Office of Sponsored Programs
The Ohio State University

Sponsored Programs Costing Policy

Guidelines for charging to direct costs what Is usually F&A.

I. Introduction
II. Costs Definitions
III. Basics of Cost Reimbursement
IV. Consistent Treatment of Costs
V. Exception for Unlike Circumstances
VI. Rebudgeting and Approval of Unlike Circumstances
VII. General Guidelines for the Treatment of Costs
Appendix A

I. Introduction

Generally, federal research funding is received in the form of reimbursement for allowable costs incurred on sponsored projects. It is the goal of The Ohio State University to maximize research reimbursement in compliance with the applicable regulations. The primary source of guidance on all matters of costs on federal sponsored awards is the Office of Management and Budget (OMB) Circular A-21, Cost Principles for Educational Institutions. This policy specifically addresses an important area of concern with regard to cost recovery on federal projects, the charging to “direct costs” expenditures that are usually part of the “facilities and administrative costs” (F&A costs) rate.

This Ohio State Sponsored Programs Costing Policy takes into account the unique needs and requirements of the University’s research community and still complies with federal guidelines. The University delegates considerable authority and responsibility for fiscal compliance to Principal Investigators (PI’s) and their departments. This requires the development of significant expertise at the department level and relies heavily on PI’s, department heads, and fiscal staff to comply with Ohio State policies and various sponsor rules and regulations. Knowledge of, and adherence to, this policy by all parties involved with project costs will ensure that the University receives the maximum recovery of project costs while maintaining compliance with all regulations.

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II. Costs Definitions

Direct Costs

Direct Costs are costs that can be identified specifically with a particular sponsored project, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Examples of direct costs are chemicals purchased for a project, required project travel, and the proportional cost of salary and benefits of a Principal Investigator using effort on a project as a percentage of total effort paid.

Facilities and Administrative Costs (F&A Costs)

F&A costs (formerly known as Indirect or Overhead Costs) are costs incurred that cannot be identified readily and specifically with a particular sponsored project. F&A costs are normally classified under the following categories: building and equipment depreciation; operation and maintenance expenses; general and administrative expenses; departmental administrative expenses; sponsored projects administration expenses; library expenses; and student administration and services. F&A costs are infrastructure costs of the University that support the programs of the institution, including research and other sponsored projects. Examples of F&A costs are facilities maintenance, utilities, accounting services, personnel services, purchasing services, and animal use administration.

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III. Basics of Cost Reimbursement

The University is reimbursed on federal projects for two classifications of costs; direct costs, and F&A costs. Reimbursement of direct costs is straightforward. For each dollar of direct costs billed by the university, a dollar of reimbursement is received. F&A costs, however, are billed as a percentage of direct costs using a negotiated F&A rate. Although the F&A rate is negotiated, the basis of the negotiation is the compilation of multiple cost pools that account for the University’s costs of heating buildings, providing copying machines and paper, staffing departments with administrative personnel, and much more. So, if the University has an F&A rate of 50 cents on the dollar (50%), then it will receive 50 cents of F&A reimbursement for every dollar of direct costs billed. When implemented correctly, this method of reimbursement is fair and equitable to both the University and the federal government. Problems with this method arise when costs of a similar nature are not treated consistently as either direct costs or F&A costs. This can lead to over-billing costs on a project. For example, if the cost of toner cartridges for printers was part of the negotiated F&A rate, then such costs are reimbursed through the F&A rate. However, if the cost of a toner cartridge is billed as a direct cost, then the University is receiving reimbursement for this cost twice; once as a direct cost, and again as an F&A cost. The problem with this is readily apparent. The following section delves deeper into the concept of consistency in the treatment of costs.

Note: although the Office of Sponsored Programs administers the billing and receipt of research funding, it does not keep any of the reimbursement received for F&A. 100% of the F&A reimbursement is distributed back to the University on a quarterly basis.

