Research Policy Analysis and Coordination
Types of Allowable Costs
This section defines the common types of direct charges made to extramurally-sponsored contracts, grants and cooperative agreements. The specific cost and performance requirements and sponsor policies of a given award will affect the type of costs that are allowable and allocable to that project. The guidelines offered below derive from, 2 CFR 220, Cost Principles for Educational Institutions (OMB Circular No. A-21), Appendix A, section J, “General Provisions for Selected Items of Cost.” (See 7-F01). Relevant University policy is identified, as applicable. Although 2 CFR 220 is, strictly speaking, applicable only to federal awards, it can be used as a rule of thumb for non-federal awards. For information concerning justification and documentation of expenditures, see 7-300 through 7-340. Many types of direct charges are not discussed here (e.g. copying costs, page charges, animal purchases) because their definitions are obvious. As stated in the introduction to Appendix A, section J of 2 CFR 220, "Failure to mention a particular item of cost is not intended to imply that it is either allowable or unallowable; rather determination as to allowability in each case should be based on the treatment provided for similar or related items of cost.”
Allowable advertising costs are those that contribute to accomplishing the objectives of a sponsored project and include such items as classified advertisements used to recruit project personnel, to procure goods and services used in the project, or to recruit patients or human subjects to participate in the project.
Rearrangement or alteration costs are incurred to make changes in existing facilities to meet the needs of a sponsored program. Reconversion costs are incurred to restore existing facilities to approximately the same condition they were in immediately prior to the start of a sponsored program (ordinary wear and tear excepted), before they were altered or renovated. Prior sponsor approval is required for these costs. None of the above costs include new construction costs.
Alterations or reconversions using extramural funds are subject to the same review and approvals as those made with University funds. Relevant University policy in this regard is found in the University Facilities Manual and in Business and Finance Bulletin BUS-43 Materiel Management, Part V.
Communication costs consist of identifiable charges for telephone calls, faxes, postage, etc. Basic telephone service, local calls that are not individually billed, and University mail services not identifiable with a specific project, generally would not be directly chargeable to a particular federally-sponsored agreement except under a campus-wide plan for allocating such charges. 2 CFR Appendix A section F.b.(3) states that “Items such as office supplies, postage, local telephone costs, and memberships shall normally be treated as F&A (sic: facilities and administration or indirect) costs.” Telephone service specifically subscribed to and used exclusively for a particular project can be directly charged to that project.
Consultant fees are paid to an individual or organization, in return for expert technical or professional services rendered. Even if no fee is paid, it may be appropriate to reimburse the consultant for travel, subsistence, and related costs incurred as a direct result of performing the consulting service.
Consultant fees may be charged to extramurally-funded projects provided the costs are reasonable in relation to the service rendered to the sponsored project. Independent consultants are non-University employees, except for faculty in accordance with Academic Personnel Manual (APM) section 664, "Additional Compensation/Services as Faculty Consultant." Applicable University policies and procedures are contained in Business and Finance Bulletin BUS-34 Securing the Services of Independent Consultants, Accounting Manual Chapter D-371-35, "Disbursements: Honorarium Payments", and APM 664. Additional guidance is contained in Academic Personnel Manual, APM 025, “Conflict of Commitment and Outside Activities of Faculty Members,” APM 380, “Faculty Consultant,” and APM 660-667, “Additional Compensation.” Consultants who do not hold University appointments may be engaged on contracts and grants and paid from them when the independent consultant agreement through which the consultant is to be engaged has been approved in accordance with BUS-34, Section V. Agreements providing for a payment of $50,000 or more must be competitively bid or provide a sole source justification. The eligibility of individuals holding local, State, or federal government positions to receive payment as consultants must be checked. Some fund sources prohibit use of certain awards for this purpose and some governmental agencies prohibit their employees from accepting such payments.
Equipment is defined as non-expendable, tangible personal property with an acquisition cost of $5000 or more per item and a life expectancy of more than one year. Transportation costs associated with the purchase of equipment are counted as part of the equipment's acquisition cost. Accessories or component parts with a unit cost of $5000 or greater which permanently increase the value or useful life of University-owned property can be added to the value of a piece of equipment as capital transactions.
If a piece of equipment must be fabricated, the cost of its components, all materials, supplies, and services from outside vendors or authorized internal recharge activities used in the fabrication process are exempt from indirect costs if title is retained by the University and the item has a useful life expectancy of more than one year. However, any department labor, travel or other operating expenses associated with the fabrication such as salaries of Principal Investigators, graduate student researchers, or other comparable personnel who participate in the fabrication process are not included in the acquisition cost of the item and are, therefore, subject to indirect costs. If the fabricated piece of equipment is a deliverable and title is not retained by the University, all costs of its fabrication are subject to indirect costs. If the fabricated item has a life expectancy of less than one year, it does not meet the definition of equipment and all fabrication costs are subject to indirect costs. For more information on the cost treatment of fabricated property, see Accounting Manual Chapter P-415-32, Fabricated Property, and Contract and Grant Manual section 15-240.
