Cost Principles

Allowable, Allocable, and Reasonable Costs

The legitimacy of a cost charged to a specific sponsored research award will depend on the cost concept on allowability, allocability, and reasonableness of a given cost.  The Office of Management and Budget (OMB), the sponsor's specific requirements, the University policy, and federal cost principles defined and determined the allowability, allocability, and reasonableness of an expense.  Payment Requests must be supported by appropriate documentation for the cost incurred and paid on a grant to be considered allowable, allocable, and reasonable otherwise, it will be treated as unallowable. If you are unsure whether a particular expenditure is allowable, consult your approved project budget and/or contact the Office of Grants & Research Administration if additional assistance is needed.  PART 200 of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards - Subpart E - Cost Principles provided the following:


§200.403 Factors affecting allowability of costs.

Except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

  1. Be necessary and reasonable for the performance of the Federal award and be allocable thereto under these principles.
  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. 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.
  5. Be determined in accordance with generally accepted accounting principles (GAAP), except, for state and local governments and Indian tribes only, as otherwise provided for in this part.
  6. Not be included as a cost or used to meet cost sharing or matching requirements of any other federally-financed program in either the current or a prior period. See also §200.306 Cost sharing or matching paragraph (2).
  7. Be adequately documented. See also §§200.300 Statutory and national policy requirements through 200.309 Period of performance of this part.

§200.404   Reasonable costs.

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 question of reasonableness is particularly important when the non-Federal entity is predominantly federally-funded. 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 operation of the non-Federal entity or the proper and efficient performance of the Federal award.
  2.  The restraints or requirements imposed by such factors as: sound business practices; arm's-length bargaining; Federal, state, local, tribal, and other laws and regulations; and terms and conditions of the Federal award.
  3. Market prices for comparable goods or services for the geographic area.
  4. Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities to the non-Federal entity, its employees, where applicable its students or membership, the public at large, and the Federal Government.
  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 cost. [78 FR 78608, Dec. 26, 2013, as amended at 79 FR 75885, Dec. 19, 2014] 

§200.405 Allocable costs

  1. 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; and
    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.
  2. 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.
  3. 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. However, this prohibition would not preclude the non-Federal entity from shifting costs that are allowable under two or more Federal awards in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards.
  4. 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 must 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 paragraph (c) of this section, the costs may be allocated or transferred to benefitted projects on any reasonable documented basis. Where the purchase of equipment or other capital asset is specifically authorized under a Federal award, the costs are 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. See also §§200.310 Insurance coverage through 200.316 Property trust relationship and 200.439 Equipment and other capital expenditures.
  5. If the contract is subject to CAS, costs must be allocated to the contract pursuant to the Cost Accounting Standards. To the extent that CAS is applicable, the allocation of costs in accordance with CAS takes precedence over the allocation provisions in this part.

Definition of Some Cost

Pre-award costs.  (§200.458) are those incurred prior to the effective date of the Federal award directly pursuant to the negotiation and in anticipation of the Federal award where such costs are necessary for efficient and timely performance of the scope of work. Such costs are allowable only to the extent that they would have been allowable if incurred after the date of the Federal award and only with the written approval of the Federal awarding agency.

Scholarships and student aid costs. §200.466 (a) Costs of scholarships, fellowships, and other programs of student aid at IHEs are allowable only when the purpose of the Federal award is to provide training to selected participants and the charge is approved by the Federal awarding agency. However, tuition remission and other forms of compensation paid as, or in lieu of, wages to students performing necessary work are allowable provided that:

  1. The individual is conducting activities necessary to the Federal award;
  2. Tuition remission and other support are provided in accordance with established policy of the IHE and consistently provided in a like manner to students in return for similar activities conducted under Federal awards as well as other activities; and
  3. During the academic period, the student is enrolled in an advanced degree program at a non-Federal entity or affiliated institution and the activities of the student in relation to the Federal award are related to the degree program;
  4. The tuition or other payments are reasonable compensation for the work performed and are conditioned explicitly upon the performance of necessary work; and
  5. It is the IHE's practice to similarly compensate students under Federal awards as well as other activities
  6. Charges for tuition remission and other forms of compensation paid to students as, or in lieu of, salaries and wages must be subject to the reporting requirements in §200.430 Compensation—personal services, and must be treated as direct or indirect cost in accordance with the actual work being performed. Tuition remission may be charged on an average rate basis. See also §200.431 Compensation—fringe benefits.

Training and education costs. The cost of training and education (§200.472 ) provided for employee development is allowable.

Transportation costs. Costs incurred for freight, express, cartage, postage, and other transportation services (§200.473) relating either to goods purchased, in process, or delivered, are allowable. When such costs can readily be identified with the items involved, they may be charged directly as transportation costs or added to the cost of such items. Where identification with the materials received cannot readily be made, inbound transportation cost may be charged to the appropriate indirect (F&A) cost accounts if the non-Federal entity follows a consistent, equitable procedure in this respect. Outbound freight, if reimbursable under the terms and conditions of the Federal award, should be treated as a direct cost.

