only if it meets all of the following criteria:

Direct Costs

Direct costs are defined as costs that can easily and with a high degree of accuracy be identified or assigned specifically with one of the following:

See also below.

A cost is considered direct when a specific grant or contract gains explicit benefit from the cost for a specific programmatic purpose. For example, when a PI's activity involves scientific effort on a particular grant or contract, his or her salary is an allowable direct cost to that grant or contract. See 40.34.

Facilities and Administrative (F&A) Costs

Facilities and administrative costs (F&A costs) are expenditures incurred by a sponsored project (programs 11-14) which are not readily identified with that project. (OMB Circular A-21, Section E.1) See 40.25.

Consistent Treatment of Costs

Consistent treatment of costs is a basic cost accounting principle. Federal guidelines specifically require consistency to ensure that the same types of costs are not charged to grants and contracts as both direct and facilities and administrative (F&A) costs. This requirement ensures that the federal sponsor is not paying twice for the same costs in like circumstances. (OMB Circular A-21 and Cost Accounting Standard 502 (OMB Circular A-21, Section C.11.a))

Direct Costs

University departments must consistently treat costs incurred for the same purpose in like circumstances as either direct or F&A costs. Where the University treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in similar circumstances must be treated as direct costs. (OMB Circular A-21, Section D.1)

Application To Sponsored Programs

Identification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from F&A costs of sponsored agreements. Typical costs charged directly to a sponsored agreement are the compensation of employees for performance of work under the sponsored agreement, including related fringe benefit costs to the extent they are consistently treated, in like circumstances, by the University as direct rather than F&A costs; the costs of materials consumed or expended in the performance of the work; and other items of expense incurred for the sponsored agreement, including extraordinary utility consumption. The cost of materials supplied from stock or services rendered by specialized facilities or other institutional service operations may be included as direct costs of sponsored agreements, provided such items are consistently treated, in like circumstances, by the University as direct rather than F&A costs, and are charged under a recognized method of computing actual costs, and conform to generally accepted cost accounting practices consistently followed by the University. (OMB Circular A-21, D.2)

Costs that are normally F&A costs may be charged to nonfederally sponsored agreements if permitted by the sponsors' policies/practices or otherwise approved by the sponsors.

Off-Campus Only

For off-campus projects only, other direct costs include facilities costs, e.g., rent, maintenance, security, utilities. Off-campus facilities are defined as facilities which are not owned and/or leased by the University and which are not maintained or operated by University Facilities Services, Operations.

Facilities and Administrative (F&A) Costs

F&A costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. See OMB Circular A-21 Section F.1 for a discussion of the components of F&A costs.

Normally, F&A costs (often called overhead) are those costs which accrue from the general operation of the University. Such costs normally are classified under the following categories:

Examples of facilities and administrative costs are:

Distribution of Direct Costs

OMB Circular A-21, Section C.4.d.(3) provides two methods for allocating an allowable direct cost to two or more sponsored projects: the proportional benefit rule and the interrelationship rule.

Proportional Benefit Rule

The proportional benefit rule applies when a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost. The department allocates the cost according to the proportion of benefit provided to each project.

Example

The department might allocate the cost of laboratory supplies based upon the quantity used (or planned to be used) on each project.

Interrelationship Rule

The interrelationship rule applies when a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved. The department distributes the cost on any reasonable basis because the proportional benefit cannot be quantified and identified to the individual projects.

Example

The department might allocate the cost of laboratory supplies based upon the allocation of employee salaries to each project.

Departmental Administration

The following guidelines apply to the determination of departmental administrative costs as direct or F&A costs. (OMB Circular A-21, F.6.b)

Other Normal F&A Costs Treated as Direct Costs

The following additional costs are usually treated as F&A costs, as noted in OMB Circular A-21 Section F.6.b.(3). Such costs may be treated as direct costs only under special or unique circumstances.

Justification

These types of costs may be directly charged only if they meet the following requirements:

Examples

The following are examples of unique circumstances justifying direct charges:

Envelopes used to mail an unusually large number of research questionnaires.

A hotline or crisis line that is specifically required by a grant or contract.

A membership in a professional or scientific organization if joining is the only means of obtaining a specific journal or periodical directly related to a grant or contract.

Rebudgeting of Normal F&A Costs

When a need arises and the sponsoring agencies permit rebudgeting after a project has started, a department may request the rebudgeting of normal F&A costs.

See also 40.23.

GRANTS AWARDED ON OR AFTER DECEMBER 26, 2014

Rules and Agreements

The following federal and University rules and agreements apply to grants awarded on or after December 26, 2014:

Future modifications to this and other internal policies may be necessary as the federal government issues further adjustments and interpretations.

Responsibility

The University delegates considerable authority and responsibility for fiscal compliance to principal investigators (PIs) and departments. See 40.01. This requires the development of significant expertise at the department level and relies heavily on PIs and departmental fiscal staff to comply with WSU policies and various sponsor rules and regulations.

Definitions

Reasonableness

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 is made to incur the cost.

See 2 CFR 200.404 for major considerations involved in the determination of the reasonableness of a cost.

