Composition of Costs Policy : University of Dayton, Ohio

Composition of Costs Policy

Purpose

The purpose of this policy is to promote compliance with federal regulations regarding allowable and unallowable costs for sponsored research programs.

Scope

This policy applies to all University of Dayton academic and administrative units conducting sponsored research, including the University of Dayton Research Institute. This policy does not apply to a federal contract that is subject to full Cost Account Standards coverage, as the allowability of certain costs will be affected by the allocation provisions of the Cost Accounting Standards.

Policy History

I. Effective Date: January 8, 2015

II. Approval: November 3, 2026

III. History:

Approved in its original form: January 8, 2015
Approved as amended: March 10, 2021
Approved as amended: November 3, 2026

IV. Maintenance of Policy: Vice President for Academic Research, Office for Academic Research and Vice President for UDRI, University of Dayton Research Institute

Policy

Costs related to federal contracts, grants, and other transactions are governed by federal regulations. General provisions for selected items of cost are contained in the Office of Management and Budget (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR 200, commonly referred to as the “Uniform Guidance,” Subpart E – Cost Principles. These principles apply irrespective of whether a particular item of cost is treated as a direct cost or a facility and administrative (F&A or indirect) cost. The total cost of a Federal award is the sum of the allowable direct and allocable indirect costs minus any applicable credits. Costs incurred on a federal contract, grant or other transaction must be: Allowable, Reasonable, Consistent and Allocable. These concepts are defined and explained further below.

I. Allowability of Costs:

In accordance with 2 CFR 200.403, except where otherwise authorized by statute, costs must meet the following general criteria in order to be allowable under Federal awards:

Be necessary and reasonable for the performance of the Federal award and be allocable thereto under the Uniform Guidance;
Conform to any limitations or exclusions in the Uniform Guidance 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 financed and other ;
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;
Not be included as cost or used to meet cost sharing or matching requirements of any other federally financed program;
Be adequately documented and within the period of performance of the Federal award.

Unallowable costs should be either properly segregated in the University’s accounting system or identifiable from departmental records to ensure that they will not be charged to the government.

In cases of discrepancy between the provisions of a specific sponsored agreement and the provisions of the Uniform Guidance, the agreement should govern.

II. Reasonableness of Costs:

In accordance with 2 CFR 200.404, costs must be reasonable in order to be charged under Federal awards. A reasonable cost is a cost that does not exceed an amount that a prudent person would incur under the circumstances prevailing when the decision was made to incur the cost. To determine whether a cost is reasonable, consideration must be given to the following factors:

Whether the cost is generally recognized as ordinary and necessary for operation or the proper and efficient performance of the Federal award;
The restraints or requirements imposed by such factors as sound business practices; arm's-length bargaining; Federal, State, local, tribal, and other laws and regulations; and terms and conditions of the Federal award;
Market prices for comparable costs for the geographic area;
Whether the individuals concerned acted with prudence in the circumstances considering their responsibilities; and
Whether the cost represents a deviation from established internal written policies and procedures for incurring costs.

III. Allocability of Costs:

In accordance with 2 CFR 200.405, a cost is allocable to a Federal award if the cost is assignable to that Federal award in accordance with the relative benefits received.

In general, this standard is met if the cost satisfies any of the following criteria:

Is incurred specifically for the Federal award;
Benefits both the Federal award and other work of the recipient and can be distributed in proportions that may be approximated using reasonable methods; or
Is necessary to the overall operation of the recipient and is assignable in part to the Federal award in accordance with these cost principles.

All activities which benefit from the University’s indirect cost, including unallowable activities and donated services by the University, will receive an appropriate allocation of indirect costs.

A cost allocable to a particular Federal award may not be charged to other Federal awards. However, costs that are allowable under two or more Federal awards may be shifted in accordance with existing Federal statutes, regulations, or the terms and conditions of the Federal awards.

If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost must be allocated to the projects based on the proportional benefit. However, when those proportions 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 documented basis.

Where the purchase of equipment or other capital asset is specifically authorized under a Federal award, the costs are assignable to the Federal award regardless of the use that may be made of the equipment or other capital asset involved, when no longer needed for the purpose for which it was originally required.

If a contract is subject to CAS, costs must be allocated to that contract according to the Cost Accounting Standards.

RESPONSIBILITY FOR ENFORCEMENT, REMEDIES, SANCTIONS

The Office of Academic Research and the University of Dayton Research Institute, through the Contracts and Grants Office, UDRI Business Services Office, Research Accounting, and Research Purchasing, are responsible for enforcement of this policy to ensure that no unallowable costs charged to sponsored programs.

Applicable Federal Regulations

Reference Documents

University of Dayton Accounting Guidelines for Unallowable Costs

Appendix A

Quick Reference Guidance for Unallowable Costs

The following is a quick reference guide for determining “unallowable” costs. It is not intended to replace the Uniform Guidance. Refer to the complete text for establishing allowability of costs.

Advertising and Public Relations– Costs of advertising designed solely to promote the institution are unallowable. Public Relations costs of meetings, conventions, convocations or other activities of the institution including: (a) costs of displays, demonstrations, and exhibits; (b) costs of meeting rooms, hospitality suites, and other special facilities used in conjunction with shows and other special events; and (c) salaries and wages of employees engaged in setting up and displaying exhibits, making demonstrations and providing briefings are unallowable. Costs of promotional items and memorabilia, including models, gifts, and souvenirs are also unallowable. See the Uniform Guidance for specific exceptions, which may include advertising for recruitment of employees or human subjects, costs specifically required by the award, communicating with the public and press pertaining to specific activities or accomplishments which result from the performance of the award, and conducting general liaison with news media and others as necessary to keep the public informed on matters of public concern.
Alcoholic Beverages
Alumni Activities
Bad Debts
Commencement or Convocation Costs
Contingency Provisions
Contributions and Donations
Entertainment costs, including amusement diversion, social activities, and any costs directly associated with such costs (such as tickets to shows or sporting events, meals, lodging, rentals, transportation, and gratuities)
Fines, Penalties, Damages and Other Settlements
Fund Raising and Investment Management Costs
Goods or Services for Personal Use
Intellectual Property (with specific exceptions)
Interest (with specific exceptions)
Lobbying
Losses on other sponsored agreements or contracts (cost overruns). Any excess of costs over income under any other sponsored agreement or contract of any nature is unallowable. This includes, but is not limited to, the institutions contributed portion by reason of cost-sharing agreements or any under-recoveries through negotiation of flat amounts for indirect costs.
Memberships in any civic or community organization, country club, social or dining club
Pre-agreement costs, unless approved by the sponsoring agency or permitted under expanded authorities
Selling and marketing of any products or services of the institution, except as direct costs with prior approval of the sponsor.
Student activity costs incurred for intramural activities, student publications, student clubs, etc.

In addition to unallowable costs, charges to federally sponsored agreements must also exclude costs that are directly associated with the unallowable costs. A directly associated cost is defined in federal regulations as any cost which is generated solely as a result of the incidence of another cost, and which would not have been incurred had the other cost not been incurred. An example of the cost that is directly associated with an unallowable cost is the cost of airfare to go to another city for the purpose of entertaining business associates, or for fundraising. Since the entertainment and fundraising costs are expressly unallowable under the Uniform Guidance, and the airfare would not have been incurred had the unallowable costs not been incurred, the airfare is an unallowable directly associated cost.