Higher Ed Groups Bring Indirect Cost Proposal to White House

A group of higher education associations is pitching the White House and lawmakers on a new model for the federal government to reimburse indirect research costs. The proposal comes amid the Trump administration’s push to significantly reduce the amount that the federal government spends on those costs.

Indirect costs, as the term implies, pay for expenses that support research indirectly, such as facilities and administrative costs. The new model would split indirect costs into two categories and change the way those costs are calculated. It would also enable reimbursement for compliance and grant management costs and eliminate the rate negotiation process.

Proponents of the model presented it at a webinar on Tuesday.

“The policy and the political environment have significantly shifted,” said Matt Owens, president of COGR. He noted that four agencies have already moved to cap indirect cost rates at 15% this year and said policymakers of both parties and in both chambers of Congress have “expressed concerns” about indirect costs.

“This is the new policy, though it’s not in effect because of legal action,” Owens added. “Frankly, the status quo is no longer an option.”

The proposed Financial Accountability in Research (FAIR) model would split indirect costs into two categories: essential research performance support (ERPS) and general research operations (GRO). ERPS covers costs that can be calculated as part of specific projects, such as expenses related to regulatory compliance, award oversight, information services, and facilities, while GRO covers institution-wide costs such as human resources and procurement. These terms would replace “indirect costs” and “facilities and administrative costs.” The proposal would also rename “direct costs” as “research performance costs.” The proposed funding structure is more aligned with those of private foundations, according to an Association of American Universities FAQ on the proposal.

The FAIR model emerged from feedback on two proposals the group presented in June, former White House Office of Science and Technology Policy Director Kelvin Droegemeier said. Droegemeier chaired the team of experts who designed the model.

Using line items to tie funding for research support activities to specific projects through ERPS ensures the accuracy of research costs, AAU’s FAQ states. Droegemeier highlighted in Tuesday’s webinar that the new model would enable reimbursement of compliance and grant management costs under ERPS, which he said federal agencies have not funded for more than 30 years.

The FAIR model calculates most ERPS costs in raw dollars, though facilities costs would be calculated as a percentage of the total award budget. It also includes a simpler “base” option for calculating ERPS that sets information services and facilities costs at 10% of the budget, which an executive summary of the model says “may especially be attractive to those not having the administrative resources to benefit” from calculating project-specific costs of research-supporting facilities. GRO costs would be limited to 15% of the total award for all institutions, based on the group’s analysis of costs not covered by the other categories, Droegemeier said.

Under the current model, indirect cost rates are often expressed as a percentage of direct costs. For example, an indirect cost rate of 50% means that for every dollar awarded as part of a research grant for eligible direct costs, the institution would receive an additional 50 cents to cover indirect costs. This means the 50% rate would be equivalent to one-third of the total award.

Toby Smith, head of government relations and public policy at AAU, said that expressing indirect rates as percentages of direct rates causes significant confusion. “One great thing about this new model: it doesn’t talk about rate. It talks about the percentage of $1 that goes towards research,” Smith said. “I heard a member of Congress on one of the talk shows talking about… indirect costs… and they used that rate as the percentage of the dollar. They’re totally wrong, but that’s what has gotten out there,” Smith added.

The new model would eliminate the rate negotiation process that allows institutions to use indirect cost rates much higher than the 15% de minimis rate. For example, Droegemeier’s institution, the University of Illinois at Urbana-Champaign, has a rate of 58.6%. It also adds a two-year timeline for institutions to prepare for the transition from the current indirect cost model to the FAIR model.

Presenters said OMB is working to update the federal regulations that govern indirect cost reimbursement, and the group met with OMB last week to introduce the final proposal. The group has also presented the model to OSTP and members of Congress.

Owens said, depending on how OMB intends to proceed, “there is a pathway” toward instating a 15% cap. “We are working in good faith, we believe they are working in good faith,” he later added. “There are going to still be disagreements. We’re hoping that our process will take us further down that road, that we can reach agreement on what we believe is the best option going forward, and knowing that there will be adjustments as we go.”

So far, some lawmakers have shown support for developing a new policy and pausing the Trump administration’s caps. The House Appropriations subcommittee responsible for the Department of Energy stated in its funding bill report that it “supports the Administration’s efforts to increase the accountability of taxpayer resources and provide further transparency of facilities and administrative costs.” However, it adds, “A blanket indirect cost rates policy, while well-intentioned, does not fully address the unique nature of the department’s research and development work” and directs DOE to pause its implementation of a 15% cap while working with the research community to develop new indirect cost rate policies.

Smith said in the webinar that members of Congress who blocked a 2017 attempt to implement indirect cost caps have now told researchers to “come up, as a community, with an alternative model, or we can’t defend you in Congress this time.”

“If we don’t have something, we have nothing to negotiate with, and you will end up with that 15% flat rate, which I don’t think anybody thinks is a good idea,” Smith added.

Droegemeier asked meeting attendees to give further feedback on the model and show support for it. “We as a community really need to be together on this,” Droegemeier added. “And I think the thing that would cause the biggest problem would be if we start arguing among ourselves about the model, because the alternatives, as we’ve seen… they’re not very attractive for the future of America.”