2 C.F.R. § 1128.310 – Cost principles.

(a) Policy. The set of Governmentwide cost principles applicable to a particular entity type governs the allowability of costs that may be:
1. (1) Charged to each cost-type:
  1. (i) DoD grant or cooperative agreement to a recipient of that entity type;
  2. (ii) Subaward to a subrecipient of that entity type at any tier below a DoD grant or cooperative agreement; and
  3. (iii) Procurement transaction with a contractor of that entity type awarded by a recipient of a DoD grant or cooperative agreement or a subrecipient that received a subaward at any tier below that grant or cooperative agreement.
2. (2) Considered in establishing the amount of any:
  1. (i) Fixed-amount subaward, at any tier under a grant or cooperative agreement, to a subrecipient of that entity type; or
  2. (ii) Fixed-price procurement transaction with a contractor of that entity type that is awarded by either a recipient of a DoD grant or cooperative agreement or a subrecipient that received a subaward at any tier below that grant or cooperative agreement.
(b) Award terms and conditions—(1) General. Because almost all DoD grants and cooperative agreements are cost-type awards, appendix C includes wording for Section A of FMS Article III that specifies use of the applicable Governmentwide cost principles in the determination of the allowability of costs.
(2) Exception. A DoD Component may reserve any paragraph of appendix C's wording for Section A of FMS Article III in its general terms and conditions if the Component is certain that no entities of the type to which the paragraph applies could be recipients of awards using those general terms and conditions or recipients of subawards or procurement transactions at any tier under those awards.