Vanderbilt University

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

Direct Costs: Reasonableness

A. Reasonableness

Government Regulation......

A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under circumstances prevailing at the time the decision to incur the cost was made. Major considerations involved in the determination of the reasonableness of a cost are:

1. whether or not the cost is of a type generally recognized as necessary for the.......performance of the sponsored agreement;
2. the restraints or requirements imposed by such factors as arm's-length bargaining, Federal and State laws and regulations, and sponsored agreement terms and conditions;
3. whether or not the individuals concerned acted with due prudence in the circumstances, considering their responsibilities to the institution, its employees, its students, the Federal Government, and the public at large; and
4. the extent to which the actions taken with respect to the incurrence of the cost are consistent with established institutional policies and practices applicable to the work of the institution generally, including sponsored agreements.

[Office of Management and Budget Circular A-21, Section C.3.]