Multifamily Housing Program Financial Management Toolkit

9b. Reasonable Costs (§200.404)

Costs are considered ‘reasonable’ if they do not exceed what a prudent person would incur under similar circumstances. All costs must pass the ‘rational person’ test by meeting all of the following criteria:

  • The cost is would be recognized as ordinary and necessary for the operation of the organization and/or project.
  • The cost is in accordance with market prices for comparable goods or services as evidenced by cost estimates and documentation.
  • The individuals responsible for incurring the cost acted with prudence and for the benefit of the organization and its activities.
  • The cost has been incurred after following the established practices of the organization, in accordance with the terms and conditions of the award. (See Procurement requirements detailed in Section 6 of this Toolkit).