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IV. Consistent Treatment of Costs

Consistent treatment of costs is a basic cost accounting principle that is specifically required by OMB Circular A-21 to assure that the same types of costs are not charged to sponsored agreements both as direct costs and as F&A costs. This concept is reinforced and emphasized in the Cost Accounting Standards Board’s Cost Accounting Standard 502, with which, educational institutions are required to comply. Consistency in this context means that costs incurred for the same purpose, in like circumstances, must be treated uniformly either as direct costs or F&A costs. Consistency must be applied both vertically and laterally. Vertical application means that the treatment of costs in establishing the F&A rate will be consistent with the treatment of costs used for submitting proposals, which in turn will be consistent with the treatment of costs used in the management and billing of awards. Lateral application of consistency means that all departments across the entire institution are applying a uniform treatment of identifying costs as either direct or as F&A. In other words, the accounting for costs by the College of Engineering should be in agreement with the accounting by the Medical Center. It is important to note that cost treatment used in the establishment of the F&A rate should serve as the foundation for the consistent application of costs both vertically and horizontally to federal sponsored projects.

Note: the OMB Circulars apply to federal sponsored agreements and federal flow-through sponsored agreements, and costs normally charged as F&A costs MAY be charged directly to NONFEDERAL agreements if not prohibited by sponsor policy.

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V. Exception for Unlike Circumstances

When certain criteria are met, OMB Circular A-21 contains an important exception to the basic rules that allows for a cost that would normally be charged to an F&A pool to instead be charged as a direct cost. The two criteria that govern this reclassification of an F&A cost to a direct cost are as follows:

  1. The cost must be of “unlike circumstances” in comparison to normal or typical circumstances that dictate that a cost be classified as an F&A cost.
  2. The cost must be specifically associated with the sponsored project with a high degree of accuracy.

Note: all costs being considered for reclassification from F&A to direct, must first meet the general criteria of costs to be charged to a federal award: allowability, reasonableness, and allocability. Further clarification of these three criteria can be found in Appendix A.

“Unlike circumstances” is not explicitly defined in OMB Circular A-21, but, it is implicitly defined through various examples. The following example regarding local telephone service costs should help with understanding unlike circumstances. Normally, local phone service is an F&A cost. For a typical sponsored project, local phone usage is limited to incidental use of the telecommunications infrastructure normally maintained by the University. However, for a sponsored project that requires extensive telephone surveys to gather input, a large bank of telephones would be temporarily installed. In this case, the telephone use would constitute unlike circumstances, and the cost of the phones should be considered for direct costing.

Continuing with the phone bank example, ensuring that the cost of the phone bank are specifically associated with the sponsored project with a high degree of accuracy would be easy if the phones are used exclusively for the project, and all costs of the phone bank are separately billed or otherwise specifically identifiable from the standard phones.

It is extremely important to understand that although an awarding agency might approve the direct costing of a cost that is normally part of F&A, that approval alone may not be enough to prevent the cost from being disallowed in an audit. The key element of a defensible reclassification of an F&A cost to a direct cost is the inclusion of a solid justification of unlike circumstances for the reclassification within the application or proposal. Bear in mind that for the costs in question, auditors look not only for approval by the awarding agency, but also that subject costs are accounted for in accordance with OMB Circular A-21. In other words, if an agency issues an approval that is not in compliance with A-21, e.g. it lacks solid justification, that approval can be overridden in an audit.

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VI. Rebudgeting and Approval of Unlike Circumstances

It is expected that direct charging of normal F&A 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, costs that meet the conditions of unlike circumstances but were not included in the original budget of the sponsored agreement must be justified in writing to the Office of Grants and Contracts. The justification must provide the same information that would have been provided to the sponsoring agency in the proposal budget and budget justification. It must also explain why the cost was not included in the original budget. No approvals will be given for costs that do not meet the criteria of unlike circumstances. Post award approvals do not relieve the principal investigator of fiscal responsibility should the costs be disallowed by the sponsor.

Contact Information
If you have questions, contact your Sponsored Programs Officer.

