Policy RA03 PREPARING BUDGETS (COST ESTIMATES) FOR SPONSORED PROJECTS

Contents:

  • Purpose
  • Definition and Purpose for Budgets and Cost Estimates
  • Agency Specific Guidance for Proposal Budget Preparation
  • Guidelines
  • Cross References

  • PURPOSE:

    To define general University policies that govern the development of cost estimates contained in budgets for sponsored projects. Federal regulations that govern the allowability of costs are contained in Office of Management and Budget (OMB) Circulars 2 CFR 220 (A-21) and 2 CFR 215 (A-110). Guidance for the development of proposals utilizing SF-424 (the Standard Form used for applications for Federal assistance) is contained in OMB Circular A-110. Contract budgets are developed using Standard Form 1411, and guidance for the development of cost proposals for contracts is found in Section 15 of the Federal Acquisition Regulations (FAR).

    Refer to RAG02, Central Matching Funds Program for Research Equipment and RAG03, Central Matching Funds Program for Assistantships / Traineeships for additional information on requests for Central Administration Matching Funds.

    DEFINITION AND PURPOSE FOR BUDGETS AND COST ESTIMATES:

    OMB Circular 2 CFR 215 (A-110), Section 25(a), defines the budget plan as the "financial expression of the project or program." To understand the government's basic philosophy on budget building and review, however, one must turn to the Federal Acquisition Regulations (FAR). Technically, the FAR only applies to contract acquisitions and not to grant applications, but much of what the FAR states about cost estimating applies equally to grants as well as contracts. FAR points out the following about cost estimates, their content, and their purpose:

    AGENCY-SPECIFIC GUIDANCE FOR PROPOSAL BUDGET PREPARATION:

    The development of a proposal budget is generally governed by the application guidelines that are disseminated by the particular sponsoring agency.

    GUIDELINES:

    The following represent general categories of costs frequently proposed for sponsored projects. The specific order or placement within a budget is dependent upon the format of the sponsor.

    1. Direct Labor (salaries and wages).

    Budget justification should identify specific individuals to be working on the project (or if individuals are not known at the proposal stage the budget should identify positions by title and give the number of individuals for each title), amount of time (normally a percent of effort) to be devoted to the sponsored project, and salary associated with that time.A clarification of 2 CFR 220 (A-21) issued by the OMB ( memorandum M-01-06, dated January 5, 2001) states that most federally funded research programs should have some level of committed effort by faculty (or senior researchers) either paid (by the federal government) or unpaid (cost shared by the institution), unless there is a legitimate reason that there would be no effort on the agreement (e.g., programs for equipment and instrumentation, doctoral dissertations, and student augmentation).

    NOTE: In accordance with 2 CFR 220 (A-21), salaries of administrative and clerical staff should normally be treated as F&A costs, except where it meets the standards of Exhibit C to A-21, and such costs are treated in accordance with RAG01.

    The basis for developing estimates begins with the salary of the individual (or an average rate for the position, if the individual is not known) for the current Penn State fiscal year. This amount should be multiplied by the percent of effort on the project being proposed for the individual to compute salaries to be applied to the current fiscal year. (See Section 4 for projecting costs for future periods.)

    2. Negotiated Rates (fringe benefits and F&A costs).

    Budget justification should include the current applicable rates and statements that these rates are reviewed and approved by the University's cognizant Federal agency, the Office of Naval Research (ONR). Confirmation of approved rates may be obtained directly by sponsors by contacting:

    The Office of Naval Research
    Chicago Regional Office
    536 South Clark Street, Room 208
    Chicago, IL 60605-1588
    Telephone: 312-886-5423
    Fax: 312-353-6089

    Rates to provide for recovery of fringe benefits and F&A costs are negotiated each year with the ONR, based upon proposals submitted by the University and audited by the Defense Contract Audit Agency (DCAA). Current fringe benefit, F&A cost, and tuition remission rates are available from the College / Interdisciplinary Program or the Office of Sponsored Programs.

