The budget narrative should explain each budget component and supports the proposed work's costs. It should clarify how each item contributes to the project's goals and justify the budget calculations. Project budgets must show funding sources' contributions in dollars and percentages, identify any other intended funds, and categorize sources into non-federal, PHMSA-specific, and other federal with specified amounts.

The budget narrative should be clear, specific, detailed, mathematically correct, and correspond to the SF-424A line-item categories.

Provide a budget narrative justification with a reference to the object class categories found on the SF-424A for each proposed activity and explain why the amount is needed to implement the project as proposed in the project narrative. The budget narrative must correlate with the costs identified in the SF-424A line-item budget.

A budget narrative that does not represent a project’s needs may not be recommended for full funding. A description of the object class categories is provided below:

1.    Personnel costs are the employee salaries for those working directly on the grant project. Include the number, type of personnel, the percentage of time dedicated to the project, hourly wage (or salary), and total cost to the grant. At least 75 percent of grant funding must be used for PERG programmatic activities, and no more than 25 percent of federal funding may be used for maintenance and administration costs (M&A). This does not include indirect costs.

• This category is limited to people employed by your organization. Those not employed by your agency shall be classified as subrecipients, or contractors, and should be listed under the “Contractual” or “Other” object class.
• Only include compensation paid to employees engaged in grant activities.
• Costs should be consistent with that paid for similar types of work within the organization.

2.    Fringe Benefit costs are the allowances and services provided by employers to their employees as compensation in addition to regular salaries and wages. Fringe benefit costs are benefits paid to employees, including the cost of employer’s share of Federal Insurance Contributions Act (FICA), health insurance, workers’ compensation, and vacation. Include how the fringe benefit amount is calculated (i.e., actual fringe benefits estimate, approved rate, etc.). Include a description of specific benefits charged to a project and the benefit percentage. Additional considerations:

• Personnel salaries should have corresponding fringe and vice versa. PHMSA cannot pay fringe benefits for a position that is not listed in the Personnel section. 
• Explain what is included in the benefit package and at what percentage.
• Fringe benefits are only for the percentage of time devoted to the grant project.
• The applicant must not combine the fringe benefit costs with direct salaries and wages in the personnel category.

3.    Travel costs are those costs requested for field work or for travel to professional meetings associated with grant activities. Provide the purpose, method of travel, number of persons traveling, number of days, and estimated cost for each trip. If the details of each trip are not known at the time of application submission, provide the basis for determining the amount requested.

4.    Equipment costs include those items that are tangible, nonexpendable, personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit, unless the applicant has a clear and consistent written policy that determines a different threshold. Include a description, quantity, and unit price for all equipment.

• Purchases of less than $5,000 should be listed under “Supplies” or “Other.”
• Each item of equipment must be identified with the corresponding cost. General-purpose equipment must be justified as to how it will be used on the project and specifically needed for pipeline emergency response.
• Analyze the cost benefits of purchasing versus leasing equipment, particularly high-cost items and those subject to rapid technical advances. List rented or leased equipment costs in the “Contractual” or “Other” category, depending upon the procurement method.
• Equipment requests and/or supplies that are not specific for pipeline emergency response will be considered ineligible activities.   

5.    Contractual costs are those services carried out by an individual or organization, other than the applicant, in the form of a procurement relationship. When procuring goods or services, a recipient under a federal award must follow the procurement standards of 
2 CFR Part 200, including Appendix II.

All procurement transactions must be a full and open competition unless the application demonstrates that one of the exceptions for procurement by noncompetitive proposals is met. If an applicant plans to subcontract part of its award to another organization(s), the application must reflect that procurement standards were complied with or provide a statement verifying that upon award, the organization will fully comply with procurement standards outlined in 2 CFR § 200.317–.327.

For all contractual line-item costs, include the rationale for the costs; the specific contract goods and/or services provided; and the related expenses for those goods and services. Simply entering the statement “contractual services” will not be considered sufficient. There are two ways to capture costs in this category: subgrants and contracts.

• A Subgrant is an award provided by a pass-through entity (recipient) to a subrecipient. That subrecipient carries out part of a program for which the recipient received federal support. A subrecipient has its performance measured in relation to whether objectives of a federal program were met; has responsibility for programmatic decision making; is responsible for adherence to applicable federal program requirements specified in the federal award; and (in accordance with its agreement), uses the federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.
• A Contract is a legal instrument by which a recipient purchases property or services needed to carry out the project or program under an award. A contract/contractor provides the goods and services within normal business operations; provides similar goods or services to many different purchasers; normally operates in a competitive environment; and provides goods or services that are ancillary to the operation of the federal program.

6.    Other Costs that do not fit any of the categories include rent for buildings used to conduct project activities, utilities, leased equipment, employee training tuition, “Other” direct costs must be itemized.

7.    Indirect Costs (if applicable, must include an indirect cost agreement or statement claiming de minimis rate): Indirect costs are allowable in the PERG. Indirect costs are incurred for common or joint objectives that benefit more than one project. The applicant must include a current, and fully executed, indirect cost rate agreement in the application, if claiming indirect costs. The rate must be applied to the appropriate base in the approved agreement. If the rate will not be approved by the application due date, attach the letter of renewal or letter of request that you sent to your cognizant agency to your application. If the applicant has never received or has an expired indirect cost rate agreement, the applicant may be eligible for the 15 percent de minimis rate provided by 2 CFR § 200.414. A nonprofit entity that has never received a negotiated indirect cost rate may elect to charge a de minimis rate of 15 percent of modified total direct costs, per 2 CFR § 200.414, which may be used indefinitely. Applicants intending to charge the de minimis rate must include a statement verifying that the organization has never received a negotiated indirect cost rate and that the organization has elected to charge the de minimis rate.