University equipment purchasing policies and procedures may be found in Business and Finance Bulletin BUS-29, Management and Control of University Equipment, and BUS-43, Materiel Management. Requirements for the maintenance of inventory records are found in BUS-29. (See also Chapter 15 of this Manual.)
Non-federal sponsors may define equipment differently from the University. If this definition is accepted in an award, this definition becomes the controlling one for the purposes of the specific agreement only, thus requiring an individual equipment control plan for equipment purchased under that one award. For this reason, Contract and Grant Officers are encouraged to negotiate for the University’s equipment definition in all agreements, whenever possible.
Allowable fringe benefits consist of employer contributions such as to health plans, insurance plans, social security, and retirement plans. The University charges the actual cost of fringe benefits for each employee under an extramurally-funded project in proportion to the salary and wages charged for that employee. However, if the actual fringe benefit rate for an employee on a proposal budget is not known because the position is not filled or the specific project individual has not be identified, fringe benefits on project proposals are budgeted by using an average, campus-developed, composite rate.
With respect to direct charges to federal awards for insurance, the federal government self- insures government owned property against damage or loss. So a direct charge for this purpose is unallowable.
If there is a need for a direct charge for insurance to an award to cover risks that are not covered by the University’s existing insurance plans, such a charge is allowable. See 7-209 for information on maintenance agreements. See 7-206 for information on insurance included in fringe benefits. For specific information on the major University insurance plans, see:
Further information about the University’s insurance programs is provided in Chapter 21 of this Manual and on the Office of the President Risk Services website. Questions concerning the University’s insurance programs and coverage should be directed to campus Risk Managers. In developing any non-federal proposal budget, the General Automobile and Employment Practices Liability (GAEL) insurance assessment must be factored in as a budget line-item. Each campus has its own implementation of this assessment.
Interest costs are generally unallowable on federal awards. However, the cost of interest paid to an external party is allowable when associated with the acquisition or major remodeling of buildings, or the acquisition or fabrication of equipment costing $10,000 or more, provided the buildings or equipment are used in support of sponsored agreements and the total cost does not exceed the rental cost of comparable assets in the same locality. Interest costs on such equipment under a federal award must be agreed to by the federal government.
Maintenance and repair costs keep machinery and other property in an efficient operating condition. Costs for maintenance agreements should be counted as maintenance, not insurance costs. Replacement of a broken part with a comparable new part is considered as the purchase of an item of supply (see 7-210) or equipment (see 7-205). To be allowable as a repair cost charged to federal awards, the repair may not appreciably prolong the repaired item's intended life nor add to its permanent value.
For purposes of this section, any personal property, (including fabricated parts) not considered equipment, is considered under materials and supplies. Although materials may be relatively durable (e.g., pencils, petri dishes, flasks) and supplies to be relatively expendable (e.g., paper, culture media, reagents), for purposes of this Manual chapter, there is no intended distinction between "materials" and "supplies." Direct material charges should include only the materials and supplies actually used for the performance of the sponsored agreement. Material and supply charges to federally-funded projects should be based on actual prices after deducting all cash discounts, trade discounts, rebates, and allowances received by the University. Materials and supplies from campus stockrooms or general stores should be consistently charged regardless of funding source. For additional information, see Chapter 15, Property, of this Manual.
University policy relating to the purchase and use of hazardous materials is found in Chapter 3, Environmental Health and Safety, and in Business and Finance Bulletin BUS-50, Controlled Substances Program.
Sponsored projects may be charged for the cost of caring for patients who are participating in research associated with the project. Patient care charges may be made pursuant to a "Research Patient Care Rate Agreement" negotiated with the Department of Health and Human Services on behalf of a particular University medical center or affiliated hospital, or pursuant to other standard patient care rates. Per the National Institutes of Health (NIH) Grants Policy Statement, Research Patient Care Costs are:
The costs of routine and ancillary services provided by hospitals to individuals participating in research programs. The costs of these services normally are assigned to specific research projects through the development and application of research patient care rates or amounts.
Such costs are allowable charges on a research project budget and are excluded from indirect cost calculation for the project. Costs for “Usual Patient Care,” that is, expenses for care that would have been incurred even if the research study did not exist, may not be charged to the research project.
