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
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
- Definition of Direct Costs
- Definition of Indirect Costs
III. Consistent Treatment of Direct
and Indirect Costs
IV. Distribution of Direct Costs
Between Two or More Grants or Contracts
V. Direct Costs
VI. Indirect Costs
Appendix A: Inconsistent Costing
and Clerical Salaries
- Other Indirect Costs
- Justifying the
Treatment of Normal Indirect Costs as Direct Costs
- Examples of Unique
Circumstances Justifying Direct Charges
- Rebudgeting of Usual
Appendix B: Office Supplies
OMB Circular A-21, Cost Principles for Educational Institutions and the Cost
Accounting Standards included in the circular, define what costs are
on federally funded grants, contracts and cooperative agreements
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.
A. Direct Costs
B. Indirect Costs
OMB Circular A-21, Section D.1, states:
Direct costs are those costs that can be identified specifically with a
particular sponsored project, an instructional activity, or any other
institutional 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 F&A costs. Where an institution treats
a particular type of cost as a direct cost of sponsored agreements, all
costs incurred for the same purpose in like circumstances shall be treated
as direct costs of all activities of the institution.
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.
OMB Circular A-21, Section E.1, states:
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
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
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
Refer to GIM 22, Indirect Costs: An
Explanation, for additional information regarding indirect costs.
- 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
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
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:
If a cost benefits two or more projects or activities in proportions that can
be determined without undue effort or cost, the cost should 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...the costs may be allocated or transferred to benefited
projects on any reasonable basis...
- 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.
- 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
- Research Associates
- Predoctoral and Postdoctoral Fellows
- Technicians, Lab Assistants, Graduate Students
- Tuition remission for Graduate Students
B. Supplies and Materials
- Laboratory Supplies
- Computer Software
- Minor Equipment
- Photographic supplies
C. Other Direct Costs
- Radioactive Waste Disposal
- Consulting Services
- Animal Care
- Motor Pool
- Other costs specifically identified and justified in funded proposals (see section VI)
- Long distance telephone costs
- Freight and Express
- Patient Care and Subject costs
- Costs that are normally indirect may be
charged to non-federally sponsored
agreements if permitted by the sponsors
policies/practices or are otherwise
approved by the sponsor
- Off-Campus Projects Only
Basic Telephone Services - such as
phone installation, monthly line
charges, basic instruments
Facilities Costs - such as rent,
maintenance, security, utilities
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).
OMB Circular A-21, Section F.6.b., states:
The salaries of administrative and clerical staff should normally
be treated as F&A costs. Direct charging of these costs may be
appropriate where a major project or activity explicitly budgets for
administrative or clerical services and individuals involved can be
specifically identified with the project or activity.
Administrative and clerical salaries may be treated as direct costs under
certain exceptional and unlike circumstances as described below.
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.
- Exceptional and Unlike Circumstances
On July 13, 1994, OMB issued an
interpretation of Circular A-21, Section F.6.b, that states:
...direct charging of these costs may be appropriate where the nature of
the work performed under a particular project requires an extensive amount
of administrative or clerical support which is significantly greater than
the routine level of such services provided by academic departments. The
costs would need to meet the general criteria for direct charging in
section D.1. -- i.e., be identified specifically with a particular
sponsored project relatively easily with a high degree of accuracy, and
the special circumstances requiring direct charging of the services would
need to be justified to the satisfaction of the awarding agency in the
grant application or contract proposal.
The following are examples provided by OMB to illustrate circumstances
where direct charging of administrative and clerical salaries may be
- Large, complex programs, such as General Clinical Research Centers,
Primate Centers, Program Projects, environmental research centers,
engineering research centers, and other grants and contracts that entail
assembling and managing teams of investigators from a number of
- Projects which involve extensive data accumulation, analysis and
entry, surveying, tabulation, cataloging, searching literature, and
reporting, such as epidemiological studies, clinical trials, and
retrospective clinical records studies.
- Projects that require making travel and meeting arrangements for
large numbers of participants, such as conferences and seminars.
- Projects whose principal focus is the preparation and production of
manuals and large reports, books and monographs (excluding
routine progress and technical reports).
- Projects that are geographically inaccessible to normal departmental
administrative services, such as seagoing research vessels, radio
astronomy projects, and other research field sites that are remote
from the campus.
- Individual projects requiring project-specific database management;
individualized graphics or manuscript preparation; human or animal
protocols, IRB preparations and/or other project-specific regulatory
protocols; and multiple project-related investigator coordination and
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
- 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:
- They fall within the special circumstances described in the OMB
interpretation quoted in section VI.A.1 of this policy.
- The individual has responsibilities specifically identifiable to the
work of the project and the effort devoted to the project is documented.
- 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.
- 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.
- Office Supplies (see Appendix
- Toner Cartridges and Diskettes*
- Basic Local Telephone Services On Campus - Basic services include
phone installation, monthly line charges, basic instruments*
- Cellular Phones, pagers and Related Service Charges*
- Routine Copying Charges*
- Journals and Subscriptions
* 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.
- Justifying the Treatment of Normal Indirect Costs as
These types of costs may be directly charged only if they meet the
- The project has a special need for the item or service involved that is
beyond the level of services normally provided.
- The costs can be specifically identified to the work conducted under
- The costs are specified in the proposed budget of the sponsored
agreement, and the special circumstances requiring direct charging
are justified in the proposal.
- 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
- Examples of Unique Circumstances Justifying Direct
- Office Supplies - Envelopes used to mail an unusually large number
of research questionnaires.
- Toner Cartridges, Diskettes, Tapes for Tape Drive Backup - The
grant or contract research involves extensive data accumulation and
- Basic Local Telephone Service On Campus - A hotline or crisis line
that is specifically required by a grant or contract.
- Memberships - 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.
- Journals and Subscriptions - The cost of a journal or subscription
may be directly charged if the content is specifically and solely
related to the grant or contract.
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.