GIM 23

Costing Policy for Sponsored Agreements

UNIVERSITY OF WASHINGTON

Office of Research
Office of Sponsored Programs

GRANTS INFORMATION MEMORANDUM 23

January 28, 2003

SUBJECT: Costing Policy for Sponsored Agreements

The University's Costing Policy for Sponsored Agreements is attached. The policy was finalized by the University Controller as a result of the required implementation of applicable federal Cost Accounting Standards, and after extensive campus communication, discussion, and input from faculty, administrators, the Research Advisory Board, and the Faculty Council on Research.

The policy is effective July 1, 1997 and will apply to all costs incurred on sponsored agreements as of January 1, 1998.

Questions regarding the policy may be directed to Grant and Contract Accounting at 543-8454.

Table of Contents

I. Introduction

II. Definitions

  1. Definition of Direct Costs
  2. Definition of Indirect Costs

III. Consistent Treatment of Direct and Indirect Costs

IV. Distribution of Direct Costs Between Two or More Grants or Contracts

  1. Proportional Benefit Rule
  2. Interrelationship Rule

V. Direct Costs

VI. Indirect Costs

  1. Administrative and Clerical Salaries
    1. Exceptional Circumstances
    2. Implementation Procedures
  2. Other Indirect Costs
    1. Justifying the Treatment of Normal Indirect Costs as Direct Costs
    2. Examples of Unique Circumstances Justifying Direct Charges
  3. Rebudgeting of Usual Indirect Costs
Appendix A: Inconsistent Costing Example

Appendix B: Office Supplies


I. Introduction

OMB Circular A-21, Cost Principles for Educational Institutions and the Cost Accounting Standards included in the circular, define what costs are allowable on federally funded grants, contracts and cooperative agreements (collectively called sponsored agreements). These regulations require that the same types of costs be treated consistently as either direct costs or indirect costs.

This policy takes into account the unique needs and requirements of the Universitys research community and still complies with the requirements of OMB Circular A-21. Future modifications to this and other internal policies may be necessary as further adjustments and interpretations are issued by the federal government.

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

II. Definitions

A. Direct Costs
B. Indirect Costs

Direct Costs

OMB Circular A-21, Section D.1, states:

A cost is considered direct when a specific grant or contract gains explicit benefit from the cost for a specific programmatic purpose. For example, a PIs salary, when represented by scientific effort on a particular grant or contract, is an example of an allowable direct cost to that grant or contract.

Indirect Costs

OMB Circular A-21, Section E.1, states:

At educational institutions such costs normally are classified under the following indirect categories: depreciation and use allowances, general administration and general expenses, sponsored projects administration expenses, operation and maintenance expenses, library expenses, departmental administration expenses, and student administration and services.

Indirect costs are infrastructure costs of the University that support the programs of the institution, including research and other sponsored programs. Examples of indirect costs are building depreciation, maintenance costs, the cost of electricity and heat, accounting services, personnel services, departmental administration, purchasing and human subjects administration.

Refer to GIM 22, Indirect Costs: An Explanation, for additional information regarding indirect costs.

  1. A-21 refers to indirect costs as Facilities and Administrative (F&A) Costs. This policy will use the term Indirect Costs.

III. Consistent Treatment of Direct and Indirect Costs

Consistent treatment of costs is a basic cost accounting principle. Consistency is specifically required by OMB Circular A-21 to assure that the same types of costs are not charged to grants and contracts both as direct and indirect costs. This requirement ensures that the federal sponsor is not paying twice for the same type of costs in like circumstances (see Appendix A). The concept of consistency is further reinforced and emphasized by Cost Accounting Standard 502, found in OMB Circular A-21, Section C.11.a.

Consistency in the context of CAS 502 means that costs incurred for the same purpose, in like circumstances, must be treated uniformly either as direct costs or as indirect costs. Since certain costs such as salaries of administrative and clerical staff and office supplies are normally treated as indirect costs, these costs cannot be charged directly to federal grants or contracts unless the circumstances related to a particular project are clearly different from the normal operations of the institution.

For example, although office supplies are normally treated as an indirect cost, a particular grant or contract may have a special need for envelopes to mail hundreds of survey questionnaires. In this case, it is appropriate to charge the grant or contract directly for the envelopes required to conduct the survey because those needed would significantly exceed the quantity routinely provided by the office. The mailing of the questionnaires creates an "unlike circumstance" for envelopes and other as supplies used for the survey, but not for other routine office supplies unrelated to the survey.

IV. Distribution of Direct Costs Between Two or More Grants or Contracts

A. The Proportional Benefit Rule
B. The Interrelationship Rule

OMB Circular A-21 provides two methods for allocating an allowable direct cost to two or more grants.

