OMB Cost Principles

Topics on this Page

• Purpose of OMB Cost Principles & Basic Cost Guidelines
• Direct Costs - What are they?
• Indirect Costs - What are they?
• Cost Examples
• Allowable Costs
• Unallowable Costs
• Resources

Purpose of OMB Cost Principles & Basic Cost Guidelines

• Establishes standards for Federal Agencies to provide a uniform approach for determining the allowability of costs.
• Costs are reasonable to a grant project when the cost requested does not exceed the market prices for comparable goods or services. (2 CFR 200.404 Reasonable costs. Exit Disclaimer: You Are Leaving www.ihs.gov )
• Costs are considered necessary to a grant project when they are recognized as ordinary and necessary to support the operation and/or performance of the grant (2 CFR 200.403 Factors affecting allowability of costs. Exit Disclaimer: You Are Leaving www.ihs.gov )
• Costs are allocable to a grant project when they are assigned to a specific function where costs are needed and incurred. (2 CFR 200.405 Allocable costs. Exit Disclaimer: You Are Leaving www.ihs.gov )
• Costs must be treated consistently regardless of th esource of funds. This applies to recipients that have grants with other Federal agencies or other awards under different grant programs within the same agency. (2 CFR 200.403 Factors affecting allowability of costs. Exit Disclaimer: You Are Leaving www.ihs.gov )
• Costs must be adequately documented. (2 CFR 200.403 Factors Factors affecting allowability of costs. Exit Disclaimer: You Are Leaving www.ihs.gov )
• Cost Principles are found in 2 CFR 200 Subpart E. Exit Disclaimer: You Are Leaving www.ihs.gov 

Direct Costs - What are they?

Costs that can be specifically identified or assigned to a particular cost objective under a project. Costs that are incurred for the same purpose under other grant projects must be treated consistently as a “direct cost”. Some examples of direct costs include:

• Personnel costs - compensation of employees for the time they devote specifically to carry out the performance of the grant project;
• Supply costs – materials identified specifically to carry out the performance of the grant project;
• Equipment – defined as a unit threshold of $5,000 or more;
• Travel Costs – expenses for travel that are incurred specifically to carry out the grant project; and,
• Training Costs – expenses for employee development that will directly benefit the grant project.

Indirect Costs - What are they?

Costs that are incurred for a common or joint purpose benefitting more than one cost objective. Some examples of indirect costs are:

• Administrative support not specifically hired to support the grant project; and,
• Rental costs where the space is not rented specifically to support the grant project.
• Additional information can be found at 2 CFR 200.414 Indirect (F&A) costs. Exit Disclaimer: You Are Leaving www.ihs.gov 

Cost Examples

The lists provided below are not intended to be all inclusive. If the cost principle fails to mention a particular item of cost this does not imply that is allowable or not allowable. Costs that are not mentioned in the cost principles are subject to review and approval. The cost must be used to meet specific purposes of the grant project.

1. Allowable Costs:
1. Accounting – cost of establishing and maintaining accounting and other information systems;
2. Advertising – cost allowable only when incurred to recruit personnel and any other specific purpose necessary to meet the requirements of the project;
3. Audit services – if specifically approved by the Chief Grants Management Officer as a direct cost to an award (if it is not included as an indirect cost in a cost allocation plan or rate);
4. Cultural-related activities (agency specific) – allowed only when incurred to specifically promote wide-spread participation from the American Indian/Alaska Native population in all activities that will carry out the grant programs.
5. Equipment – defined as under $5,000; and,
6. Incentives – allowed; however, there is an agency-specific requirement threshold of $30 per item. Prior approval required from GMO for items that exceed the threshold.
2. Unallowable Costs
1. Contingency costs – events which cannot be foretold with certainty as to time, or with assurance that the events will happen;
2. Contributions and donations – cash, property, and services regardless of the recipient;
3. Entertainment costs – amusement (parks), tickets to shows/sporting events, social activities, etc.

Criteria for determining whether a cost is allowable are found in the Grants Policy Statement (GPS) [PDF - 918 KB]. Exit Disclaimer: You Are Leaving www.ihs.gov  Considerations for selected items of cost can also be found at 2 CFR 200.420-476. Exit Disclaimer: You Are Leaving www.ihs.gov  Costs that are not adequately documented under the budget justification will be questioned. In such cases, the Division of Grants Management (DGM) will request additional information to support the costs outlined in the grant application and/or carryover request.

This process is a requirement of the OMB Cost Principles and the administrative requirements that govern our grants.

For additional grants management concerns or information, please contact your Grants Management Specialist (GMS), listed on your Notice of Award or contact the Division of Grants Management via e-mail at DGM@ihs.gov.

Resources

• 2 CFR 200 Subpart E - Cost Principles. Exit Disclaimer: You Are Leaving www.ihs.gov 
• HHS Grants Policy Statement [PDF - 918 KB] Exit Disclaimer: You Are Leaving www.ihs.gov