Cost Policy

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Federal Cost Policy

Michigan State University

The federal government is the largest sponsor of research at Michigan State University. It sets forth the principles for expenditure of federal funds in the United States Office of Management and Budget (OMB) Circular A-21 "Cost Principles for Educational Institutions". This Circular provides principles to be applied to selected items of cost to determine allowability of such costs on federal projects, and also to determine the appropriate calculation of the University’s Facilities & Administrative (indirect) cost rate. The table below gives information regarding the allowability of some of the most common items of cost. In the case of a discrepancy between the provisions of a specific federal agreement and the provisions below, the provisions of the specific agreement should govern.

For costs to be allowable they must directly benefit the project(s) charged and they must be reasonable. For a cost to be considered reasonable, the person responsible for making a decision to incur that cost should be able to be answer "yes" to the following questions:

Does the nature of the goods and services acquired or applied, and the amount to be paid for them, reflect the action a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made?
Is the cost a type generally recognized as necessary for the operation or the performance of the sponsored agreement?
Is the transaction the result of "arm’s-length bargaining" and does it fall within guidelines established by federal and state laws and regulations and sponsored agreement terms and conditions?
Are the actions taken with respect to the incurrence of the cost consistent with established institutional policies and practices applicable to the work of the University generally, including sponsored agreements?

In addition to the above, allowable project expenses must be needed, received and used within the project period. Click the following for more information on the "Needed, Received & Used" concept.

