Pre-Award and Pursuit Costs: How to Account for the Work It Takes to Win the Grant

Pre-award and pursuit cost decisions shape financial reporting, audit readiness, and long-term funding outcomes for broadband providers

Article 1 of 5, Theme 2: Technical Accounting and Audit Alignment for Broadband Providers

Securing federal or state broadband funding requires more than submitting an application, it demands planning, analysis, coordination, and sometimes external expertise. For Chief Financial Officers (CFO), controllers, and finance teams, understanding how pre-award and pursuit costs are treated under generally accepted accounting principles (GAAP) is critical to ensuring accurate financial reporting and audit readiness.

Early accounting decisions affect the organization’s balance sheet, cash flow, and internal controls. Misclassifying costs can create audit issues, obscure the true cost of pursuit activities, and complicate reimbursement tracking.

This article explains how to account for pre-award and pursuit costs, highlights practical tracking approaches, and provides guidance for finance teams to make informed decisions.

1. Pursuit costs are typically expensed

Not all work creates a capitalizable asset. Costs tied to general grant strategy or pursuit, such as consulting, stakeholder engagement, or internal proposal work, are typically expensed as incurred. Even if the application succeeds, these costs do not meet GAAP asset criteria, because the entity does not yet have a present right to control economic benefits from these activities.

Examples of expensed pursuit costs:

Grant writers and proposal consultants
Government affairs or business development advisors
Employee salaries for proposal work
Travel expenses related to application activities

Strategic Tip: Track pursuit costs separately. This simplifies reporting, supports decision-making, and makes it easier to identify any reimbursable items under grant terms.

2. Accounting Guidance: GAAP principles first

The primary tool for assessing capitalization is the GAAP asset test. Under the Financial Accounting Standards Board (FASB) Conceptual Framework, an asset exists when the entity has a present right to control economic benefits from a past event.

Capitalization generally requires:

1. Control: The organization must control the asset and its economic benefits.
2. Past transaction or event: The asset must arise from a completed transaction or event.
3. Future economic benefits: The asset must embody a present right that will generate measurable economic benefits, such as cost reductions or positive cash flows.

Most pre-award pursuit costs fail this test because they do not represent a present right, they are contingent on receiving the award, so the organization cannot reliably claim control over future benefits.

Consider this – analogous GAAP guidance
When evaluating pre-award costs, finance teams should anchor decisions in the GAAP asset test. The following FASB Accounting Standards Codification (ASC) references provide context.

• ASC 340-40 (Incremental Costs of Obtaining a Contract): Capitalization is limited to costs directly tied to securing a contract that would not have been incurred otherwise.
• ASC 720-15 & ASC 730-10 (Start-up and Research and Development Costs): Generally expensed as incurred when future benefits are uncertain or control is not established.
• ASC 958-720-25 (Fundraising Costs for Not-for-Profits): Fundraising-type activities are expensed as incurred, illustrating a similar principle to grant pursuit costs.

Key Takeaway: Focus on whether the entity has a present right to control economic benefits. ASC references reinforce this principle for finance teams without requiring memorization.

3. Some pre-award work might be capitalizable

Occasionally, pre-award activities directly contribute to a future network asset, such as:

Preliminary designs feeding into the network build
Pole surveys or route studies essential for construction

In these cases, ASC 360 (Property Plant and Equipment) may allow capitalization, but the bar is high. Costs must relate to an asset over which the entity has a present right to control economic benefits, and external approvals, rights-of-way, or permitting can create uncertainty, and costs may need to be written off if the project is not awarded or control is not established.

Mini decision framework for capitalization

Use this framework to quickly assess which pre-award costs may be capitalized:

Strategic Tip: Maintain strong documentation linking pre-award work to future network assets to justify capitalization decisions.

4. Reimbursement depends on the grant terms

Some programs, like Broadband Equity, Access, and Deployment (BEAD) initiative, allow for limited recovery of pre-award costs. Reimbursement is typically only available if:

Costs are eligible under the grant
Costs occurred within the defined lookback period
The grantor explicitly approves them

Important Warning – reimbursable costs are not automatically capitalizable

Finance teams should evaluate GAAP rules separately, even if reimbursement is available. Recognition of any reimbursement received, or receivable, depends on the entity’s grant accounting policy, which will be covered in article 10.]

Strategic Tip: Track reimbursable items separately from general pursuit costs to simplify reporting and ensure audit readiness. Understanding potential reimbursements is critical for strategic planning and cash flow management.

What you should do now

Set up tracking early. Tag pursuit-phase costs separately in your accounting system.
Coordinate across finance and accounting teams: Ensure capitalization and reimbursement policies are clear.
Document thoroughly: For any capitalized pre-award work, clearly link effort to future network assets.
Review grant terms carefully: Understand which costs are reimbursable before committing resources.

Bottom line

Pre-award costs generally fall into three categories

Expense: Most pursuit costs should be expensed.
Capitalize: Only work tied to an asset with a present right to control economic benefits.
Reimburse: Track reimbursable costs separately and verify eligibility.

Thoughtful accounting decisions early on protect your organization from audit issues, strengthen internal controls, and provide clarity on how pursuit investments impact financial performance.

How Keiter can help

Keiter works with broadband providers to audit and assess pre-award cost accounting and reporting, helping ensure alignment with GAAP and grant requirements. Contact your Keiter Opportunity Advisor | Email | Call 804.747.0000 to discuss how your organization should evaluate, track, and report pre-award and pursuit costs with confidence.

Looking ahead

Future articles in this series will cover grant recognition and reporting, including how to handle reimbursements once an award is received.

• Article 2: Are You Categorizing Your Network Costs Correctly?
• Article 3: Tracking Construction-in-Progress and Capital Costs
• Article 4: Broadband Revenue Recognition: ASC 606 Blindspots
• Article 5: Grant Accounting (ASC 958 and IAS 20)

Resources and Reading:

• FASB Accounting Standards Codification

  Key sections: 340-40 (Incremental Costs of Obtaining a Contract), 720-15 (Start-up and Organizational Costs), 730-10 (Research and Development Costs), 958-720-25 (Fundraising Costs for Not-for-Profits), ASC 360 (Property, Plant, and Equipment)

• FASB Conceptual Framework for Financial Reporting (September 2024)

• BEAD Notice of Funding Opportunity (NOFO) – Request for Initial Planning Funds (Section IV.B.2.)