RAND Report on University Overhead Costs
Running counter to concerns expressed in Congress that the federal government may be paying too much to reimburse universities for overhead costs, a new report from RAND finds that reimbursement rates for university overhead have remained constant for over a decade, university overhead costs are lower than those at federal or private labs, universities share a portion of those costs, and the imposition of more limitations on reimbursement may have damaging consequences.
“The partnership in research between the federal government and U.S. research universities...has been widely praised for advancing scientific knowledge, improving the quality of life of Americans, contributing to the nation’s prosperity, strengthening its national security, promoting technological innovation, and training the future scientific workforce,”RAND says in the report, entitled “Paying for University Research Facilities and Administration.” In the federal-university research partnership, the government - through its research agencies - generally reimburses institutions for direct costs (such as materials and labor), and for some percentage of indirect costs (such as facilities maintenance and renewal, heating and cooling, and central staff), which the report refers to as F&A (facilities and administrative) costs. To help determine whether the taxpayer is receiving value for these federal expenditures, Congress in the 1998 NSF Authorization Act asked OSTP for an analysis of F&A costs. This analysis, produced for OSTP by RAND, was released on July 24.
“Some observers believe that F&A spending consumes an increasing share of federal research dollars, with a corresponding decrease in funds going directly to researchers. The data presented in this report do not support this view,” RAND says. “Overall, the system appears stable. According to the available data, F&A spending as a percentage of project cost has remained about level for at least a decade. In addition, F&A spending at colleges and universities is generally slightly lower than at other types of research institutions, such as federal laboratories and industrial research laboratories.”
Based on the available data, which it acknowledges is incomplete, the report finds that of the more than $15 billion spent annually by the federal government on university research, about three- fourths goes to direct costs and one-fourth to indirect (F&A) costs. In general, this federal contribution covers much, but not all, of the F&A costs to the universities. This is due in part to the fact that the universities voluntarily share some of these costs, and in part to statutory limitations on federal reimbursement for administrative expenses. The report estimates that the federal government pays approximately $3.8 billion a year to cover what amounts to about 75 percent of total F&A costs for federally-sponsored research, while universities provide about $1.3 billion, or 25 percent of the F&A costs.
Although it makes no recommendations, the report points out some actions that might benefit both sides in the research partnership. It suggests that universities, in particular, could benefit from the stability and predictability of a standard set of rules for F&A cost reimbursement. It also notes that a significant fraction of universities’ F&A costs can be attributed to health, safety, or other requirements dictated by federal, state and local laws. One possible method of reducing administrative costs, the report states, “is to examine the laws and regulations that give rise to costly requirements on university facilities and administration. If some of these requirements could be streamlined, universities could reduce costs and the federal government could lower payments for F&A costs without forcing universities to shift resources from other programs.” The report cautions that “if the federal government were to significantly reduce” F&A payments without such changes, to make up the difference universities might be forced to shift funds from other valuable missions “such as education, public service, or patient care.... It seems worthwhile to further investigate the options for universities to shift funding and the consequences of those shifts before contemplating major changes in reimbursement of F&A costs.”
Sections of the report address how reimbursement rates are determined; comparison of university F&A reimbursement rates with federal reimbursement to other entities; distribution of reimbursement across facility and administrative uses; impacts of changes in federal reimbursement policy; impacts of federal, state and local regulations; options for controlling growth of reimbursement rates; and considerations for creating a database of relevant information. Recognizing the lack of availability of some important data, the report says that, while maintaining a complete database on federal F&A costs would be a significant undertaking, “a [more] modest effort could still generate useful information.”
The report, “Paying for University Research Facilities and Administration,” runs somewhat over 50 pages and is available at http://www.rand.org/publications/MR/MR1135.1
