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