However, items such as:
1. the otherwise allowable items of personal expense reimbursement, such as patient travel or subsistence, consulting physician fees, or any other direct payments related to all classes of individuals, including inpatients, outpatients, subjects, volunteers, and donors,
2. costs of ancillary tests performed in facilities outside the hospital on a fee-for- service basis (e.g., in an independent, privately owned laboratory) or in an affiliated medical school/university based on an institutional fee schedule,
3. recruitment or retention fees, or
4. the data management or statistical analysis of clinical research results are not considered “patient care costs” for the purpose of calculating indirect costs. These costs are budgeted and charged as miscellaneous (or "other") direct costs and are, therefore, included in the modified total direct cost base.
Allowable professional activity costs include the cost of meetings and conferences convened for the dissemination of technical information. Meeting and conference costs for rental of facilities, transportation of participants, meals, and incidental expenses are allowable. Meal costs must comply with Business and Finance Bulletin G-28, Policy and Regulations Governing Travel.
Individual professional memberships are allowable as a direct charge if the membership is required to perform the project and would not otherwise be obtained. For example, if an individual professional membership is a prerequisite to obtaining access to data or scientific meetings where peers are presenting papers or if there are seminars or the equivalent which are directly pertinent to the work under the award, the cost should be justified in the proposal. If the individual professional membership is for the general purpose of maintaining competency in one’s field, this could be viewed as a general expense and not allocated to a federal award.
Under 2 CFR 220 (A-21), meal costs relating to entertainment and social activities, as well as any other costs relating to these activities, are unallowable as charges to federal awards.
Allowable direct recruiting costs include items such as travel costs of employees engaged in recruiting personnel (see 7-224), employment advertising (see 7-201), travel costs of applicants to be interviewed for prospective employment, and reasonable relocation costs associated with recruitment of new employees. Relocation costs are reimbursed in accordance with Academic Personnel Manual, sections 550, 560 and 561;Business and Finance Bulletin G-13, Policy and Regulations Governing Moving and Relocation; Travel; and Accounting Manual Chapters A-115-87, D-371-11, “Disbursements: Advance Payments,” and D-371-16, “Disbursements: Approvals.”
Lease costs may be appropriate when space cannot be found in University-owned buildings.
Real property may be leased unless the total lease cost to be charged to the project would exceed the purchase price. In such cases, purchase should be considered. Basic University guidance is given in the University Facilities Manual.
Chancellors have been delegated the authority to negotiate and approve lease agreements for real property, provided the agreement conforms to Presidential guidelines. Real property leases which involve an annual rent in excess of the dollar or term limit of the Chancellors’ delegation must be executed by the President or The Regents. (See Chapter 15-620). University policy on real property leasing is found in the University Facilities Manual and in the delegations of authority for execution of licenses for use of real property and for University-related real property rental agreements (leases).
Rental or lease of personal property must be approved by the campus Purchasing Office. (See Chapter 15-610). The Treasurer must grant prior written approval of the interest rate in any lease of personal property. University policy on leasing personal property is implemented in Business and Finance Bulletin BUS-43, Part 6, “Personal Property Special Acquisitions.”
Costs to use a patented invention or copyrighted material (e.g., software) may be directly charged to a federally-sponsored project when such use is necessary to perform the project and is applicable to project tasks or processes, unless the government has a license or right to free use of the patent or copyright.
Costs of preparing invention disclosures, reports, and related documents required by the sponsored agreement or for searching the art to the extent necessary to make such invention disclosures are allowable as direct costs.
When title is conveyed to the federal government, costs associated with preparing documents and any other patent costs in connection with the filing of a patent application are allowable. If title is not conveyed to the federal government, such costs are generally unallowable. If unusual circumstances support allocation of such costs to a federal award, the costs must be justified and agency prior approval obtained.
Generally, sabbatical leave costs are not allowable as direct costs unless the leave is taken to perform work for the sponsored project. Sabbatical leave costs are salary and fringe benefit charges associated with approved sabbatical leave as set forth in Regents' Standing Order 100.4(e).]
Applicable regulations are found in the Academic Personnel Manual, section 740 Authority to grant sabbatical leave has been delegated to the Chancellors and to the Vice President-- Agriculture and Natural Resources.
Salaries and wages charged to sponsored agreements must be made in accordance with University payroll procedures. Holiday pay, sick leave pay, and other paid absences are included in salaries and wage charges to sponsored projects. Projected merit and cost of living increases should also be included in proposal budgets. Vacation pay is charged to sponsored projects as vacation and accrued through an assessment on payroll. Under no circumstance may the rate of salary and wage charges to a sponsored project exceed the employee's regular rate of pay.
For further information, see: Academic Personnel Manual, section IV, “Salary Administration”, and Policies Pertaining to Personnel and Compensation for staff.
Service facilities (or "recharge centers") are self-supporting units operated by the University which provide University departments with goods and services. Service facility costs generally are allowable when the criteria listed in 7-610 through 7-630 have been met.
