Tuesday, November 17, 2009

Sticker Shock

Many grants come with 'indirect costs' (a.k.a. 'overhead') calculated into their budgets.

I understand why grants have indirect costs; i.e., the money that a university needs to help the grant-funded research to occur. IDC supposedly helps pay for the lights in our offices that are in buildings with climate control and support staff who help us do our research. IDC pays for the libraries that provide resources we need to do research. And so on. IDC pays for all those background costs (but not postage and maybe not photocopying, depending on which accountant is controlling access to the photocopier).

IDC rates at many universities are 50 ± 5%, but significantly higher rates are not unknown. It is not unusual for more than half of a grant to go to the university, not the researcher.

I sometimes wonder why NSF proposals don't report our direct costs as 'the' total on the cover page rather than having the total of direct + indirect costs being the most visible number on the proposal. Is not the total direct costs the relevant number for figuring out how much of the grant will be spent directly on research activities? The IDC rate, whether high or low, is something the university negotiates with the funding agency; the PI is responsible only for the coming up with a budget of direct costs (and some of those are mandated as well).

I wonder if sometimes reviewers balk at the high total of a grant proposal, despite knowing that they should divide the number on the cover page by 2 (or 3).

When writing collaborative proposals, my collaborators and I typically figure out whose university has the lowest IDC rate and then we shift more of the research expenses to that university, thus maximizing our collective grant resources.

Once a grant is funded, I am happy to report the total direct + indirect costs, as that number reflects what is being awarded to the university.

IDC as a concept is simple but in practice it is strange. Why does my university collect IDC on things like my travel to conferences or expenses related to scientific research done in/by another lab at another university? And then there is the IDC tax on fringe benefits, including for summer salary. Perhaps IDC calculations would start to get as complicated as figuring out income taxes, but I wish there were more IDC-free budget items.

All of this adds up to a lot of money. I know that universities need it and presumably are spending it well on essential things like light and heat and libraries, but as the cost of doing research goes up (e.g., travel, analytical costs, salaries of grad students and postdocs), it's hard not to look at the grant budget total and wish that more of that total was for direct research costs.

24 comments:

yolio said...

I think IDC costs are decided by long, difficult, drawn out negotiations. No one really sits down and tries to design the most PI-friendly policy. It is a pure political power struggle between the NSF and the universities.

Anonymous said...

In the uk, IDC doubles the cost of every grant. But, confusingly, the funding bodies pay 80% of the full costs. This means the university effectively gets 60% of the iDC it asked for. Apparently this makes sense to someone.

Anonymous said...

Yeah, I have to say it seems like it would be more fair to be more explicit about what IDC covers. The huge budgets of NIH RO1 grants make NIH labs cash cows for the university because of the weird percentage based system. As a side effect this causes university admins to look down on NSF funded labs because the university collects less profit from them.

In my view the system could be fixed by giving money per researcher that is funded by the grant. This overhead would include a fixed amount for administrative overhead/libraries/etc per person, PLUS there would be additional IDC money given to the university for each researcher that uses expensive university funded facilities (e.g. animal facility, greenhouse, computing cluster, Large Hadron Collider :p)

Of course the universities would fight this tooth and nail, and there would have to be some process in place to figure out the costs for every listed resource. However, we already have to state in our applications what facilities we are planning to use in our research, AND who is being paid by the grant. So I don't see it causing a lot more paperwork on the researcher's end.

EliRabett said...

You are so 20th Century. IDC is now F&A, facilities and administrative costs, and the divisor is about 1.5 not 2 or 3.

Eli suggests the following exercise, go out and price lab space rental per sq ft in a local industrial park, or better yet, your Universities high tech incubator and then figure out what you would need for your lab space. Add to that electric, heat and cooling, and oh yeah, your portion of the department grant administrators (we will leave the research office out of this as well as the kick back you and your department get which provide the set up funds for the new hire, etc.)

50% modified direct costs is a bargain, which is why F&A is a lot higher at pure research places like SRI International, or DRI.

John V said...

I sympathize with the irritation at the overhead tax, but even with overhead, research is more expensive than the total bill to the granting agency. "9-month" salaries for the usual case in which full-time faculty do some research during the year, TAs for grad students for half-time work, paid-for office space, lab space, and libraries, and sabbatical years are just some of the ways research is subsidized.

Anonymous said...

I feel the same way. I don't understand how the university hires us, but we have to pay out of direct grant costs a large part of our salaries, salary, tuition and benefits for staff and graduate students, all of our research supplies and yet the university still somehow gets extra money to pay for....whatever it is they pay for. Sometimes I think faculty are really more like renters, but with additional teaching and committee responsibilities....I think the high F&A are what has enabled universities to hire so many faculty, since they are so cheap relative to the money and services they represent.

Anonymous said...

Any reviewer worth their salt should realize that the PI has nothing to do with the IDC rate.

Anonymous said...

Sometimes I think faculty are really more like renters, but with additional teaching and committee responsibilities.

From your tone it seems like you don't like that, but this actually seems like a good way of doing things to me. Just like small business owners rent office space to do what they want with, we rent office and lab space in which we can do whatever research we want. (Of course, we have to justify it to funding bodies just as business owners have to justify whatever they do to their creditors and clients. The point is that we are not told what to do by the university.) It's just that some of our rent is paid for in teaching and service.

Anonymous said...

Our university has it right, atleast in my opinion. We only charge F&A on salaries.

Anonymous said...

I prefer how NIH does it where they set a level of direct cost and then the indirect is on top of that. At least it's more honest as a budget. My CAREER proposal basically will fund 1 graduate student. So, for a 400K award, you can see how little I see..