Allocability

Allocable costs are expenses which may be assigned or charged to one or more sponsored project cost objectives, in accordance with the relative benefits received or other equitable relationship. Project costs must advance, benefit, or be necessary for the sponsored agreement to be allocable. See 2 CFR 200.405.

Allowability

According to 2 CFR 200.403, a cost may be charged to a sponsored agreement only if it meets all of the following criteria:

Direct Costs

Direct costs are those costs that can be identified specifically with a particular final cost objective, such as a federal award, or other internally- or externally-funded activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect (F&A) costs. See 2 CFR 200.413.

A cost is considered direct when a specific grant or contract gains explicit benefit from the cost for a specific programmatic purpose. For example, when a PI's activity involves scientific effort on a particular grant or contract, his or her salary is an allowable direct cost to that grant or contract. See 40.34.

Facilities and Administrative (F&A) Costs

Facilities and administrative costs (F&A costs) are expenditures incurred by a sponsored project (programs 11-14) which are not readily identified with that project. (2 CFR 200.414) See 40.25.

Consistent Treatment of Costs

Consistent treatment of costs is a basic cost accounting principle. Federal guidelines specifically require consistency to ensure that the same types of costs are not charged to grants and contracts as both direct and facilities and administrative (F&A) costs. This requirement ensures that the federal sponsor is not paying twice for the same costs in like circumstances. (2 CFR 200.403(d) and Cost Accounting Standard 502 (2 CFR 200.419))

Direct Costs

University departments must consistently treat costs incurred for the same purpose in like circumstances as either direct or F&A costs. Where the University treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in similar circumstances must be treated as direct costs. See 2 CFR 200.413.

Application to Sponsored Programs

Identification with the sponsored work rather than the nature of the goods and services involved is the determining factor in distinguishing direct from F&A costs of sponsored agreements. Typical costs charged directly to a sponsored agreement are the compensation of employees for performance of work under the sponsored agreement, including related fringe benefit costs to the extent they are consistently treated, in like circumstances, by the University as direct rather than F&A costs; the costs of materials consumed or expended in the performance of the work; and other items of expense incurred for the sponsored agreement, including extraordinary utility consumption. The cost of materials supplied from stock or services rendered by specialized facilities or other institutional service operations may be included as direct costs of sponsored agreements, provided such items are consistently treated, in like circumstances, by the University as direct rather than F&A costs, and are charged under a recognized method of computing actual costs, and conform to generally accepted cost accounting practices consistently followed by the University. (2 CFR 200.413(b))

Costs that are normally F&A costs may be charged to nonfederally sponsored agreements if permitted by the sponsors' policies/practices or otherwise approved by the sponsors.

Off-Campus Only

For off-campus projects only, other direct costs include facilities costs, e.g., rent, maintenance, security, utilities, etc. Off-campus facilities are defined as facilities which are not owned and/or leased by the University and which are not maintained or operated by University Facilities Services, Operations.

Facilities and Administrative (F&A) Costs

F&A costs are those that are incurred for common or joint objectives and therefore cannot be identified readily and specifically with a particular sponsored project, an instructional activity, or any other institutional activity. See 2 CFR 200.414(a) for a discussion of the components of F&A costs.

Normally, F&A costs (often called overhead) are those costs which accrue from the general operation of the University. For institutions of higher education and major nonprofit organizations, indirect (F&A) costs must be classified within two broad categories: "facilities" and "administration." "Facilities" is 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" (including cross allocations from other pools, where applicable). For nonprofit organizations, library expenses are included in the "administration" category; for institutions of higher education, they are included in the "facilities" category.

Examples of facilities and administrative costs are:

Distribution of Direct Costs

2 CFR 200.405(d) provides two methods for allocating an allowable direct cost to two or more sponsored projects: the proportional benefit rule and the interrelationship rule.

Proportional Benefit Rule

The proportional benefit rule applies when a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost. The department allocates the cost according to the proportion of benefit provided to each project.

Example

The department might allocate the cost of laboratory supplies based upon the quantity used (or planned to be used) on each project.

Interrelationship Rule

The interrelationship rule applies when a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved. The department distributes the cost on any reasonable basis because the proportional benefit cannot be quantified and identified to the individual projects.

Example

The department might allocate the cost of laboratory supplies based upon the allocation of employee salaries to each project.

Departmental Administration

The following guidelines apply to the determination of departmental administrative costs as direct or F&A costs. (2 CFR 200, Appendix III to Part 200, Section B.6.b)

Other Normal F&A Costs Treated as Direct Costs

The following additional costs are usually treated as F&A costs, as noted in 2 CFR 200, Appendix III, Section B.6.b.2. Such costs may be treated as direct costs only under special or unique circumstances.

Justification

These types of costs may be directly charged only if they meet the following requirements:

Examples

The following are examples of unique circumstances justifying direct charges:

Rebudgeting of Normal F&A Costs

When a need arises and the sponsoring agencies permit rebudgeting after a project has started, a department may request the rebudgeting of normal F&A costs.

See also 40.23.