2 CFR 200.407: Sixteen Prior Approval Categories and How to Request

Under 2 CFR 200.407, prior written approval works two ways: any federal grant recipient may request advance approval for any cost to lock in its allowability, and for sixteen specific categories of cost that approval is required before you spend the money. Skip the approval on one of those sixteen, and the cost is unallowable no matter how reasonable it looks in hindsight.1eCFR. 2 CFR 200.407 – Prior Written Approval (Prior Approval)

Optional Approval Versus Required Approval

The regulation opens with permissive language. Any recipient “may seek” prior written approval for a cost to head off later disputes about whether it was reasonable or properly allocated to the award. Getting a yes in writing essentially insulates that cost during an audit.

The second half is where allowability turns. Section 200.407 lists sixteen sections of the Uniform Guidance where prior approval is “specifically required for allowability.” Miss it on one of those, and the cost is disallowed. The regulation also states plainly that the absence of prior approval “will not, in itself, affect the reasonableness or allocability” of costs outside those sixteen categories.1eCFR. 2 CFR 200.407 – Prior Written Approval (Prior Approval) Forgetting to ask about a routine supply purchase does not automatically sink it. Forgetting to ask about general purpose equipment does.

The Sixteen Categories That Require Prior Approval

Section 200.407 cross-references sixteen sections of the Uniform Guidance. Each identifies a cost or activity where the specific subsection requires written authorization from the federal awarding agency, or the pass-through entity, before the expense is incurred.

  • Cost sharing (200.306): changes to the approved cost-sharing arrangement.
  • Program income (200.307): how income generated by the award will be used.
  • Budget and program revisions (200.308): a wide range of scope, personnel, and budget changes covered below.
  • Fixed-amount subawards (200.333): issuing subawards on a fixed-amount basis.
  • Compensation (200.430): certain personnel situations, including charging incidental activities directly and IHE faculty salary arrangements.
  • Fringe benefits (200.431): abnormal or mass severance pay accruals.
  • Equipment and capital expenditures (200.439): special purpose equipment at $10,000 or more per unit, general purpose equipment, buildings, land, and capital improvements.
  • Exchange rates (200.440): costs affected by currency fluctuations.
  • Fines, penalties, and settlements (200.441): generally unallowable, but approval may make certain settlement costs permissible.
  • Fundraising (200.442): normally unallowable unless the costs directly support federal program objectives and receive advance authorization.
  • Goods or services for personal use (200.445): housing costs, housing allowances, and personal living expenses for employees.
  • Insurance and indemnification (200.447): certain insurance arrangements charged to the award.
  • Organization costs (200.455): costs of incorporating or reorganizing an entity.
  • Pre-award costs (200.458): expenses incurred before the official award start date.
  • Rearrangement and reconversion costs (200.462): special facility alterations made specifically for a federal award.
  • Travel costs (200.475): travel by officials covered under section 200.444, and dependent travel for assignments of six months or longer.

A few categories people expect to see on this list are not. Participant support costs (200.456) and entertainment costs (200.438) have their own rules, but they are not among the sixteen sections cross-referenced by 200.407. Their approval requirements come from their own sections and from 200.308.

Budget and Program Revisions Under 200.308

Section 200.308 is the most commonly triggered prior approval requirement on the list, because nearly every award eventually needs some mid-course adjustment. The following changes all require written approval before you proceed:2eCFR. 2 CFR 200.308 – Revision of Budget and Program Plans

  • Any change in the objectives or scope of the project, even if no money moves between budget lines.
  • Adding or removing individuals identified by name or position in the award.
  • The principal investigator disengaging for more than three months, or reducing time and effort on the project by 25 percent or more over the performance period.
  • Transferring funds originally budgeted for participant support into any other budget category.
  • Adding subaward activities that were not part of the original approved application.
  • Any change to the total approved cost-sharing amount.
  • Requesting additional federal funds to complete the project.
  • Transferring funds between construction and non-construction work.
  • No-cost extensions beyond the first one-time extension if one was already authorized. Requests should be submitted at least 10 calendar days before the current period of performance ends.

The awarding agency may also restrict budget transfers among direct cost categories when the federal share exceeds the simplified acquisition threshold and the cumulative transfer exceeds 10 percent of the total budget. That 10 percent trigger catches many organizations off guard on large awards, where small percentage shifts translate into significant dollars.

Equipment and Capital Expenditures

Equipment is where dollar thresholds decide the outcome. Under section 200.439, special purpose equipment with a per-unit cost of $10,000 or more requires prior written approval.3eCFR. 2 CFR 200.439 – Equipment and Other Capital Expenditures General purpose equipment, buildings, and land are unallowable as direct charges entirely unless you secure advance permission. The same applies to capital improvements that substantially increase the value or useful life of land, buildings, or existing equipment.

The distinction matters. Special purpose equipment, designed for research or a specific technical function, can be charged directly below $10,000 without prior approval. General purpose equipment such as computers, office furniture, or vehicles usable across many activities always needs it. Miscategorizing general purpose equipment as special purpose is one of the most common reasons organizations run into trouble during audits.

Compensation, Travel, and Other Common Triggers

Compensation

Section 200.430 contains several situations calling for advance authorization. Charging incidental activities directly to an award must either be included in the approved budget or receive prior written approval.4eCFR. 2 CFR 200.430 – Compensation – Personal Services For institutions of higher education, a faculty member’s salary charged to a federal award generally cannot exceed their proportionate share of the institutional base salary without prior agency approval. Intra-university consulting fees above regular compensation also need written authorization.