Travel costs. §200.474

  1. General. Travel costs are the expenses for transportation, lodging, subsistence, and related items incurred by employees who are in travel status on official business of the non-Federal entity. Such costs may be charged on an actual cost basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip and not to selected days of the trip, and results in charges consistent with those normally allowed in like circumstances in the non-Federal entity's non-federally-funded activities and in accordance with non-Federal entity's written travel reimbursement policies. Notwithstanding the provisions of §200.444 General costs of government, travel costs of officials covered by that section are allowable with the prior written approval of the Federal awarding agency or pass-through entity when they are specifically related to the Federal award.
  2. Lodging and subsistence. Costs incurred by employees and officers for travel, including costs of lodging, other subsistence, and incidental expenses, must be considered reasonable and otherwise allowable only to the extent such costs do not exceed charges normally allowed by the non-Federal entity in its regular operations as the result of the non-Federal entity's written travel policy.

Participant support costs (§200.75) are direct costs items such as stipends or subsistence allowances, travel allowances, and registration fees paid to or on behalf of participants or trainees (but not employees) in connection with conferences, or training projects.

  • Per §§200.68 participant support costs (PSC) are excluded from the Modified Total Direct Cost (MTDC) base
  • Per §200.308 (b) transfer of funds budgeted for participant support cost to other categories of expense require prior approvals from Federal awarding agencies for budget and program plan revisions.

Budget awarded for participant support cannot be transferred to other categories of expense unless approved in writing by the Program Officer.

  • Budget can be moved into participant support costs
  • Re-budgeting between the defined participant support cost categories is permitted 

Participant support costs categories includes: 

Stipend - A set amount of money to be paid directly to the participant. Conditions for receiving a stipend should be in writing and program completion attested to by the project PI.  Granting agencies may have specific guidelines for participant stipends.

Travel - Travel includes the costs of transportation and associated costs and must follow sponsor guidelines (e.g., U.S. flag carrier, coach class, most direct route) as well as university policies and guidelines.  The sole purpose of the trip must be to participate in the project activity.  If a training activity involves additional field trips, the costs of transportation of participants may be allowable.

NOTE: Field trips for recreational purpose are not permitted.

Subsistence -The cost of housing and meal expenses necessary for the individual to participate in the project are generally allowed, provided these costs are reasonable and limited to the days of attendance. Although participants who live in the local area are not entitled to subsistence payments or per diem, they may participate in meals and refreshments provided at the meeting or conference.  

NOTES:  BE MINDFUL not to duplicate support for individuals covered by other federal sources of funding.

While employees are not normally considered participants, they may receive conference meals under this provision.

Fees - Costs directly associated with attending conferences, symposia, or training projects. Such costs include registration, conference and similar fees.

Other Cost - Certain other costs may also be allowable if consistent with university policy and practice, and specified in the proposal approved by sponsor upon review. 

Example: training materials or laboratory supplies where approved by the sponsor.

Costs that does not fall under Participant Support Cost (PSC)

  • Guest speaker or lecturer fees.
  • Conference support costs such as facility and audio/visual equipment rental.
  • Service or independent contractor agreements.
  • Incentives (prizes), memorabilia or gifts.
  • Employee compensation and expenses

(Note: Exception for employee meals; they are allowable where provided to all attendees of a sponsored conference.)

Important things to remember in managing Participant Support Cost (PSC)

  • It is necessary that the Participant Support Cost is written and part of the funding opportunity or agency rules and specifically included in the proposal.
  • Depending on the awarding agency, the conditions or constraints varies for re-budgeting awarded participant support funds.
  • Re-budgeting will change the scope of the award and must have the agency approval
  • Addition of a participant program, where not previously awarded, is generally considered a change in scope requiring an agency’s prior approval
  • The use of a separate account or sub-account is a required when PSCs have been explicitly awarded.   Expenses beyond the budgeted amount should be in the already established participant support account/sub-account – A separate account/sub-account is not required where costs are allowed by agency but not explicitly awarded.  



[78 FR 78608, Dec. 26, 2013, as amended at 79 FR 75885, Dec. 19, 2014]

Unallowable Costs

This section is not exhaustive and is intended as a quick reference for common types of costs. 

The following are examples of generally unallowable expenditures and are not all inclusive.

Entertainment Costs

Costs incurred for amusement, social activities, entertainment, and any related items such as meals, lodging, rentals, alcoholic beverages, transportation, and gratuities.

Goods or Services for Personal Use

Costs of goods or services for personal use of the institution’s employees regardless of whether the cost is reported as taxable income to the employees.

Pre-Agreement Costs

Costs incurred prior to the effective date of the sponsored project, whether or not they would have been allowable if incurred after such date, are unallowable unless specifically set forth and identified in the sponsored agreement, or approved through prior approval procedures.

Memberships In Civic or Community Organizations

Costs of an individual’s membership in civic or community organizations are not allowable, likewise memberships in any social, dining, country club or organization.

Items Not Normally Treated As Direct Costs

The following items are normally included in facilities and administrative (F&A) costs. Direct charging of these costs may be appropriate where a major project or activity explicitly budgets for them and can be specifically identified with the project or activity. “Major project” is defined as a project that requires support which is significantly greater than the routine level of such services and or supplies provided by academic departments. Examples of items include:

Administrative and clerical staff salaries

Office supplies, postage, local telephone costs, and memberships

Additional Information

Please see the following links.

  • 2 CFR 200.410 - Collection of unallowable costs  click here 
  • NSF allowability of  cost click  here 
  • NIH Allowability of Costs/Activities click here