Cost	Normal Federal Treatment
Salaries, Wages, & Fringes: Faculty, AY & Summer Graduate Assistants Technical Administrative & Clerical	Faculty, Graduate Assistants, and Technical personnel are allowable on federal agreements to the extent supported by actual effort performed on the project. Semester Effort Reports (SER) will be used to document the actual effort performed. Administrative and Clerical costs are recovered through indirect costs, therefore, they are generally unallowable as direct costs on federal agreements. However, please note the following exceptions: Direct charging of Administrative and Clerical salaries may be appropriate where the nature of the work performed under a particular project requires an extensive amount of administrative or clerical support that is significantly greater than the routine level of such services provided by academic departments. The charging of these costs directly would need to meet the following general criteria: be relatively easily and specifically identified, with a high degree of accuracy, with a particular sponsored project. the special circumstances requiring direct charging of these services must be justified to the satisfaction of the awarding agency. Some examples of circumstances where direct charging the salaries of administrative or clerical staff may be appropriate are as follows: Large, complex programs, such as general clinical research centers, primate centers, program projects, environmental research centers, engineering research centers, and other grants and contracts that entail assembling and managing teams of investigators from a number of institutions. Projects that involve extensive data accumulation, analysis and entry, surveying, tabulation, cataloging, searching literature, and reporting, such as epidemiological studies, clinical trials, and retrospective clinical records studies. Projects that require making travel and meeting arrangements for large numbers of participants, such as conferences and seminars. Projects where the principal focus is the preparation and production of manuals and large reports, books and monographs(excluding routine progress and technical reports). Projects that are geographically inaccessible to normal departmental administrative services, such as sea going research vessels, radio astronomy projects, and other research field sites that are remote from the campus. Individual projects requiring significant amounts of project-specific database management; individualized graphics or manuscript preparation; human or animal protocol, IRB preparations and/or other project-specific regulatory protocols; and multiple project-related investigator coordination and communications. These examples are not exhaustive nor are they intended to imply that charging of administrative or clerical salaries would always be appropriate for the situations illustrated in the examples above. Where direct charges for administrative and clerical salaries are made (as with other administrative type costs, e.g., telephones, postage, office supplies), care must be exercised to assure that costs incurred for the same purpose in like circumstances are consistently treated as direct costs for all activities.
Advertising	Allowable if incurred for: Recruitment of personnel required for the performance of obligations under federal agreements, Procurement of goods and services for the performance of federal agreements, Disposal of scrap or surplus materials acquired in the performance of federal agreements, or Other specific purposes necessary to meet the requirements of federal agreements.
Alcoholic beverages	Under no circumstances can such purchases be charged (directly or indirectly) to federal agreements. Alcoholic beverages may be purchased with University funds only with special permission.
Alumni/development activity	Unallowable
Business meals and meeting costs	Allowable when permitted by agency guidelines.
Donations and contributions	Unallowable
Entertainment costs	Unallowable, unless specifically approved.
Equipment	Allowable when equipment is necessary and will be used primarily, or exclusively, for the project(s) to which the costs will be charged. A certification to this effect should appear on the equipment requisition. Note that to be classified as equipment, individual items must have a useful life of more than one year and cost $5,000 or more. Where appropriate, an analysis shall be made of lease and purchase alternatives to determine which would be the most economical and practical procurement method.
Fines and penalties	Unallowable
Goods or services for personal use	Unallowable
Local telephone	Since these costs can support all activities of a unit, they are recovered through the indirect cost rate. Local telephone service charges normally should not be charged directly to federal agreements. However, in those instances where the phone will be used exclusively for the federal project, the charges may be directly charged to the federal program.
Long distance telephone	Telephone toll charges, telegrams, etc. can be charged directly when they can be specifically identified with a project.
Losses on federal projects	Cost overruns from one project may not be transferred to another project.
Materials (supplies, purchased materials, and fabricated parts)	There are two broad categories of supplies – Project Supplies and Office Supplies. Project Supplies are items such as pens, pencils, folders, notebooks, beakers etc. that can be identified as being "exclusively for the support" of a sponsored agreement. Project Supplies are allowable as direct charges. Office Supplies are items such as wall clocks, calendars, waste cans, paper punches, University letterhead, staplers, etc. that would likely be used for other purposes. Office Supplies cannot be charged to federal agreements .
Memberships	Memberships in civic or community organizations, country clubs, or social/dining clubs are unallowable. The cost of memberships in professional organizations and associations that directly benefit federal projects are allowable, subject to the following: The payment of dues for institutional memberships (not on behalf of/or in the name of an individual faculty or staff member), are allowable. Occasionally, it is necessary to pay individual membership dues in order to obtain reduced entry to meetings. When documented, the portion of the individual membership dues related to reduced meeting fees is allowable. Under special circumstances, individual memberships may be allowed on an annually-approved basis if essential to a specific research project. Specific approval by the funding source is required. For further information regarding dues, please refer to the "MSU Manual of Business Procedures".
Postage	Since these costs are generally small, difficult to track on an individual basis, and can support all activities of a unit, they should be recovered through the indirect cost rate, and, therefore should not be charged to federal agreements. However, where a project requires specifically identifiable, large mailings, direct charges of postage charges are allowable.
Pre-agreement costs	Costs incurred prior to the effective date of a sponsored agreement are unallowable unless approved by the sponsoring agency.
Professional services	Consultant & speaker fees are an allowable charge to sponsored agreements. Please check with sponsor guidelines for specifics. Please do not use the term "honorarium" for consultant & speaker fees.
Proposal costs	Proposal costs for new projects should be charged to non-federal funding sources and will be included in the indirect cost rate. However, costs for non-competing continuations can be charged directly to those agreements.
Scholarships and student aid costs	Restricted to training grants and fellowship awards.
Travel costs	Travel costs providing direct benefit to project activities are allowable. Airfare costs must be at the lowest available fare. Special note for foreign travel using federal funds – "The Fly America Act" requires that air travel to any foreign country (including Canada and Mexico) must take place on a U.S. flag air carrier, if available (even if the foreign carrier is less expensive). A U.S. flag air carrier is defined as "an air carrier holding a certificate under section 401 of the Federal Aviation Act of 1958. Foreign air carriers operating under permits are excluded."

revised 12/1/05

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