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VII. General Guidelines for the Treatment of Costs

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

  • salaries, wages and fringe benefits:
    • faculty
    • research associates
    • pre doctoral and postdoctoral fellows
    • technicians, lab assistants, graduate students
  • specialized equipment
  • travel costs:
  • graduate student tuition
  • supplies and materials:
    • chemicals
    • laboratory supplies
    • drugs
    • photographic supplies
    • animals
  • subcontracts/subawards
  • other direct costs:
    • radioactive waste disposal
    • consulting services
    • animal care
    • long distance telephone costs
    • delivery charges for equipment and supplies
    • patient care and subject costs

Again, the OMB Circulars apply to federal sponsored agreements and federal flow-through sponsored agreements, and costs normally charged as F&A costs MAY be charged directly to NONFEDERAL agreements if not prohibited by sponsor policy.

B. Facilities and Administrative Costs (F&A Costs)
The following costs are usually treated as F&A costs for federal sponsored projects. They may be treated as direct costs only under unlike circumstances, see Section V.

  • salaries of administrative and clerical staff
  • books for the library
  • institution’s subscriptions to business, professional, and technical periodicals
  • office supplies- especially those used in clerical or support offices where salary is not directly charged to sponsored projects and the administrative salaries do not meet the definition of an unlike circumstance, or office supplies used in faculty offices. Office supplies includes binders, folders, business cards, copy paper, envelopes, paperclips, pencils, pens, scissors, staplers, tape, message pads, etc.
  • toner cartridges and electronic storage media (diskettes, CD’s, etc.)
  • routine copying charges that cannot be identified with specific projects
  • institution’s membership in business, technical, and professional organizations
  • basic local telephone services on campus – Basic services include phone installation, monthly line charges and ethernet charges
  • cellular phones, pagers and related service charges
  • postage, express delivery
  • local travel costs (meals, parking)
  • proposal preparation (never a direct cost)

Examples of Charging Administrative Costs to Federal Awards
This section provides supplemental interpretation of federal regulations contained in OMB Circular A-21 concerning charging to federal sponsored awards as direct costs specific types of costs that are normally part of F&A. This interpretation will be used to assess the appropriateness of charges on research and training awards administered by The Ohio State University Office of Sponsored Programs.
Note that the first example, Salaries of Administrative and Clerical Staff, is a detailed illustration of considerations that provides guidance that is generally applicable to all other categories of costs.
Salaries of Administrative and Clerical Staff
Costs normally charged as F&A may be charged directly when unlike or unusual circumstances exist. The university relies on the principal investigator and other officials to exercise judgment in identifying situations where “unlike circumstances” exist. The following is the OMB interpretation that provides guidance on defining the circumstances under which administrative and clerical salaries may be charged directly to federal sponsored awards in accordance with the provisions of OMB Circular A-21. These provisions are intended to establish the principle that the salaries of administrative and clerical staff should usually be treated as F&A costs, but that 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 OMB Circular A-21, 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.

Note the Ohio State rebudgeting and approval procedures in Section VI to be followed if direct charging of normal F&A costs is desired after a project has started. The following examples from OMB Circular A-21, Exhibit C, are illustrative of circumstances and characteristics to be considered in determining when direct charging the salaries of administrative or clerical staff may be appropriate.

  1. 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 institutions.
  2. 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).
  3. Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars.
  4. Projects whose principal focus is the preparation and production of manuals and large reports, books and monographs (excluding routine progress and technical reports).
  5. 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 campus.
  6. Individual projects requiring project-specific database management; individualized graphics or manuscript preparation; human or animal protocol; and multiple project-related investigator coordination and communications.

In consideration of the OMB interpretation, the following Ohio State guidelines to determine unlike circumstances are also provided.

