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Direct vs. Indirect Costs

Direct Costs

The cost principles as defined in Uniform Guidance provide the basis for determining the procedures used to identify direct costs. Costs incurred to support a project are treated as direct costs and are charged to sponsored projects when the costs can be specifically identified to the project with relative ease and with a high degree of accuracy and are allowed by all terms and conditions governing a particular project. These conditions include being reasonable, allocable and allowable.

Indirect Costs

Indirect costs, also known as facilities and administrative (F&A) costs, are general institutional expenditures that are incurred for common or joint objectives benefiting instruction, research or public service and, therefore, cannot be readily identified with a particular sponsored project. These costs are allocated to sponsored projects in accordance with OMB circulars through the application of the university’s federally approved indirect costs rate.

Allocability is the assignment of an item of cost to one or more sponsored awards or other funding types, of which each award/account charged receives a realistic proportional benefit from the incurrence of the cost. There must be a correlation between the direct benefit received and the portion of the cost that is charged to each project/account.

All expenditures to a sponsored award must meet the definition of a direct cost. It is important to look at the purpose of the individual project. What may be considered a normal direct cost for one project may not be reasonable for another.

Based on NC State University’s approved disclosure statement (DS-2) and other federal, state and university guidelines, we provide you a list of costs and how they are normally charged. There may be exceptions for individual projects, and you should contact your college business office for specific information on the justification and documentation needed to allow for an unlike circumstance.