CAAR reviews of proposal budgets include consideration of whether proposed costs are reasonable, allowable and allocable.
What is reasonable depends upon a variety of considerations and circumstances involving both the nature and amount of the cost. In determining the reasonableness of specific costs, a cost is considered reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business.
Factors which are considered in determining whether a cost is allowable include: (1) reasonableness; (2) specific terms and conditions included in grants or contracts; (3) applicable Federal cost principles; and (4) allocability.
A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationships. A cost is allocable if it (1) is incurred specifically for the project, and (2) is necessary to the overall operation of a business although a direct relationship to any particular cost objective cannot be shown; in which case, these costs are generally allocated based on established indirect cost rates.
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