  1. Size, nature, and complexity of sponsored projects, although not the final determining factors are, in the aggregate, important considerations in determining unlike circumstances.
  2. The activity must be specifically associated with the work of the grant or contract, as either:
    1. Part of an unusually large or complex activity that requires separate administrative support
      OR
    2. An administrative effort of at least 50 percent FTE is required to complete the specific and distinctive requirements of a particular grant or contract.
  3. In instances in which a sponsored project has unique requirements for extensive administrative and clerical support, office supplies, postage and/or telecommunications costs substantially beyond that normally provided by Ohio State departments, such costs may be charged to sponsored agreements as direct costs when:
    1. The activity cost is required by the project’s scopeAND
    2. The cost can be accurately identified to the projectAND
    3. The cost is identified and properly justified in the sponsored agreement budget; for example, the percent of effort, salaries, and fringe benefits of administrative and clerical positions must be specifically included in the proposal budget and the need for the services is clearly explained in the proposal narrativeAND
    4. The sponsoring agency accepts the cost as part of the project’s direct cost budget (i.e., sponsor does not specifically disapprove the cost in the award documents, agency policy handbook, or other notification to the university).

Books
The NIH Grants Policy 11-40 states: “If an organization has a library, then books and journals should generally be provided as part of normal library services and treated as F&A costs rather than being directly charged.”
The University’s interpretation of this NIH policy is that books may not be charged directly to federal sponsored projects.
Examples of book charges unallowable for direct costing:

  • general or reference texts, including medical dictionaries
  • general software, e.g., a widely used statistical package and associated manuals that will benefit multiple activities
  • books, manuals, reprints that generally assist the PI in keeping up with his/her field of research

Examples of book, reprint, or copy of article charges allowable for direct costing:

  • purchase of software, equipment or similar manual to improve efficiency and/or results of PI or lab personnel use of software or equipment used in the specific research project
  • book associated with a specific research technique or aspect of the research project that will introduce efficiencies to the research, improve quality of results, improve results from a specific piece of research equipment or improve results from a research experiment
  • books not available from the library or from other sources or specific books needed so often that a library copy is not sufficient

Subscriptions

Subscriptions will normally not be allowed as a direct charge to a federal research award because their content is more general in nature and cannot be identified with a high degree of specificity to an individual research project.

Under unique circumstances, a PI may be able to provide a written justification supporting the direct costing of a subscription. Examples of journal or subscription charges allowable for direct costing:

  • the cost of a journal or subscription may be directly charged if the content is specifically and solely related to the grant or contract

General Office Supplies

General office supplies will normally not be allowed as a direct charge to a federal award. Because of their general nature they cannot be identified with a specific project with a high degree of accuracy. However, where the office supplies are not general and can be identified closely with a specific project, e.g. special notebooks for laboratory use, supplies for poster or other presentations to disseminate scientific results, specialized supplies for recording data or calibrating equipment, then such costs could be considered direct. Examples of Office Supplies charges allowable for direct costing:

  • envelopes used to mail an unusually large number of research questionnaires
  • paper, printer toner, etc. for a research lab computer that is exclusively used for research papers and printing of data for the research project
  • binders and folders used in a research lab to hold research results
  • toner cartridges, storage media, (diskettes, and tapes for tape drives, DVD’s, etc.) where the research project involves extensive data accumulation and analysis

Copier Charges, Copy Cards

Copier charges and copier card costs will normally not be allowed as direct charges to federal research or training projects because of the difficulty in identifying the material copied and associating it specifically with an individual sponsored project. Examples of copying costs allowable for direct costing:

  • for large survey projects
  • reprints or copies of an article on a specific research technique that will provide substantial help in furthering the experiments on a specific project

Ideally, the method to identify the copying cost with a specific sponsored project is to have that project’s survey or other material copied separately at a copy center where the cost can be differentiated from general copying costs. Alternatively, the use of specific codes on a department copier is an acceptable methodology to identify unusual copying that meets all three criteria. General copying by the lab may not be charged directly to a federal award.

