Budget Revisions, No-Cost Extensions, and Prior Approval: What You May Change Without Asking

The short answer. Recipients of federal awards may generally rebudget among direct cost categories without agency approval, provided the changes do not alter the scope or objective of the project and, where the award exceeds the simplified acquisition threshold, do not exceed any cumulative-transfer limit the agency has imposed (2 CFR 200.308(i)). A defined list of changes requires the agency’s prior written approval, including any change in scope, a change of the project director or other key personnel, the addition of costs that require prior approval under the cost principles, and the transfer of funds out of participant support. A one-time extension of the period of performance of up to twelve months may be taken by written notice rather than by request, unless the award’s terms provide otherwise.

Changes that require prior approval

Section 200.308(f) requires the recipient to obtain prior written approval from the federal awarding agency for the following, among others:

1. A change in the scope or the objective of the project, even if there is no associated budget revision
2. A change in a key person specified in the application or the award
3. The disengagement of the approved project director or principal investigator for more than three months, or a 25 percent reduction in that person’s time devoted to the project
4. The inclusion of costs that require prior approval under Subpart E, the cost principles, unless the award has waived the requirement
5. The transfer of funds budgeted for participant support costs to other categories of expense
6. The subawarding, transferring, or contracting out of any work under the award that was not described in the approved application, other than the purchase of supplies, materials, or general support services
7. Changes in the approved cost-sharing or matching contributed by the recipient
8. The need for additional federal funds to complete the project

The list rewards a careful reading. Item 6, for example, means that an organization which decides midway through an award to engage a partner organization to deliver a component that the application described as in-house must obtain approval before doing so. Item 5 means that unspent stipend funds cannot be redirected to staff salaries without a request. Both are common, and both are frequently done without approval, which converts an allowable cost into a questioned one.

The cost principles that require prior approval

Subpart E identifies particular costs as allowable only with prior approval. Among those most relevant to nonprofits: equipment and other capital expenditures (2 CFR 200.439), entertainment costs that have a programmatic purpose (200.438), fundraising costs for the purpose of meeting federal program objectives (200.442), memberships in civic or community organizations (200.454), participant support costs (200.456), and pre-award costs (200.458).

An organization that has been charging any of these to a federal award without approval, on the theory that the item appeared in the approved budget, should confirm that the budget approval extended to it. Approval of a budget that includes a line item generally constitutes prior approval of that item, but the notice of award or the agency’s terms may say otherwise, and the safe course is to identify the item explicitly when the budget is submitted.

Rebudgeting among direct cost categories

Where the federal share of the award exceeds the simplified acquisition threshold, currently $250,000, the agency may require prior approval where cumulative transfers among direct cost categories, or among separately budgeted programs, projects, functions, or activities, exceed 10 percent of the total budget as last approved (2 CFR 200.308(i)). Not every agency imposes the requirement, and the notice of award will state whether it applies.

Where it does apply, the 10 percent is cumulative over the life of the award, not per transfer and not per year. An organization that moves 6 percent in year one and 6 percent in year two has crossed the threshold and requires approval for the second transfer. The award file should include a running tally.

Where it does not apply, or where the award is below the threshold, the recipient may rebudget freely among direct cost categories subject to the other restrictions above. Transfers into or out of indirect costs are a separate matter and are generally not permitted where a negotiated or de minimis rate governs.

No-cost extensions

Unless the award’s terms prohibit it, a recipient may extend the period of performance one time, for up to twelve months, by providing written notice to the agency at least ten calendar days before the end date (2 CFR 200.308(g)(2)). The notice must state the reason and the revised end date. Three conditions attach: the extension may not be used merely to spend down an unobligated balance, it may not require additional federal funds, and it may not change the scope or objective of the project.

Two features of this provision are frequently misunderstood. It is a notification, not a request, which means the agency’s silence is not a denial; but it is also subject to the award’s terms, and some agencies have removed the automatic extension by special condition. Read the notice of award. And the “one time” limit means that a second extension requires an actual request and approval, which the agency may decline.

The request itself

Where prior approval is required, the request should go to the awarding agency in writing, identify the award by number, describe the proposed change and its justification, state the budget effect if any, and confirm that the scope and objective are unchanged if that is the case. Many agencies specify a form or a system for the request; where one is specified, it must be used. The agency is expected to respond within thirty calendar days (2 CFR 200.308(d)), and a request that has not been answered has not been approved. Costs incurred in anticipation of approval are incurred at the recipient’s risk.

Regulatory references: 2 CFR 200.308 (revision of budget and program plans; prior-approval items at (f), no-cost extension at (g)(2), transfers at (i)); 2 CFR 200.407 (prior written approval); 2 CFR 200.309 (period of performance); 2 CFR 200.1 (definition of “simplified acquisition threshold”).

This article is general information about federal grant administration. It is not legal or accounting advice. Award-specific terms control.