Allowable Costs on Sponsored Projects/Grants

Definition of Costs

There are two basic types of cost associated with sponsored project grants; direct costs and indirect costs.

Direct costs are those which can be readily and specifically identifiable with benefiting a specific project, and are charged directly to the associated project/grant account string.  Direct costs must meet the OMB Circular A-21 requirements sited below and support the project’s purpose and activities and represent the costs necessary to meet the objectives of the program.  Direct costs must be included in the awarded budget, or be a cost that is allowed within the rebudgeting authority granted by the sponsor. 

Indirect Costs , sometimes referred to as facilities & administrative costs, are those incurred for common and joint objectives, which cannot be easily identifiable with a particular project/grant with a reasonable degree of accuracy, and without an inordinate amount of accounting.  Examples of indirect costs include the salaries of grant accounting staff responsible for all billing, invoicing and reporting for grants, grant administration staff who solicit and negotiate awards, and the salaries of purchasing, payroll, accounts payable, and general administration staff necessary to support grant activities.  In addition, utilities, telephone charges, general office supplies, and printing expenses are rarely included in project budgets but are reasonable and necessary expenses that must be borne by the institution.  Indirect costs must also meet the OMB Circular A-21 requirements sited below.

Factors Affecting Allowable Costs on Grants and Contracts

When charging expenses to federally sponsored contracts and grants, KCTCS faculty and staff must be aware of the appropriateness of the charges.  The OMB Circular A-21 provides criteria for charging costs to federally sponsored projects.  The basic principle is costs charged to a sponsored project/grant must be allocable, allowable, reasonable, and treated consistently.
  1. Costs must be allowable under the principals and methods of KCTCS policies, sponsor policies, and the OMB Circular A-21.  
  2. Costs must be allocable.  A cost is allocable to a particular sponsored project/grant if the goods or services involved are chargeable or assignable to the sponsored project in accordance with the relative benefits received.
  3. Costs must be reasonable.  A cost is considered reasonable if the nature of the goods or services acquired and the amount involved reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision was made to incur the cost.
  4. Costs must be consistently treated.  All costs charged to sponsored projects must be given consistent treatment through application incurred of those general accepted accounting principals appropriate to the circumstances.