The definition of cost eligibility states that a cost must be reasonable and necessary to be eligible. What is a Reasonable Cost? A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. In other words, a reasonable cost is a cost that is both fair and equitable for the type of work being performed. For example, charging $50/hour for a backhoe is unreasonable when the going rate for a backhoe is $25/hour. There are several ways reasonable costs are established, such as:
Historic documentation for similar work
Average costs for similar work in the area
Published unit costs from national cost estimating databases
FEMA cost codes, equipment rates, and engineering and design service curves
The reasonable cost requirement applies to all labor, materials, equipment, and contract costs awarded for the performance of eligible work.
References: Office of Management and Budget Circulars A-21, A-87, Attachment A.C.2, and A-122
Public Assistance Guide, FEMA 322, pages 40-41, 51