The federal government expects that researchers on sponsored project will have some effort, charged to the agency or as a cost share. Here is how the Office of Management and Budget describes it:
Most Federally-funded research programs should have some level of committed faculty (or senior researchers) effort, paid or unpaid by the Federal Government. This effort can be provided at any time within the fiscal year (summer months, academic year, or both). Such committed faculty effort shall not be excluded from the organized research base by declaring it to be voluntary uncommitted cost sharing.
OMB allows for exceptions for certain types of projects, including programs for instrumentation and equipment, student scholarships, and doctoral dissertations. Projects in this vein do not require committed faculty effort, paid or unpaid by the federal government. The governing solicitations generally make this clear.
Agency auditors are very concerned with effort and effort reporting on sponsored projects and have targeted this as an area of interest. In most cases, common sense should indicate when effort should be committed and part of the budget. If for some reason effort cannot be charged to the project, and the OMB exceptions do not apply, it should be shown as a cost share.