Uniform Guidance (2 CFR Part 200): Federal Grant Cost Rules

The Uniform Guidance at 2 CFR Part 200 is the single federal rulebook that governs how your organization handles costs, procurement, records, and audits when it spends federal grant money. It applies to every non-federal entity receiving federal financial assistance, from nonprofits and universities to state and local governments and Tribes. A major revision took effect in 2024 and changed several dollar thresholds that grant recipients rely on day to day.¹

What Changed in the 2024 Revision

Three threshold changes matter most for anyone administering federal awards right now:

The de minimis indirect cost rate rose from 10 percent to a ceiling of 15 percent of Modified Total Direct Costs, and recipients can now elect any rate up to that cap.²
The equipment capitalization threshold rose from $5,000 to $10,000 per unit.³
The Single Audit trigger rose from $750,000 to $1,000,000 in annual federal expenditures, effective for audit periods beginning on or after October 1, 2024.⁴

When a Cost Can Be Charged to a Federal Award

Every expense you charge to a federal grant must pass a set of basic tests. Auditors apply these line by line, and a cost that fails any one of them can be disallowed years after the grant ends. Under Section 200.403, a cost must be:

Necessary and reasonable for the funded work
Allocable to the specific award based on the benefit it receives
Consistent with how you treat similar costs elsewhere in the organization, whether federal or non-federal funds pay for them
In line with any limits in the grant terms or the cost principles
Adequately documented through invoices, contracts, payroll records, or similar source materials
Incurred during the approved budget period, with limited exceptions for administrative closeout

A cost cannot be double-counted. You cannot charge it to one federal award and then use it again to meet the cost-sharing requirement of another.⁵

Reasonableness

A cost is reasonable if a careful person in the same situation would have agreed to spend that amount. Section 200.404 asks whether the expense is a normal part of your operations, whether the people who approved it acted responsibly, and whether you paid a fair market price in your area.⁶ Paying well above local market rates for consulting or supplies draws scrutiny even when the expense category itself is perfectly allowable.

Allocability

A cost is allocable when the grant actually benefits from the expense. If a piece of equipment serves three projects, only the share of cost reflecting the federal grant’s use can be charged to that award. Section 200.405 recognizes three ways a cost meets the standard: it was incurred specifically for the award, it benefits the award along with other work and can be split proportionally, or it supports overall operations and a reasonable share can be assigned.⁷

Consistency

You cannot treat the same type of expense as a direct cost on your federal award and an indirect cost everywhere else. If your usual practice is to charge office supplies as overhead, you cannot suddenly charge them directly to a grant because you have leftover budget.⁵

Costs That Require Prior Written Approval

Some expenses are not automatically allowable even if they pass the basic tests. Section 200.407 lists categories that need explicit written permission from the federal agency before you incur them. Getting that approval in advance protects you from a later disallowance. The list includes equipment and capital expenditures (Section 200.439), budget revisions and program plan changes (Section 200.308), pre-award costs incurred before the grant start date (Section 200.458), travel (Section 200.475), certain compensation and fringe benefit arrangements (Sections 200.430 and 200.431), foreign exchange adjustments (Section 200.440), fundraising (Section 200.442), and rearrangement and facility reconversion costs (Section 200.462). When in doubt, ask your program officer before spending.⁸

Costs You Cannot Charge

Subpart E devotes dozens of sections to expenses that are either always unallowable or unallowable except in narrow circumstances. The ones you are most likely to encounter:

Alcoholic beverages, always unallowable (Section 200.423)
Entertainment, social activities, and associated gifts, unless the grant specifically authorizes them for a documented programmatic purpose (Section 200.438)
Lobbying to influence legislation, elections, or executive-branch decisions (Section 200.450)
Fundraising campaigns, endowment drives, and donor solicitation (Section 200.442)
Fines and penalties from violating any law or regulation (Section 200.441)
Goods for an employee’s personal use, whether or not reported as taxable income (Section 200.445)
Bad debts and related legal costs (Section 200.426)
Contributions and donations to other entities (Section 200.434)
Social and dining club dues, and memberships in organizations whose primary activity is lobbying (Section 200.454)

State and local governments also cannot charge general costs of government, such as the governor’s office or fire and police departments, to a federal award.⁹

The lobbying prohibition has narrow carve-outs worth knowing. You can provide technical or factual information to a legislator who specifically requests it, and you can lobby a state legislature when doing so would directly reduce the cost of performing the grant. When calculating your indirect cost rate, total lobbying costs must be broken out separately and excluded.¹⁰

Indirect Cost Recovery

Indirect costs are the shared expenses that keep your organization running but don’t tie neatly to a single project, such as rent, utilities, accounting staff, and general administration. The Uniform Guidance gives you two paths to recover a fair share from federal awards.

Most experienced grant recipients negotiate a formal indirect cost rate agreement, often called a NICRA, with their cognizant federal agency. The rate is based on actual costs from prior years and applies to all federal awards during the agreement period.

