GAP 200.320

Direct costs are those which can be identified specifically with a particular sponsored project and which can be directly assigned to such activities, relatively easily and with a high degree of accuracy. For example, the supplies needed for a research project are easy to identify, as are the salaries of the individuals who will work on the project and travel expenses for those individuals.

Allowable Costs
The primary source for identifying costs which may be charged to grants, contracts, and other agreements is a circular prepared by the Office of Management and Budget, OMB Circular A-21, Cost Principles for Educational Institutions. The document identifies costs that may be charged to these agreements and further clarifies which of those costs may be charged as direct costs and which may be charged as indirect costs. While not all of the projects sponsored at Duke are federally funded, and while not all sponsors allow the inclusion of indirect costs in a project budget, the distinction between direct and indirect costs must be maintained throughout the University.

Not every cost associated with a project may be included in the budget. For example, entertainment costs are not allowable either as direct or F&A costs.

Unallowable Costs
A sponsor's progam announcement may identify costs which cannot be included in the budget, although they would qualify as direct costs according to OMB A-21.

Sponsors may also limit the dollar amount in certain buget categories. For example, salary caps may be set in place as part of appropriation legislation or agency policy. Many federal agencies also limit payment to individual consultants.

Defining Direct and F&A Costs
Direct costs are those which can be identified specifically with a particular sponsored project and which can be directly assigned to such activities, relatively easily, and with a high degree of accuracy.
For example, the supplies needed for a research project are easy to identify; however, costs such as heating and air conditioning the rooms and labs used by the project staff are not. The latter are indirect, defined as those that are incurred for common or joint objectives, and which cannot be identified readily and specifically with a particular sponsored project. (The federal government has recently changed the terminology used to refer to indirect costs. They are now called facilities and administrative, F&A, costs.)

Federal regulations provide principles for determining what costs are applicable to agreements with the government and identify which of those costs may be charged as direct and which must be charged as F&A costs. Furthermore, the rules state that the distinction between direct and F&A costs must be maintained consistently throughout the University regardless of the source of funding.