Dues and Memberships

Dues and memberships in professional organizations will normally not be allowed as a direct charge to a federal award because their purpose is more general in nature in furthering a PI’s knowledge in his/her field and cannot be identified with a high degree of specificity to an individual research project. Examples of membership chargesallowable for direct costing

  • 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

Telecommunications, Cellular Phones, Internet Access

OMB Circular A-21 notes that local telephone costs shall normally be treated as F&A costs, and thus not allowable as direct costs. However, long distance charges may be charged directly to sponsored projects, ideally using specific identification of individual toll calls on a project from an itemized phone bill as documentation. For University direct cost charging purposes, we interpret A-21 to mean the following:

Normally treated as F&A cost:

The following types of costs will normally not be allowable as a direct cost on a federal sponsored project:

  • local telephone service
  • base fee for cell phone
  • internet access or subscription fee [allowable if discrete access is required (as in an off-campus location) solely for the purpose of the project being charged (as in for research data transmission)].

May meet criteria to charge directly:

  • long distance telephone charges
  • itemized cellular call charges

Examples of local telephone charges allowable for direct costing:

Under exceptional circumstances, local telephone expenses may be directly charged to a sponsored project. Exceptional circumstances apply when a project has a special or unique need for telephone communication. Phone usage must be significantly greater than the routine level required by academic or departmental usage. Procedures must be in place to ensure that the particular line is used exclusively for the project or activity to which it is being directly charged.

  • a dedicated line used to conduct a telephone survey
  • a phone line used exclusively to manage a multi-site research project
  • local telephone service – a hotline or crisis line that is specifically required by a grant or contract

Postage, Express Delivery

  1. Postage
    OMB Circular A-21, notes that postage costs will normally not be allowable as a direct cost on a federal sponsored project.Examples of postage charges allowable for direct costing:

    • Postage would be allowable for a program requiring surveys by mail
  2. Express DeliveryExpress delivery charges, e.g. Fed Ex, will normally not be allowable as a direct cost on a federal sponsored project unless it is for equipment or supplies.

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Appendix A

Guidelines for Determining Allowable Costs

As a general rule, costs must meet certain criteria in order to be charged to federal awards: allowability, reasonableness, and allocability.

  1. Allowability
    To be allowable under a federal award, costs must:

    1. Be necessary and reasonable for the performance of the award and be allocable to the award under the applicable cost principles.
    2. Be authorized or not prohibited under state or local laws or regulations
    3. Conform to any limitations or exclusions set forth in the cost principles, federal laws and regulations, or the award as to types or amount of cost items.
    4. Be consistent with policies and procedures that apply uniformly to both federally financed and other activities of the organization
    5. Be accorded consistent treatment as direct or F&A cost
    6. Be determined in accordance with generally accepted accounting principles (GAAP), unless specified otherwise
    7. 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, unless specified otherwise
    8. Be net of all applicable credits
    9. Be adequately documented
  2. Reasonableness
    A cost is generally considered 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. In determining the reasonableness of a given cost, the following issues should be considered:

    1. Whether the cost is of a type generally recognized as ordinary and necessary for the operation of the organization or the performance of the award
    2. The restraints or requirements imposed by such factors as generally accepted sound business practices, arms-length bargaining, federal and state laws and regulations, and terms and conditions of the award
    3. Whether the individuals concerned acted with prudence in the circumstances, considering the responsibilities to the organization, its members, employees, clients, the public at large, and the federal government
    4. Significant deviations from the established practices of the organization which may unjustifiably increase the award costs
  3. Allocability
    1. General PrinciplesA cost is allocable to a particular project if the goods or services are chargeable or assignable in accordance with the relative benefits received. A cost is allocable to a federal award if it is treated consistently with other costs incurred for the same purpose in like circumstances.
    2. Facilities and Administrative CostsAll activities that benefit from the organization’s F&A costs, including unallowable activities and services donated by third parties, must receive an appropriate allocation of F&A costs. An appropriate cost allocation plan is required to be developed by the organization for its F&A costs.
    3. Cost ShiftingAny cost allocable to a particular award under the cost principles may not be shifted to other federal awards to overcome funding deficiencies, to avoid restrictions imposed by law or by the terms of the award, or for other reasons.

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