If your organization does not have a current negotiated rate, you can elect a de minimis rate of up to 15 percent of Modified Total Direct Costs. The 2024 revision raised this ceiling from 10 percent and now lets you choose any rate up to that cap. The de minimis rate needs no supporting documentation, and you can use it indefinitely. Once you elect it, you must apply it to all federal awards until you decide to negotiate a formal rate. Federal agencies and pass-through entities cannot force you to accept a de minimis rate lower than what you’ve elected or negotiated.²

The standard base for calculating the rate is Modified Total Direct Costs. This base includes direct salaries and wages, fringe benefits, materials and supplies, services, travel, and the first $25,000 of each subaward. It excludes equipment, capital expenditures, patient care charges, rental costs, tuition remission, scholarships and fellowships, participant support costs, and any subaward amount above $25,000.

Financial Management Systems

Section 200.302 requires every recipient and subrecipient to run a financial management system that can identify every federal award received and spent (with program name, award number, and issuing agency), provide accurate and current disclosure of financial results for each award, track source and use of funds with supporting documentation, compare actual spending to the budget for each award, maintain effective internal controls over funds, property, and assets, and include written procedures for determining cost allowability and handling payment draws.¹¹ Informal tracking or spreadsheets that can’t distinguish between funding sources tend to produce compliance problems.

Procurement Rules

Any purchase made with federal funds follows Sections 200.317 through 200.327. States and Indian Tribes generally follow their own procurement policies as long as they also meet a handful of additional federal standards. All other recipients must follow the full set of federal procurement requirements.¹²

The guidance recognizes five procurement methods, and the right one depends on the dollar amount and the nature of the purchase:

Micro-purchases below the micro-purchase threshold (tied to federal acquisition regulations, typically $10,000) can be awarded without competitive quotes as long as you consider the price reasonable and document that conclusion. Spread these purchases among qualified suppliers when practical.
Small purchases above the micro-purchase threshold but below the simplified acquisition threshold require price quotes from more than one qualified source.
Sealed bids work for larger contracts where specifications are clear. You publicly solicit bids and award a fixed-price contract to the lowest responsive, responsible bidder.
Competitive proposals fit situations where sealed bidding isn’t appropriate, typically services where price isn’t the only evaluation factor.
Sole-source (noncompetitive) procurement is permitted only when one supplier can provide the item, during a genuine emergency, or when the federal agency expressly authorizes it.

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Conflict of Interest

Every organization purchasing with federal funds must keep a written code of conduct covering conflicts of interest for anyone involved in selecting vendors or awarding contracts. No employee, officer, or board member with a real or apparent conflict, including financial interests held by immediate family or a partner, may participate in a contracting decision. Employees cannot accept gifts or anything of monetary value from contractors or potential contractors. The standards must spell out disciplinary consequences, though they can carve out exceptions for unsolicited items of nominal value.¹⁴

Domestic Preference

Section 200.322 requires recipients to favor goods and materials produced in the United States whenever practical and consistent with law. For iron and steel, “produced in the United States” means every manufacturing step from initial melting through final coating happened domestically. The preference flows down to all subawards and purchase orders. Infrastructure projects funded with federal financial assistance carry additional Buy America requirements under 2 CFR Part 184.¹⁵

Equipment vs. Supplies

An item qualifies as equipment if it has a useful life of more than one year and a per-unit cost at or above the lesser of $10,000 or your organization’s own capitalization level. Anything below that threshold is a supply.³ The distinction matters because equipment purchases generally require prior agency approval and carry property management obligations. You may need to track, insure, and eventually dispose of or return the item. Supplies face fewer restrictions.

Cost Sharing and Matching

Many federal awards require the recipient to contribute a share of the project’s cost. Section 200.306 sets the rules for what counts. Matching contributions, whether cash, in-kind services, or third-party donations, must be verifiable in your records, necessary and reasonable for the project, allowable under the cost principles, and not already counted toward another federal award.

Unrecovered indirect costs (the gap between your approved rate and what you actually charge) can count toward the match, but only with the federal agency’s prior approval. For federal research grants specifically, voluntary cost sharing beyond what the program requires cannot be used as a factor in evaluating your application, and agencies are discouraged from rewarding it during merit review.¹⁶

Subrecipient Monitoring

When you pass federal funds through to another organization, you take on real oversight duties. Section 200.332 requires pass-through entities to evaluate each subrecipient’s risk of fraud and noncompliance before the subaward begins. The risk assessment weighs the subrecipient’s track record on similar awards, prior audit results, whether they have new leadership or changed systems, and any monitoring the federal agency has done directly.

