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- Anyone authorizing the expenditures of federal funds needs to be well-versed in the cost principles contained in OMB Circular A-21.
- Application. These principles shall be used in determining the allowable costs of work performed by institutions under sponsored agreements (any grant, contract, or other agreement between the institution and the Federal Government). The principles shall also be used in determining the costs of work performed by an institution under sub-grants, cost reimbursement subcontracts, and other awards made to us under sponsored agreements. And as a guide in the pricing of fixed price contracts and subcontracts.
- Any costs being charged to a sponsor must be allowable, allocable, reasonable and consistent, as defined by OMB Circular A-21.
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Allowability
The tests of allowability of costs under these principles are:
- They must be reasonable
- They must be allocable to sponsored agreements under the principles and methods provided herein
- They must be given consistent treatment appropriate to the circumstances.
- They must conform to any limitations or exclusions set forth in these principles or in the sponsored agreement.
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Reasonable costs.
A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved, reflect the action that a prudent person would have taken under the circumstances prevailing at the time and the actions taken are consistent with established institution policies and practices.
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Allocable costs:
A cost is allocable to a sponsored agreement if (1) it is incurred solely to advance the work under the sponsored agreement; (2) it benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods, or (3) it is necessary to the overall operation of the institution and assignable to sponsored projects.
- Any costs allocable to a particular sponsored agreement may not be shifted to other sponsored agreements in order to meet deficiencies caused by overruns or other fund considerations, to avoid restrictions imposed by law or by terms of the sponsored agreement, or for other reasons of convenience.
- Any costs allocable to activities sponsored by industry, foreign governments or other sponsors may not be shifted to federally sponsored agreements.
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