Vanderbilt University

Guidelines for Budgeting and Charging Direct Costs on Sponsored Projects (11/15/96)

Direct Costs: Definition and List of Criteria

Government Definition of Direct Costs:

Direct costs (see NOTE below) are those costs that can be identified specifically with a particular sponsored project, or that can be directly assigned to such activity relatively easily with a high degree of accuracy.

Summary of Criteria for Determining Allowability of Direct Costs:

For purposes of determining whether it would be appropriate to budget or charge a certain direct cost on a government sponsored project, principal investigators, departmental business officers and grant administrators should be familiar with the criteria used to define "allowable direct costs". They are:

1. The cost must be reasonable, i.e., the cost is generally recognized as necessary for the performance of the project and is one that a prudent person would consider reasonable given the same set of circumstances;
2. It must be allocable to the sponsored project, i.e., the cost is incurred for the benefit of only one project or the item can be easily assigned to multiple benefiting projects. A specific project may only be charged that portion of the cost which represents the direct benefit to that project;
3. The cost must be treated consistently with other similar costs incurred in like circumstances in accordance with generally accepted accounting principles; and
4. The cost must conform to any limitations or exclusions stated in generally accepted accounting principles or in the sponsored agreement, i.e., the cost must be "allowable" and not specifically designated as unallowable by regulation or grant/contract specific award conditions.
5. If sponsor funds are available, appropriate direct cost items should be charged to sponsor funds. Guidance for using appropriate Vanderbilt account codes is included in the section of this Guide titled "Account Coding". If sponsor funds are not available and it is determined that the scope of work of the project cannot be modified to eliminate the need for the item, then the direct cost item should be charged to an appropriate cost-share account [Note: internal approvals for cost sharing may be required] and reflected as a cost of the project, but one borne by Vanderbilt.

NOTE:

Direct Costs should be net of applicable credits. In accordance with Office of Management and Budget Circular A-21, Section C.5., the term "applicable credits" refers to those receipts or negative expenditures that offset or reduce direct cost items. "Typical examples of such transactions are: purchase discounts, rebates, or allowances; recoveries or indemnities on losses; and adjustments of overpayments or erroneous charges. This term also includes 'educational discounts' on products or services provided specifically to educational institutions, such as discounts on computer equipment, except where the arrangement is clearly and explicitly identified as a gift by the vendor."