You must then monitor the subrecipient’s activities throughout the award: review financial and performance reports, verify they obtain required audits, and make sure they correct any problems, including Single Audit findings related to your subaward. Depending on risk, you might also provide training, conduct site visits, or arrange agreed-upon-procedures engagements with an auditor.¹⁷

When a subrecipient refuses to comply or fails to take corrective action, you must consider enforcement steps under Section 200.339. Ignoring subrecipient problems doesn’t insulate your organization. It makes you the target of the next audit finding.

How Long to Keep Records

Section 200.334 requires you to retain all records related to a federal award for three years from the date you submit the final financial report. For awards renewed quarterly or annually, the three-year clock starts from submission of that period’s report. Several situations extend retention:

If litigation, a claim, or an audit starts before the three-year period ends, keep the records until everything is resolved.
The federal agency, pass-through entity, or cognizant audit agency can direct you in writing to hold records longer.
Records for federally funded property must be kept for three years after final disposition, not three years after the grant ends.
For program income earned after the performance period that must be reported, retain records for three years after the fiscal year the income was earned.
For indirect cost proposals, the three years run from submission if the proposal was negotiated, or from the end of the fiscal year it covers if it was not.

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Closeout Deadlines

When the grant’s period of performance ends, closeout begins. Section 200.344 sets firm deadlines. Recipients must submit all final reports (financial, performance, and any others required by the award) within 120 calendar days after the period of performance ends. Subrecipients face a tighter 90-day deadline unless their pass-through entity agrees to something different. You must also liquidate all financial obligations within those same timeframes.

Any unobligated funds must be returned promptly. The federal agency will make final adjustments to its share of costs after it receives your closeout reports, which can include disallowing costs or reducing the award. Federally funded property must be accounted for under the property management rules. The agency aims to complete all closeout actions within one year after the performance period ends.¹⁹

The Single Audit

Under Section 200.501, any non-federal entity that spends $1,000,000 or more in federal awards during its fiscal year must undergo a Single Audit. This threshold rose from $750,000 in the 2024 revision, effective for audit periods beginning on or after October 1, 2024. Organizations spending below the threshold are exempt from federal audit requirements for that year, though the federal agency retains the right to arrange program-specific reviews.⁴

An independent auditor conducts the Single Audit, evaluating whether the financial statements are fairly presented, whether internal controls are effective, and whether costs charged to federal awards were allowable. The auditor tests a sample of transactions and documents noncompliance as formal audit findings. Significant findings trigger corrective action plans.

The complete audit reporting package, including the auditor’s reports and a standardized Data Collection Form, must be submitted to the Federal Audit Clearinghouse within 30 calendar days after you receive the auditor’s report, or nine months after the end of the audit period, whichever comes first.²⁰ Missing the submission deadline can result in suspended funding or a determination that your organization is ineligible for future awards.

What Happens If You Don’t Comply

When a federal agency or pass-through entity determines that a recipient has violated the terms of an award and imposing conditions hasn’t fixed the problem, Section 200.339 authorizes progressively serious enforcement actions:

Temporarily withhold payments until the recipient takes corrective action
Disallow costs for the activity connected to the noncompliance
Suspend or terminate the award, in whole or in part
Initiate debarment proceedings that can bar the organization from receiving any federal awards government-wide
Withhold future funding, including new awards and continuation grants for the same program

Agencies don’t reach for debarment lightly, but repeated failures to resolve audit findings or document spending can get an organization there. Catching and correcting compliance problems early, even if it means voluntarily returning funds, is far less damaging than waiting for enforcement.²¹

1
eCFR. 2 CFR Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
2
eCFR. 2 CFR 200.414 – Indirect Costs
3
eCFR. 2 CFR 200.1 – Definitions
4
eCFR. 2 CFR 200.501 – Audit Requirements
5
eCFR. 2 CFR 200.403 – Factors Affecting Allowability of Costs
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eCFR. 2 CFR 200.404 – Reasonable Costs
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eCFR. 2 CFR 200.405 – Allocable Costs
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eCFR. 2 CFR 200.407 – Prior Written Approval (Prior Approval)
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eCFR. 2 CFR Part 200 Subpart E – General Provisions for Selected Items of Cost
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eCFR. 2 CFR 200.450 – Lobbying
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eCFR. 2 CFR 200.302 – Financial Management
12
eCFR. 2 CFR 200.317 – Procurements by States and Indian Tribes
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eCFR. 2 CFR Part 200 Subpart D – Procurement Standards
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eCFR. 2 CFR 200.318 – General Procurement Standards
15
eCFR. 2 CFR 200.322 – Domestic Preferences for Procurements
16
eCFR. 2 CFR 200.306 – Cost Sharing
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eCFR. 2 CFR 200.332 – Requirements for Pass-Through Entities
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eCFR. 2 CFR 200.334 – Record Retention Requirements
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eCFR. 2 CFR 200.344 – Closeout
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eCFR. 2 CFR 200.512 – Report Submission
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eCFR. 2 CFR 200.339 – Remedies for Noncompliance