Also, my biggest complaint is the lack of transparency at what indirects go towards. I agree that if we had to pay rent it might cost more. At least then we would know what we were supposed to get and could possible have our slumlords get in trouble occasionally for the poor quality of basic services...

Anonymous said...

I think it's also interesting that percentages are the same across discipline (am I right?). Thus mathematicians get that same percentage extracted for... um... "providing lab space and other facilities..." I admit, I do demand supplies of paper and Bic pens, and we've got a great library, but we run linux and don't need much space.

Drugmonkey said...

What Rabbitt said, go out and price out the whole banana yourself. 50% is a bargain and 100% might be more on target.

also

http://scienceblogs.com/drugmonkey/2009/10/indirect_cost_snooping.php

Anonymous said...

A concrete problem I'm having with overheads is that a major funding agency of ours won't reimburse costs that can be seen as infrastructure investments rather than direct project cost. The department also has no budget for such costs. Concretely, I had to pay for software (an OS upgrade and some standard productivity software) personally, and when I'll need a new $2.5k laptop next year, it'll be quite tricky to figure out what budget to charge that to. I clearly see the university at fault - given the limited office space I'm getting, and the high cost for our support staff, small expenses like new computers shouldn't really be an issue.

Your suggestions / experiences / ideas appreciated.

Anonymous said...

Get a couple of drinks into any honest administrator at an R1 and they'll admit that grant overhead comes nowhere near to covering the real costs of running a research university. In the end, state subsidies and undergrad tuition float the boat. Like it or not the economics of research and the athletics departments are the same. They run in the red and someone else picks up the tab.

Anonymous said...

I agree with EliRabett that 52.5% overhead at my place can be seen as a bargain. However, it's the lack of transparency and the poor service we get, not to mention the backdoor increases in overhead (for example we now pay about 15K in grad student tuition, and considering the quality of students we get here, they should have more of an incentive to train them).
One of my friends is at a research institute, and pays about 90% overhead. However, she gets 50% of an admin just for her, impeccable facilities, technical support for IT, instruments etc... Her admin is so good I am jealous. Here, my dept regularly screws up our accounts, and so we end up in the red sometimes, sometimes with thousands unspent. More and more of us are hiring their own admin.

WiseWoman said...

In my corner of Europe you either have matching funds (the university has to vouch for spending it's part of the budget) or it is 100% funding and the university scoops up 10% overhead (and we have to produce 100% research on 90% of the funds). Sigh.

aceon said...

I know the person who negotiated the F&A rate for the R1 where I graduated. It was a complete nightmare, and with the fairly normal rate (mid fifties) that resulted, he assures me that the university still loses money on research and I believe him. In contrast, at my current PUI, PIs actually get a small amount of the overhead back, which is quite amazing and lovely.

Anonymous said...

The Canadian system is as described; you apply to the government for the direct costs. Indirect costs are then applied externally and go direct to the university. So you only see the direct costs that you apply for. They're lower, too, though - I think it's 38%. You can have extra *direct* costs for things like lab techs levied by your department, though, but those are generally only 10% or so. It seems more sane to me.

EliRabett said...

Anonymous with the concrete problem: Lease (and that can include the overhead). Plus which it will drive everyone crazy as an added benefit.

Anonymous said...

Most university accounting systems are not sophisticated enough to provide the level of detail regarding precise costs for each particular service, etc. that falls into the indirect costs category. As someone who has negotiated an F&A agreement, I can tell you it is difficult; the Government picks apart the proposal and decides on a figure in a sometimes rather arbitrary fashion. Many of us in the research admin community think it would be better if the Govt just decided on average percentages for each component of the rate agreement (they already cap administrative costs at 26% for universities) and save us all the trouble of preparing these costly proposals (for universities in the $100M range we're talking at least $200K if you hire consultants). At least one proposal negotiation is better than doing a negotiation on F&A for every award with every sponsor - that's why we have the A-21 process in place now - no one wanted the hassles of individual award negotiations on F&A.

Anonymous said...

I'm an associate professor in a college of engineering. I feel that I have a pretty poor understanding of the larger picture of how F&A costs, the government, and universities have all co-evolved since WWII.

Can someone recommend a good book that covers this sort of thing?

Anonymous said...

I'm an assistant professor and on my first proposal a reviewer complained about the graduate student salary being very high. Made me paranoid that this was a mark against my proposal--and something I could not do anything about!

Anonymous said...

From your tone it seems like you don't like that, but this actually seems like a good way of doing things to me. Just like small business owners rent office space to do what they want with, we rent office and lab space in which we can do whatever research we want.

I don't have a problem with the rental concept in principle. What makes that model problematic is that for the most part, modular grant budgets have not substantially increased over the last 10 yrs, while salaries and tuition have increased a lot. The amount of money that is actually available for "research" effectively becomes less and less and tuition, for example (which goes to the university in addition to the F&A) takes proportionally more. Every non-research cost somehow ends up coming out of research budgets, like the Anonymous who is having some trouble with "infrastructure costs". Almost no granting agencies that I know of these days wants to pay for computers, office supplies, etc. Unfortunately, these are a key part of doing science and can very quickly eat up any available discretionary budget that could be used for research supplies.

Anonymous said...

For those interested in F&A and universities, there is some discussion of this topic on the Council for Governmental Relations website at: http://www.cogr.edu/files/publications_financial.cfm. The university finances piece shows how financial contributions from universities to funded research have increased over the past several years. The University of Washington has a good primer on their site at http://www.washington.edu/research/osp/gim/gim22a.html.