Two types of costs are associated with sponsored projects: Direct costs and Facilities and Administrative (indirect) costs.
- Direct costs can be identified with a particular sponsored project or can be assigned directly to such activities relatively easily with a high degree of accuracy. Examples include:
- Salary of a researcher (including benefits)
- Salary of a technical staff member (including benefits)
- Laboratory supplies, chemicals, and glassware purchased for a project
- Travel to a conference to present results of the project
- Facilities and Administrative (F&A) costs—also called indirect or overhead costs—are incurred for common or joint objectives. Therefore, they cannot be identified readily with a particular sponsored project. Examples include:
- Building utility or maintenance costs
- Salary of a departmental administrator
- Library costs
Total Costs of a Sponsored Project – Generally, the cost of a sponsored project is the sum of the allowable direct costs plus the allocable portion of the allowable F&A costs.
The nature of the cost is not the determining factor in distinguishing Direct from F&A costs; it is whether or not the cost can be identified with a particular sponsored project.
Factors That Affect Allowability of Costs – Four Cost Principles
All costs charged to sponsored projects must meet the following cost principles:
- Allowable – permissible according to the terms and conditions of the award
- Allocable – must provide a “benefit” to the project
- Reasonable – the “prudent person” test – Would a prudent person purchase the item at this cost? The cost is necessary for the performance of the activity
- Consistent – the cost is consistently treated and is consistent with established Institute policies and practices
- Adequately documented – in accordance with Institute policies and procedures