OMB Circular A-21, Section C.4.d.(3), states:

  1. The Proportional Benefit Rule

    The proportional benefit rule applies when it is possible to determine the proportional benefit of the cost to each project. The cost is allocated according to the proportion of benefit provided to each project. For example, the cost of lab supplies might be allocated based upon the quantity used (or planned to be used) on each project.

  2. The Interrelationship Rule

    The interrelationship rule applies when it is not possible to determine the proportional benefit to each project because of the interrelationship of the work involved. The cost is distributed on any reasonable basis because the proportional benefit cannot be quantified and identified to the individual projects. For example, the cost of lab supplies might be allocated based upon the allocation of employee salaries to each project.

V. Direct Costs

The following types of costs should be directly charged to sponsored agreements when they can be specifically identified to the work performed under those agreements.

A. Salaries, Wages and Fringe Benefits

B. Supplies and Materials

C. Other Direct Costs

VI. Indirect Costs

A. Administrative and Clerical Salaries
B. Other Indirect Costs
C. Rebudgeting of Usual Indirect Costs

As noted in II.B., indirect costs include institutional infrastructure costs for research and other sponsored programs. The focus of this section of the policy will be on those indirect costs generally incurred by academic departments. Costs incurred for program support and administration which occur at the college, school and department levels which should normally be treated as indirect are identified in section A (Administrative and Clerical Salaries) and section B (Other Indirect Costs).

A. Administrative and Clerical Salaries

OMB Circular A-21, Section F.6.b., states:

Administrative and clerical salaries may be treated as direct costs under certain exceptional and unlike circumstances as described below.

  1. Exceptional and Unlike Circumstances

    On July 13, 1994, OMB issued an interpretation of Circular A-21, Section F.6.b, that states:

    The following are examples provided by OMB to illustrate circumstances where direct charging of administrative and clerical salaries may be appropriate.

    OMB also states as part of this interpretation:

    These examples are not exhaustive nor are they intended to imply that direct charging of administrative or clerical salaries would always be appropriate for the situations illustrated in the examples.

    Where direct charges for administrative and clerical salaries are made, care must be exercised to assure that costs incurred for the same purpose in like circumstances are consistently treated as direct costs for all activities.

  2. Implementation Procedures

    See Attachment A for a list of Job Class codes that are considered Administrative and Clerical.

    Responsibilities that fall within normal departmental administrative functions cannot be charged directly to sponsored projects. The costs of administrative work such as routine budget monitoring, filing and other general office tasks are not usually considered allowable direct costs because such work is common across many sponsored projects. Such costs may support grant or contract activities, but they are classified as indirect costs because they do not meet the major activity and specific identification standards of OMB Circular A-21, section F.6.b.

    Administrative or clerical salaries may be directly charged only if they meet the following requirements:

    1. They fall within the special circumstances described in the OMB interpretation quoted in section VI.A.1 of this policy.

    2. The individual has responsibilities specifically identifiable to the work of the project and the effort devoted to the project is documented.

    3. The title, percent of effort and salary of the administrative or clerical position is included in the proposed budget of the sponsored agreement, and the special circumstances requiring direct charging of the services are justified in the proposal.

    4. The sponsoring agency accepts the cost as part of the projects direct cost budget. That is, the sponsor does not specifically disapprove the cost in the award or in other notice it gives to the University.

B. Other Indirect Costs

The following additional costs are usually treated as indirect costs for on-campus projects. They may be treated as direct costs only under special or unique circumstances.

* Under this policy, these costs will be allowable as direct costs for off-campus, APL and Regional Primate Center awards. These costs will not require prior approval from the funding agency or other internal written documentation to incur as direct costs.

  1. Justifying the Treatment of Normal Indirect Costs as Direct Costs

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

    1. The project has a special need for the item or service involved that is beyond the level of services normally provided.

    2. The costs can be specifically identified to the work conducted under the project.

    3. The costs are specified in the proposed budget of the sponsored agreement, and the special circumstances requiring direct charging are justified in the proposal.

    4. The sponsoring agency accepts the cost as part of the projects direct cost budget. That is, the sponsor does not specifically disapprove the cost in the award or in other notice it gives to the University.

  2. Examples of Unique Circumstances Justifying Direct Charges

C. Rebudgeting of Usual Indirect Costs

It is expected that direct charging of normal indirect costs would be anticipated and justified in the sponsored agreement proposal submitted to the sponsoring agency.

When a need arises and where sponsoring agencies permit rebudgeting after a project has started, to incur costs that are normally indirect, the need and the exceptional circumstances must be justified and documented in writing by the PI and maintained in the departmental grant file.