Compensation paid to students for services rendered constitutes salary or wage payments. Tuition remission for student employees may be charged to awards in accordance with campus policy. Payments to registered students unrelated to services rendered constitute stipends. When the purpose of an award is to train students, tuition and fee payments as well as stipend payments for students under the sponsored award may be charged against the award if consistent with the award terms.
7-220 Subagreements, Subcontracts and Inter-Campus Transfers – Transactions with Third Parties, Campuses and the Lawrence Berkeley National Laboratory
Many times, under a prime award, a portion of the work is required to be performed by a non-University of California entity, another University campus, or the University-managed Lawrence Berkeley National Laboratory (LBNL).
Contract and Grant Memo 06-05, “Expanded Guidance on the Classification and Monitoring of Transactions with Third Parties under Federal Grants and Cooperative Agreements,” describes three types of transactions with non-University third parties and provides guidance on the classification of such transactions and the policies applicable to each type. Transactions which transfer funds for a portion of the work to another University of California campus under an extramural award are administered via a “Notification of Campus Subaward,” published in Contract and Grant Operating Guidance Memo 02-02. Transactions with the University of California-managed Lawrence Berkeley National Laboratory are covered in Contract and Grant Memo 09-01, “Revised Lawrence Berkeley National Laboratory Intra- University Agreements.” Transactions with Los Alamos and Lawrence Livermore National Security are also published via OP Research Policy Analysis & Coordination (RPAC) memos.
Chapter 16 in this Manual provides further information on the general subject of subawards and subcontracts. Business and Finance Bulletin BUS-43, Materiel Management, provides specific information on special reviews that may be necessary before proposing to solicit or undertake the administration of a subcontract and subcontract requirements in Exhibit C, “Instructions for Use of University Terms & Conditions” and Supplement 5, “Special Terms and Conditions for Subcontracts under Federal Government Contracts.”
In addition, BUS-43, Cost-Reimbursement Type Subagreements for Research, an Informal Guide, provides guidance for terms and conditions in subawards for research, training or public service. The Federal Demonstration Partnership (FDP) provides subaward agreement forms on its website which may be used by any institution, FDP or non-FDP member.
University policy on the payment of sales and use taxes is contained in Accounting Manual Chapter T-182-73, "Taxes: Sales and Use Tax," which states, in part:
When the University purchases an item under a federal contract or grant, and when, at the time of purchase, title to the item vests, or is to vest, in the Federal Government, ...then no State sales or use tax is due on the purchase. When title to the item vests in the University at the time of purchase, then the purchase becomes subject to State sales or use tax.
State sales or use tax should be figured into a proposal budget that includes equipment unless title to that equipment will vest in the federal sponsor.
With respect to unrelated business income taxes (UBIT), income from projects related to the University's missions of teaching, research and public service is not unrelated business income. Agreements providing a service to a non-University entity, however, may be subject to University unrelated business income reporting requirements if the provision of the service constitutes a trade or a business, has no instructional, research, or public service value, and is regularly carried on. University policy is contained in the "University Policy on Activities Generating Unrelated Business Income.” Related guidance is published in Contract and Grant Operating Guidance Memo 00-06, “Distinguishing between Private Gifts, Private Grants and Contracts; and Sales and Service Transactions.” Information on activities that pose a potential unrelated business income tax liability is collected each year by the Office of the President Corporate Accounting Office. The Corporate Accounting Office is responsible for preparing the University's annual unrelated business income tax return.
Termination costs are amounts incurred when a sponsored agreement is terminated prior to its natural expiration date. Examples of such costs include: additional administrative and clerical expenses incurred in closing down the program; storage and transportation costs for property acquired or produced under the agreement and disposed of in accordance with special sponsor requirements; claims under terminated subcontracts; compensation to staff during their notice of termination period; severance pay; leases; and uncancellable obligations. Sponsored agreements should contain provisions for termination that obligate the sponsor to pay all termination costs, including all uncancellable obligations.
Transportation costs are defined in Accounting Manual Chapter D-371-28, "Disbursements: Freight," as "the cost to transport supplies, materials, or equipment via a commercial carrier; also may include packing, crating, and handling costs." Transportation costs associated with the purchase of equipment are budgeted as part of the equipment's acquisition cost. (See 7-205.) Transportation of individuals is budgeted as travel cost. (See 7-224.)
Travel costs are the expenses for transportation, lodging, subsistence, and related items incurred by employees traveling on official University business. These policies are contained in Business and Finance Bulletin G-28 Policy and Regulations Governing Travel.
University travel policy applies to all travel using extramural funds unless an extramural award contains more restrictive travel terms. However, Contract and Grant Officers should resist accepting the application of a more restrictive sponsor travel policy as this creates a differential in University travel reimbursement for employees and is an administrative burden for departments.