Federal Assistance Manual Chapter 6-00

CHAPTER 6-00 COST PRINCIPLES

• 6-00-00 Purpose
  
• 6-00-10 Cost Principles
  
• 6-00-20 Allowable Costs
  
• 6-00-30 Costs Allowable with Approval of OSM
  
• 6-00-40 Unallowable Costs
  
• 6-00-50 Deviations from Cost Standards

6-00-00 PURPOSE

This Chapter outlines the basic principles to be used in determining the allowable costs applicable to OSM grants or cooperative agreements and the allowable costs applicable to subgrants and cost-type contracts awarded under OSM grants or cooperative agreements.

6-00-10 COST PRINCIPLES

1. The basic principles to be used in determining the allowable costs applicable to OSM grants or cooperative agreements, and to subgrants and cost-type contracts awarded under OSM grants or cooperative agreements, are prescribed in:
   1. 0MB Circular A-87 - State, Local, and Indian Tribal Governments.

   2. 0MB Circular A-21 - Educational Institutions

   3. 0MB Circular A-122 - Private Nonprofit Organizations

   4. 48 CFR Part 31 -For-Profit Organizations

      Go to OMB Grants home page for OMB Circulars.

2. These documents will be cited in the provisions of all grants or cooperative agreements awarded by OSM. This citation will cover the activities conducted by the recipient as well as those conducted by any subrecipients or cost-type contractors awarded funds under the grant or cooperative agreement. Recipients will also cite the appropriate principles in the subgrant or contract

6-00-20 ALLOWABLE COSTS

1. Allowability of costs shall be determined in conformance with the principles and standards set forth by the documents listed in 6-00-10A above. In general, costs are allowable if:
   1. They are necessary and reasonable for the proper and efficient execution of the project and are in accordance with the grant or cooperative agreement contract and the most recently approved project budget;

   2. They are not prohibited under Federal, State and local statutes or regulations;

   3. They are treated uniformly and consistently in accounting policies and procedures approved or prescribed by O.S.M. for the recipient, and those approved or prescribed by the recipient for its contracts;

   4. They are not allocable to, or included as a cost of any other Federally financed program in either the current or a previous period;

   5. They represent net costs, after all applicable credits are deducted;

   6. They are in accord with budgetary or other restrictions on expenses established by OSM;

   7. They are incurred (and are for work performed) after the date of the contract, unless other specific authorization is made in writing by OSM;

   8. As preagreement costs, they are specifically provided for in the grant or cooperative agreement;

   9. As proposal costs, they are specifically provided for in the grant or cooperative agreement; and

   10. They are fully documented.

6-00-30 COSTS ALLOWABLE WITH APPROVAL OF OSM

1. Each Circular establishes a set of cost principles that identifies certain costs that are allowable to the extent that they are approved by the granting agency. The specific requirements and procedures for obtaining approval of these costs from OSM are described below:
   1. When the costs are treated as indirect costs (or, in the case of a State or local government, are allocated pursuant to a State-wide or local government-wide cost allocation plan), approval of the costs as part of the negotiation of the organization's indirect cost rate or cost allocation plan will be deemed as having met the approval requirements. In these cases, a specific request for approval is not required.

   2. When the costs are treated as direct costs, they must be approved in advance by OSM. In these cases, if the costs requiring approval are included in the grant budget, approval of the budget will constitute approval of the costs. If they are not included in the budget, the recipient must obtain specific prior approval from OSM.

6-00-4O UNALLOWABLE COSTS

1. For some types of costs, the determination of allowability or unallowability will depend on the nature of the circumstances under which they were incurred. For such doubtful cases, the guidelines and standards of the applicable 0MB circular should be applied. Some costs which are clearly unallowable are the following:
   1. Bad debts. Any losses arising from uncollectible accounts and other claims, and related costs, are unallowable.

   2. Contingencies. Contributions to a contingency reserve or any similar provision for unforeseen events are unallowable.

   3. Contributions and donations. Unallowable.

   4. Entertainment. Costs of amusements, social activities, and incidental costs relating thereto, such as meals, beverages, lodgings, rentals, transportation, and gratuities, are unallowable.

   5. Fines and penalties. Costs resulting from violations of, or failure to comply with Federal, State and local laws and regulations are unallowable.

   6. General Government expenses.
      1. The salaries and expenses of the Office of the Governor of a State or the chief executive of a political subdivision are considered a cost of general State or local government and are unallowable.

      2. Salaries and other expenses of the State legislature or similar local governmental bodies such as county supervisors, city councils, school boards, etc., whether incurred for purposes of legislation or executive direction, are unallowable.

   7. Interest and other financial costs. Interest on borrowed capital (however represented), bond discounts, cost of financing and refinancing operations, legal and professional fees paid in connection therewith, are unallowable except when authorized by Federal legislation.

   8. Lobbying. The cost of certain influencing activities associated with obtaining a grant is unallowable.

   9. Underrecovery of costs under Federal agreements. Any excess of cost over the Federal contribution under one grant or cooperative agreement is unallowable under other grants or cooperative agreements.

   10. Individual Membership and License Fees. Individual bar association and professional engineering society dues and license fees are not an allowable program cost. A-87 provides that the cost of membership in civic, business, technical and professional organizations is allowable provided the expenditure is for agency membership.

6-00-50 DEVIATIONS FROM COST STANDARDS

1. Each set of cost principles includes general standards for selected items of cost. These standards are normally prefaced with a statement indicating that in the case of discrepancy between the provisions of a specific grant or cooperative agreement and the applicable standards, the provisions of the grant or cooperative agreement should govern. OSM staff responsible for the award and administration of grants or cooperative agreements shall not include provisions in grant awards which conflict with applicable standards unless they are clearly justified in light of the particular circumstances involved. A deviation shall be considered to be either of the following, except when specifically mandated by Federal legislation:
   1. Use of any policy, procedure, form, grant or cooperative agreement condition which is inconsistent with an applicable provision of the grant or cooperative agreement.

   2. Failure to use when applicable any policy, procedure, form, standard, or grant condition which is required by this part.

2. In the interest of maintaining uniformity to the greatest extent feasible, deviations shall be kept to a minimum. A deviation, whether proposed by an applicant, a recipient, or an OSM official, may be authorized only when necessary to meet programmatic objectives or to conserve grant funds, or is otherwise essential in the public interest

FEDERAL ASSISTANCE MANUAL
January 2, 1998