A printable two-page reference for the Uniform Guidance rules most relevant to AI tool costs and AI use under federal awards. Designed to live in a binder next to your grant files. This is educational content, not legal, audit, or fiscal advice; consult your pass-through agency, federal grants officer, auditor, or counsel where specific guidance is needed. Last reviewed: May 25, 2026.

The Framework: 2 CFR Part 200

The Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards — commonly the “Uniform Guidance” — is codified at 2 CFR Part 200. It applies to most non-federal entities receiving federal financial assistance and to most federally funded activities, with program-specific rules layered on top. The Uniform Guidance was not written with AI tools in mind, but its cost principles apply to AI tools the same way they apply to any other purchased good or service.

The Uniform Guidance is periodically revised by OMB. Refer to the current version on eCFR or grants.gov before relying on any specific citation in this document.

Page 1 — The Five Areas

1. Allowability (2 CFR 200.403)

For a cost to be charged to a federal award, it must be necessary and reasonable for the performance of the award; allocable to the award; conform to applicable cost principles or limitations; consistent with policies and procedures applied uniformly to federally and non-federally funded activities; accorded consistent treatment; determined in accordance with GAAP (or in the case of public entities, the applicable governmental accounting standards); not included as a match for any other federally financed program; and adequately documented.

AI application. Be able to point to (a) the specific funded activity the tool supports, (b) why the tool is necessary and reasonable for that activity, and (c) the policy or procedure under which it is used. “It seemed useful” is not allowability.

2. Allocability (2 CFR 200.405)

A cost is allocable to a federal award if the goods or services involved are chargeable in accordance with relative benefits received. A cost that benefits two or more projects or activities must be allocated using a methodology consistent with the relative benefits.

AI application. A general-purpose AI subscription used across multiple federally funded programs cannot be charged 100% to one award. Common allocation bases: FTE-time spent on each award, number of users supporting each award, transaction-count, or output-count. Document the methodology in a memo dated before the first allocation, not in retrospect.

3. Direct vs. Indirect (2 CFR 200.413 and 200.414)

Direct costs are those that can be identified specifically with a particular final cost objective, such as a federal award. Indirect costs (facilities and administrative costs) are those incurred for a common or joint purpose benefiting more than one cost objective and not readily assignable to the cost objectives specifically benefited. Whichever classification is used must be applied consistently.

AI application. A program-specific AI tool used only by case managers on Award X is typically a direct cost. An organization-wide productivity tool used across all administrative functions is typically an indirect cost. Classify consistently across awards — inconsistent treatment of the same cost type is a common audit finding.

4. Reporting (2 CFR 200.328 and 200.329)

Recipients are required to submit financial and performance reports to the federal awarding agency on a schedule the agency establishes. Performance reporting compares actual accomplishments to the objectives of the award.

AI application. Where AI materially affected how a performance output was produced, performance reporting should honestly reflect that. “Outputs include AI-assisted drafting reviewed by program staff before submission” is honest disclosure. Representing AI-generated content as exclusively human-authored in funder evaluations becomes a misrepresentation question.

5. Documentation (general)

All costs must be adequately documented (2 CFR 200.403(g)). The recipient must maintain records sufficient to detail the history of procurement, source documentation for transactions, and contemporaneous records of how decisions were made.

AI application. For each AI tool charged to a federal award, maintain a one-page record covering the eight fields in the next section. The whole point is that it can be produced under audit within five minutes.

Page 2 — The Per-Tool Documentation Template

For each AI tool charged directly or indirectly to a federal award, keep this one-page record on file. The full template is at Documenting AI Costs in Federal Grant Reports.

1. Tool and vendor. Full vendor name as it appears on the invoice; product name; tier or plan.
2. Cost and billing period. Amount; billing cycle; contract dates covered.
3. Funded activity benefited. Specific award activity from the approved work plan that the tool supports — not “general operations.”
4. Cost classification. Direct, shared (allocated), or indirect, with rationale.
5. Allocation methodology. If shared: the basis (FTE, user count, transactions) and where the methodology is documented.
6. Approval record. Who approved the purchase, on what date, against which budget line. If outside the approved budget: the budget modification or grants-officer correspondence reference.
7. Use policy reference. The internal policy or handbook that governs use of this tool.
8. Performance evidence. A short statement of how this tool contributed to grant objectives, with at least one concrete example.

Common Mistakes

• Charging 100% of a cross-cutting AI tool to one award when multiple awards benefit.
• Adding a new AI line item mid-period without budget modification or written grants-officer approval, when the original budget didn’t include it.
• Mischaracterizing AI costs as “training” or “consulting” on invoices when they are software subscriptions.
• No written AI Use Policy in place when the cost is charged, leaving no policy reference to point to.
• No tie to a specific funded activity in the documentation — “productivity” is not a funded activity.
• Inconsistent classification: the same tool type treated as direct on one award and indirect on another, without a defensible rationale.
• Backdating an allocation methodology to fit transactions already made.

Stricter Program-Specific Rules

Many federal programs impose rules stricter than the general Uniform Guidance baseline. The stricter standard governs. Common examples:

• HIPAA-covered programs. Any AI tool handling Protected Health Information must operate under a Business Associate Agreement with the vendor; many consumer AI tools cannot offer one.
• FERPA-covered programs. Educational records have specific use, sharing, and consent restrictions that affect AI integrations.
• Head Start. Child-data protections are stricter than the general PII baseline.
• WIOA-funded programs. State PIRL integrations frequently have separate data-sharing terms that govern AI tools touching reporting data.
• Tribal programs and CDC / HRSA workforce grants. May incorporate additional sovereignty, data-localization, or consent requirements.

Two Practices That Pay Off Disproportionately

Ask in writing. A short, specific written question to your grants officer about a specific AI cost, with their written response on file, is worth more at audit time than 20 pages of internal memos. Most grants officers will answer specific questions specifically.

Document before you charge. The per-tool record, the allocation methodology, and the policy reference should all exist before the first charge — not assembled retroactively for an audit. Pre-existing documentation is treated very differently from reconstructed documentation.

Where to Read More

• Federal Compliance and AI: Five Questions to Answer Before You Spend
• Documenting AI Costs in Federal Grant Reports: A Working Template
• 2 CFR Part 200 (eCFR) — the authoritative source. Always check the current version.
• Your pass-through agency’s program-specific guidance, which may be stricter.

---

This reference is educational. It is not legal, audit, or fiscal advice and does not substitute for guidance from your pass-through agency, federal grants officer, auditor, or counsel. Citations to 2 CFR Part 200 are accurate as of the date above; refer to the current eCFR before relying on a specific section.