Cost Principles
Generally, the compensation paid individual employees should be left to the judgment of contractors subject to the limitations of DOE-approved compensation policies, programs, classification systems, and schedules, and amounts of money authorized for wage and salary increases for groups of employees. However, the contracting officer shall designate a compensation threshold appropriate for the particular situation. The contract shall specifically provide that contracting officer approval is required for compensating an individual contractor employee above the threshold if a total of 50 percent or more of such compensation is reimbursed under DOE cost-type contracts.
Example of a cost unallowable for reimbursement by the federal government, but allowable for reimbursement by Stanford:
Though individual school processes may vary, department administrators typically have expenditure approval up to $25,000. Purchases that exceed $25,000 are approved by financial personnel in each school’s management center. (b) Travel costs incurred in the normal course of overall administration of the business are allowable and shall be treated as indirect costs. For businesses, Cost Principles And Allowable Expenses applying cost principles ensures that their pricing strategies are sound and that they are not overestimating or underestimating their costs.
Example of a cost that is unallowable for reimbursement by Stanford:
For example, the company cannot claim costs that are considered “unallowable,” such as entertainment or excessive executive compensation, under the contract’s cost principles. Once allowability criteria have been met, the cost must be evaluated against the criterion of allocability. That is, the cost has been incurred solely to support or advance the work of a specific sponsored research award.
Regulations Dears Menu
- Allowability, allocability, and reasonableness are defined and determined by the Office of Management and Budget (OMB), the sponsor’s requirements and/or College policy.
- It is crucial to code and categorize expenses correctly to comply with Stanford’s obligation to the federal government for both direct and indirect cost recovery.
- For government contractors, it helps to ensure that they are reimbursed appropriately and in line with the terms of their contracts.
- These principles are designed to ensure that costs are recorded accurately and consistently, reflecting the true economic expense of producing goods or services.
- Follow Application of Award Terms where restrictive or permissive conditions in the actual award document take precedence.
- Cost principles are used in various industries, particularly in accounting, government contracting, and corporate finance, to ensure compliance with legal standards, financial reporting requirements, and cost-effectiveness.
The department administrator within your school can also help with invoicing or questions about charging to your account. Pcard owners approve purchases made on their Pcard and are required to upload all receipts. The purchasing card team audits Pcard expenditures to ensure they comply with relevant policy and have the proper back-up documentation. Allocation of expense is the process of assigning a cost or a group of costs, to one or more PTAs in accordance with the benefits received. Follow Application of Award Terms where restrictive or permissive conditions in the actual award document take precedence. Questions as to whether a particular expense is reasonable or not may be referred to a cognizant Dean’s Office staff member.
- (b) The contracting officer shall include the clause with its Alternate II in contracts with management and operating contractors not previously working at that particular site or facility.
- (iii) Name of person on trip and that person’s title or relationship to the contractor.
- Activities and transactions could be considered unallowable costs due to federal regulations, Institute policy, sponsor guidelines or terms and conditions of a sponsored project.
- A cost is consistent when like expenses are treated the same manner under like circumstances.
- This principle exists to ensure that each educational institution’s practices used in estimating costs for a proposal are consistent with cost accounting practices used by the institution in accumulating and reporting costs.
The trip will benefit the project, and the travel costs are therefore allocable to the project. Individuals directly involved with a project, particularly the PI, determine whether a cost is allocable to that project. In a case like this, when Jane’s department submits expense reports for reimbursement, the package should include the conference agenda or other documentation to support the relationship between the travel and the project which paid for it. Reasonable costs for transportation, lodging, or meals incurred by contractor employees shall be reimbursable. Cost principles are important because they establish a uniform and transparent approach to measuring, allocating, and reporting costs.
3102-570 Preexisting conditions.
These tests also apply regardless of treatment as a direct cost Costs that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned to such activities relatively easily with a high degree of accuracy. Or an F&A cost Necessary costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.. The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability. All costs incurred for the same purpose and in like circumstances must be treated uniformly either as direct costs or as indirect (facilities and administrative or F&A) costs.
A cost is allocable to a particular award if the goods or services involved can be directly charged to the award based on the benefit provided. Expenses that are unallowable for federal reimbursement may be reasonable and necessary business expenses permitted by the University. (ii) Whether increased flexibility in scheduling results in time savings and more effective use of personnel that would outweigh additional travel costs. (4) Paragraphs (a)(2) and (a)(3) of this subsection do not incorporate the regulations cited in paragraphs (a)(2)(i), (ii), and (iii) of this subsection in their entirety.
Cost Principles
(4) Because the contract’s fee provides some compensation for Home Office Expenses, the contractor’s request for additional compensation must always be for an amount less than the Home Office Expenses that are incurred for the benefit of the management and operating contract. (ii) Conventional Home Office Expense allocation techniques that use bases such as total operating costs, labor dollars, hours etc., are not appropriate because they inherently assume significant contractor investment (in terms of its own resources, such as, labor, material, overhead, etc.). The contracts are totally financed by DOE advance payments, and DOE provides government-owned facilities, property, and other needed resources. (b) The Head of the Contracting Activity is responsible for following the policy, principles and standards set forth in this subpart in establishing the compensation and reimbursement provisions of contracts and subcontracts and for submission of deviations for Headquarters consideration and approval.
Our ability to obtain federal grants and contracts is dependent upon our performance in meeting federal requirements. Stanford generally applies these cost principles to the expenditure of non federal funds as well, however, in some cases non federal sponsors define allowable/unallowable costs differently than federal sponsors. (b) For off-site work, the DOE allows Home Office Expenses under architect-engineer, supply and research contracts with commercial contractors performing the work in their own facilities. Home Office Expenses may, however, be included for reimbursement under such DOE off-site architect-engineer, supply and research contracts, only to the extent that they are determined, after careful examination, to be allowable, reasonable, and properly allocable to the work. Work performed in a contractor’s own facilities under a management and operating or construction contract may likewise be allowed to bear the properly allocable portion of allowable Home Office Expenses. A cost is allowable if it is permitted as a cost within general federal and state regulations, the terms of a specific award, and/or the institution’s F&A rates.
The approved justification required by paragraph (a)(3)(ii) and, if applicable, paragraph (a)(3)(iii) of this subsection must be retained. Cost principles refer to a set of guidelines or rules that determine how costs should be measured, allocated, and accounted for in financial reporting, budgeting, and pricing. These principles are designed to ensure that costs are recorded accurately and consistently, reflecting the true economic expense of producing goods or services. Cost principles are used in various industries, particularly in accounting, government contracting, and corporate finance, to ensure compliance with legal standards, financial reporting requirements, and cost-effectiveness. Department administrators are responsible for ensuring funds are available and that purchases adhere to cost principles.