    3. Other Direct Costs:

    a. Subcontracts - Identify individual subcontractors (if known) and the total estimated cost for each. When the subcontractor is known, the following items should accompany the budget justification:

    1. an itemized budget with appropriate detail presented on the sponsor's required forms,
    2. a statement of work to be performed by the subcontractor, and
    3. a commitment to perform as a subcontractor, as evidenced by a signature of an authorized official of the subcontractor. [Refer to Penn State's policy on Subcontracting.]

    b. Consultants - Identify consultants to be used, time to be spent on the project, and rates of pay. (Some Federal agencies restrict the rate of pay, usually at a rate not to exceed the equivalent of the daily rate for GS-18 in Federal service, excluding expenses and University F&A costs.) The need for the consultant and the work to be performed must be identified in the proposal. (See also Policy BS17.)

    c. Equipment - List separately items of equipment exceeding $5,000 and having a useful life of more than 2 years. The basis for the cost estimates must be available to provide evidence to support the costs proposed. The need for the equipment and the purpose of the equipment must be identified in the proposal. (Note: in accordance with 2 CFR 220 (A-21), general purpose equipment usually is not allowable as a direct cost to Federal sponsored projects, except where approved in advance by the sponsoring agency.)

    d. Supplies - Provide general categories of budgeted supplies and estimated cost. The basis for the cost estimates must be available to provide evidence to support the costs proposed. The need for the supplies must be addressed in the proposal. (Note: in accordance with 2 CFR 220 (A-21), office supplies usually are not allowable as a direct cost to Federal sponsored projects, except where approved in advance by the sponsoring agency.)

    e. Travel - List proposed trips individually, describe their purpose in relation to the grant and provide details that are known, such as dates, destinations, and number of travelers. Explain how the costs for each were derived (e.g., provide a breakdown of airfare, car rental, per diem, etc.).

    f. Specialized Services - Use of specialized services (e.g., the central computer facilities, animal research laboratory, and other auxiliary enterprises) must be budgeted at the currently approved rates. Rates are reviewed and approved by the Controller's Office, and can be obtained from the Office of the Deputy Controller.

    g. Tuition Remission - Tuition remission rates for graduate assistants are set by the University each fiscal year and are available from the College / Interdisciplinary Program or the Office of Sponsored Programs.

    h. Other - Enter the total of any other direct costs not covered by 2.a. through 2.f. Include in the budget justification a list explaining the relationship of each to the proposed project and the basis for the estimate. (Note: in accordance with 2 CFR 220 (A-21), certain other costs such as postage, local telephone costs, and memberships usually are not allowable as a direct cost to Federal sponsored projects, except where approved in advance by the sponsoring agency.)

    4. Projecting Cost-Inflation Factors;

    Estimates of personnel and other direct costs for out years should be proposed using reasonable percentage increases as defined annually by the University Corporate Controller. Variation from the approved rates is allowable when:

    a. the agency requires the use of a lower factor;

    b. documented historical data supports the use of a higher rate; or

    c. other significant changes that affect cost can be anticipated with accuracy, e.g., faculty promotions in rank.

    5. Supporting Documentation;

    Supporting documentation must be available to provide evidence that the cost estimates are reasonable, accurate, and current as of the time of the proposal or negotiations. This documentation may include catalog prices, telephone or written quotes, or institutional records such as Purchase Orders.

    CROSS REFERENCES:

    Other sources in GURU may also apply, especially:

    FNG05- Expenditure Guidelines For Costs Not Allowable Under OMB Circular A-21

    BS17 - Use and Procurement of External Consultants

    RA04 - Making Revisions to Budgets and Program Plans on Federally Sponsored Projects

    RA06 - Cost Recovery for Sponsored Projects

    RAG01 - Implementing Revised OMB Circular A-21 (Section F.6.b - Departmental Administration Expense)

    RAG02 - Central Matching Funds Program for Research Equipment

    RAG03 - Central Matching Funds Program for Assistantships / Traineeships

    RAG10 - Cost Sharing


    Effective Date: August 14, 2006
    Date Approved: August 11, 2006
    Date Published: August 11, 2006 (Editorial changes, March 19, 2013)

    Most Recent Changes

    Revision History (and effective dates):

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