Higher Ed Groups Propose New Indirect Cost Models

A group of higher education associations is floating changes to the federal government’s model for reimbursing research institutions for indirect costs. The proposals come as the Trump administration is attempting to cap those rates at a fraction of their previous levels.

At a webinar introducing the proposals last Thursday, former Director of the White House Office of Science and Technology Policy Kelvin Droegemeier said the current model has been successful in the past, but that it also invites confusion and has inefficiencies.

The proposed Fiscal Accountability in Research (FAIR) Models reframe indirect or F&A costs as “essential research support costs,” which Droegemeier said makes clearer their relevance to research.

Speaking at a separate webinar in May, Droegemeier said, “It’s very clear from Congress and the White House… simply explaining F&A, as we’ve done in the past, is really not a viable option anymore; we need a better model.”

One of the proposals would set rates for indirect costs based on just two factors: the institution type and the type of research funded by the grant. The other would treat indirect costs as direct, breaking down the indirect costs as line items for each individual grant, with an additional fixed percentage for “general research operations” not easily assigned to a project. The two proposals represent “bookends,” or two extremes, the two-factor model emphasizing simplicity and the line-item model emphasizing accuracy, presenters said.

The group behind the FAIR models, which includes the Association of American Universities and the Council on Government Relations, plans to use community feedback to create one final model to present to Congress and the executive branch, which could be a hybrid of the two proposals, Droegemeier said.

The two-factor model is limited in its ability to account for a wide array of research frameworks, while the line-item model would initially require significant resources and time to develop costing structures for research facilities and support services, though it would include a short-form option for institutions with fewer resources. The line-item model would be a particularly significant shift from the current federal funding model and more similar to private foundation funding models, said presenter Penny Gordon-Larsen, vice chancellor for research at the University of North Carolina at Chapel Hill.

Under the current model, indirect costs, also known as facilities and administrative (F&A) costs, are paid in addition to direct research costs and are often expressed as a percentage. 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. In that case, indirect costs would represent one-third of the total award.

Indirect costs are used to cover research-related expenses such as equipment and facilities maintenance, IT services, and administrative support. Some universities have negotiated an indirect cost rate of over 50%, such as Droegemeier’s institution, the University of Illinois at Urbana-Champaign, which has a rate of 58.6%.

Several agencies have attempted to cap indirect cost rates at 15%, arguing that these caps will ensure funds go toward direct scientific research costs rather than administrative overhead. The National Institutes of Health also noted in its announcement that universities accept grants from private foundations that offer much lower overhead cost rates. Meanwhile, Republicans on the House Science Committee have requested that the Government Accountability Office perform a “comprehensive review” of indirect costs, citing a lack of transparency around how funds are spent.

Droegemeier attributed some of the confusion around indirect costs to a reimbursement process that often returns funds to different accounts than the ones that originally paid for the indirect costs, creating the impression that the reimbursement is not being used for its intended purpose.

Both of the FAIR models would eliminate the periodic negotiation process for indirect cost rates, implement consistent indirect cost rates across agencies, and provide visibility into how universities spend research support funds, with reimbursement tracked directly to the research support accounts from which the funds were originally spent, Droegemeier said at last week’s webinar.

With the current attempts to cap indirect costs, court orders have largely gone in the university associations’ favor so far, indefinitely blocking the implementation of 15% caps at NIH and the Department of Energy. The National Science Foundation has agreed to put its implementation on pause until Friday in anticipation of a decision in its own legal case, though universities have since reported receiving modifications to existing NSF awards that reference the 15% cap.

The Department of Defense also announced the implementation of a 15% cap and renegotiation of rates for existing grants last week, prompting a lawsuit from AAU and other higher education associations.