Lesson 81 · The Grant Architect

81. Direct Costs Defined

30 min

By the end you'll be able to

  • Define direct costs under 2 CFR 200 with the specificity test.
  • Classify a draft cost list into direct and indirect columns.
  • Recognize the narrow exception for administrative and clerical salaries as direct costs.
  • Defend each classification against an auditor's review.

Direct costs are expenses that can be identified specifically with a particular federal award, with relative ease and a high degree of accuracy. In practice that means project staff salaries, the supplies the project consumes, the travel the project requires, the equipment the project uses, and the subawards the project lets. If a reasonable person can trace the cost to the funded scope of work, it is a direct cost.

You will learn the categories that almost always belong in the direct column: personnel and fringe for staff assigned to the project, contractual and consultant payments for specific deliverables, project-specific travel, project-specific supplies, and project-specific equipment. You will also learn the edge cases that trip teams up. Administrative and clerical salaries are normally treated as indirect, with a narrow exception when they are integral to the project and specifically identified with it (a research coordinator on a clinical trial, not a generic office manager). General office supplies, utilities, and rent are almost never direct.

By the end you should be able to classify a draft cost list into direct and indirect columns and defend each placement against an auditor who will assume you have classified for convenience rather than for accuracy. The discipline matters because every dollar misclassified as direct artificially inflates your modified total direct cost base, which then inflates indirect recovery and creates the kind of finding that closes the file.

Common mistakes

These are the traps learners hit most often on this topic. Knowing them in advance is half the fix.

  • Putting general office supplies in the direct column.

    Pens, paper, and toner that the whole organization uses are not specifically identifiable with one award. They belong in F&A.

  • Classifying for convenience rather than accuracy.

    Moving a cost to direct because the funder will reimburse it faster, or to indirect because the program officer dislikes a large supplies line, fails the regulatory test and creates an audit finding.

Practice problems

Try each on paper first. Click Show solution only after you've made a real attempt.

  1. Problem 1
    Classify each cost as direct or indirect on a typical federal award. (1) Project coordinator salary at 100 percent effort. (2) Office rent. (3) Laboratory consumables used only by this project. (4) HR department staff time. (5) Project-specific travel to a field site.
    Show solution

    (1) Direct, project coordinator salary at 100 percent effort traces specifically to this award. (2) Indirect, office rent benefits multiple projects and is recovered through F&A. (3) Direct, project-specific consumables trace to this award with high accuracy. (4) Indirect, HR is shared support and lives in the F&A pool. (5) Direct, project-specific travel is identifiable with this award. None depend on undisclosed facts, but item (1) would shift to a question if the coordinator's effort is split across multiple awards.

Practice quiz

  1. Question 1
    Which best defines a direct cost under 2 CFR 200?
  2. Question 2
    Administrative and clerical salaries are normally treated as indirect costs. When can they be charged as direct?
  3. Reflection 3
    In one or two sentences, explain why misclassifying an indirect cost as direct inflates indirect cost recovery on the same award.

Lesson 81 recap

Direct costs are those identifiable with a specific award with relative ease and high accuracy. Administrative and clerical salaries are direct only in narrow, documented circumstances.

Coming next: Lesson 82 — Indirect Costs (F & A) Overview

Next we turn to the other side of the structural divide and define indirect costs, also known as Facilities and Administrative (F&A) costs.

Saved in your browser only — no account, no server.