Travel

Travel costs under section 200.475 require prior written approval when the travel involves officials covered by section 200.444 or when dependents will accompany an employee on an assignment of six months or longer.5eCFR. 2 CFR 200.475 – Travel Costs Many agencies impose additional approval requirements for foreign travel in their terms and conditions, so check the specific award.

Pre-Award Costs

If you need to spend money before the award officially starts, whether for recruiting staff, purchasing materials, or reserving facilities, those pre-award costs are only allowable with the written approval of the federal agency. Approved pre-award costs must be charged to the initial budget period unless the agency specifies otherwise.6eCFR. 2 CFR 200.458 – Pre-Award Costs These costs must meet the same allowability standards as if they had been incurred after the start date. Pre-award spending is not a workaround for costs that would otherwise be unallowable.

Fundraising, Rearrangement, and Personal-Use Goods

Fundraising expenses are unallowable by default under section 200.442. The exception: fundraising costs that directly meet federal program objectives can be charged with prior written approval.7eCFR. 2 CFR 200.442 – Fundraising and Investment Management Costs Ordinary facility rearrangement costs are treated as indirect, but special alterations made specifically for a federal award can be charged directly with advance approval.8eCFR. 2 CFR 200.462 – Rearrangement and Reconversion Costs And while goods or services for the personal use of employees are flatly unallowable, housing costs, housing allowances, and personal living expenses can be charged as direct costs if approved in advance, which typically arises when employees are stationed in remote locations or overseas.9eCFR. 2 CFR 200.445 – Goods or Services for Personal Use

How to Submit a Prior Approval Request

Each federal agency runs its own intake system. NIH requires most requests in writing to the Grants Management Officer at least 30 days before the proposed change, signed by the authorized organizational representative; SBIR and STTR recipients at NIH submit through the eRA Commons Prior Approval Module.10National Institutes of Health. NIH Grants Policy Statement – Requests for Prior Approval HRSA uses its Electronic Handbooks system with a 30-day response window on the agency side.11Health Resources and Services Administration. Best Practices for Prior Approvals Other agencies use Grants.gov, proprietary portals, or formal letters. Always check the terms and conditions of your specific award for submission instructions.

Whatever the system, your request should include:

  • A clear statement of the dollar amount.
  • A breakdown of unit costs or service fees.
  • An explanation of why the expenditure is necessary to accomplish the project’s objectives.
  • The time period over which you will incur the cost.
  • Supporting documentation: vendor quotes, market comparisons showing the price is competitive, and any internal policy memos that authorize the type of spending.

One point that derails organizations: verbal approval from a program officer or technical contact is not legally binding. The regulation requires written approval, typically issued as a formal amendment to the Notice of Award or a signed communication from the grants management officer. Until you have that document in hand, do not spend the money.

How Agencies Evaluate the Request

When a grants management officer reviews a prior approval request, the core question is whether the cost meets the reasonableness standard defined in section 200.404. A cost is reasonable if it does not exceed what a prudent person would pay under the circumstances that existed when the spending decision was made.12eCFR. 2 CFR 200.404 – Reasonable Costs In practice, the officer looks at five factors:

  • Whether the cost is ordinary and necessary for running the organization or performing the award.
  • Whether sound business practices, arm’s-length bargaining, and applicable laws and regulations were followed.
  • Whether the price aligns with market rates for comparable goods or services in the geographic area.
  • Whether the people involved acted prudently given their responsibilities to the organization and the federal government.
  • Whether the cost deviates from the organization’s own established written policies.

That last factor catches organizations more often than expected. If your internal policy caps hotel reimbursement at $150 per night but you request approval for $275 rooms on a federally funded project, the agency will want a clear explanation of why you are departing from your own rules.

What Happens If You Skip It

If an auditor or the awarding agency determines that a cost lacked required prior approval, the cost becomes unallowable. Under section 200.410, unallowable costs must be refunded to the federal government with interest, following the instructions provided by the entity that made the determination.13eCFR. 2 CFR 200.410 – Collection of Unallowable Costs

The catching mechanism is typically the Single Audit under Subpart F. A questioned cost from a missing prior approval is among the easiest findings for an auditor to make. It is a binary question with a paper trail: either the written approval exists or it does not.14eCFR. 2 CFR 200.516 – Audit Findings

The financial impact goes beyond the disallowed amount. Organizations that accumulate audit findings risk being classified as high-risk recipients, which can trigger additional conditions on future awards, more frequent reporting, or restricted access to new federal funding.

Subrecipients and Pass-Through Entities

When a primary recipient issues subawards, the prior approval framework extends down the funding chain. Section 200.332 requires pass-through entities to evaluate subrecipient risk and, where appropriate, implement specific conditions in the subaward agreement.15eCFR. 2 CFR 200.332 – Requirements for Pass-Through Entities Subaward agreements should explicitly identify which costs require the subrecipient to obtain written authorization from the pass-through entity before spending.

If a subrecipient incurs a cost that required prior approval and never obtained it, the pass-through entity is not absolved because the subrecipient failed to ask. The awarding agency can hold the primary recipient responsible, and any resulting disallowance comes out of the primary recipient’s funds. Building clear prior approval requirements into the subaward agreement, and monitoring compliance, is far less painful than absorbing the cost of a subrecipient’s oversight after the fact.