According to 2CFR200.413, direct costs are those costs that can be identified specifically with a particular final cost objective, such as a Federal award, or other internally or externally funded 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 indirect (F&A) costs. Where an institution treats a particular type cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances should be treated as direct costs of all activities of the institution.
Itemized direct costs are line items specified in the grant or contract. They can include direct salaries of persons working on the grant, applicable fringe benefits, travel directly associated with the project, supplies specifically used on the project, contractual services and equipment. The PI or his/her designee must sign all vouchers used to process direct costs to a sponsored project. A designee must possess technical knowledge of the research being performed.
In order for a cost to be charged as a direct cost, it must be allowable. Uniform Guidance §200.403 identifies that costs must meet the following general criteria to be allowable:
- Be necessary and reasonable for the performance of the Federal award and be allocable under these principles.
- Conform to any limitations or exclusions set forth in these principles or in the Federal award as to types or amount of cost items.
- Be consistent with policies and procedures that apply uniformly to both federally and non-federal activities of the University.
- 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).
- Be determined in accordance with generally accepted accounting principles (GAAP)
- 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.
- Be adequately documented. (See also §§200.300 Statutory and national policy requirements through 200.309 Period of performance of this part.be necessary and reasonable for the performance of the award and be allocable to the award).
Direct Cost Terminology
Relatively easily — Assigning a cost relatively easily does not take a lot of time; most people can comprehend/relate to the allocation method; and the benefit to the project is evident.
High degree of accuracy — Identifying a cost with a high degree of accuracy shows a one-to-one relationship of the cost to the project and there is a distinct and actual measurement.
Reasonable — A cost is reasonable if the nature and amount involved reflect the action that a prudent person would have taken.
Allocable — A cost is allocable if it is incurred solely to advance the work under the sponsored agreement; it benefits the sponsored agreement and other work of the institution; or it is necessary to the overall operation of the institution and is deemed to be assignable in part to sponsored projects.