Evaluate cost allowability under 2 CFR 200 Subpart E by applying the principles outlined in Sections 403, 404, and 405. These sections define the criteria for allowability, allocability, and reasonableness, which collectively determine whether a cost can be charged to a federal award.
Key Insights
- Section 403 identifies the specific criteria a cost must meet to be considered allowable; failure to meet any criterion renders the cost unallowable.
- Section 404 addresses allocability, ensuring that costs are properly categorized and proportionally assigned based on the benefits received.
- Section 405 evaluates cost reasonableness, using the Federal Acquisition Regulation definition of a prudent person engaged in competitive business practices.
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So one of the first things you do when you're utilizing subpart E cost principles is that you determine the allowability of a cost. And ultimately, to determine the allowability of a cost, you want to receive guidance from three main subsegments of subpart E, sections 403, 404, and 405. Section 403 covers, well, what makes a cost allowable? And there's a checklist of criteria that a cost has to meet to be allowable.
And if any of these criteria is not met, then a cost simply is not allowable. And then you go to section 404, and you determine the proper allocability of cost. Now allocability goes to the literal cost.
Is it defined and categorized the way it's supposed to be? Is it on the correct cost line item? But theoretically too, allocability attests to our costs in proportion to benefits received. And then you check for the reasonableness of a cost. And the reasonability factor is what would a prudent person do? And even though we don't have a definition of prudency in 2 CFR 200 subpart E cost principles, we can extract the definition of prudency from FAR 31-2.
And prudency in a federal acquisition regulation states that a prudent person is one who is conducting competitive business. Allowability, its criteria, allocability, and reasonableness are the cornerstones of determining if a cost is allowable. Sections 403, 404, and 405.