Costs of Research and Research VERA

1. Costs of Research and Research VERA Timothy J. O’Leary Adapted from a talk presented by Tony DeCrappeo, Council on Governmental Relations

2. Accounting principle: • Direct Costs: Costs Specifically Identified to Individual Research Projects • Indirect Costs: Costs Incurred for Common or Joint Purposes

3. VERA • One possible interpretation of the research VERA appropriation: Research VERA should pay for • Clinician salaries • Expenses that would normally be considered indirect (F & A) costs.

4. Typical direct costs • Salaries & fringe Benefits – Work of employees • Travel related to performance of project • Lab supplies • Consulting and other specialized services • Subcontracts

5. Indirect costs • Costs of Facilities – Operation of Research Labs • Buildings and equipment • Utilities • Custodial services • Maintenance and repairs • Security • Radiation safety • Hazardous waste disposal • Library services • Administrative services

6. Indirect costs (cont’d) • Administrative Services • Sponsored Project Services • Protection of human subjects • Controls over care and use of animals • Scientific and financial regulatory compliance • Review and processing of grant applications • Grant accounting and reporting • General Administrative Services • Purchasing • General accounting • Information systems • Human resources

7. Negotiation of indirect cost rates • Proposed Rates are Reviewed/Audited, and Negotiated by Cognizant Federal Agency • Acts for All Federal Agencies • Only Two Agencies Do IDC Rate Negotiations – HHS and ONR • Process Governed by Federal Guidelines - OMB Circular A-21

8. History – Federal Policy • Movement from Flat Rates/Capped Rates to Cost Reimbursement • Movement from General Cost Guidelines (Principles) to Extensive, Detailed Rules • First Cost Principles: 1947 Navy “Blue Book” – 13 Pages • Circular A-21 First Issued 1958 • Revised Numerous Times – Last Revision 2004 • Current Version – 58 Pages (Much Smaller Print)

9. Recent History • Some Recent Agitation • DOD 2008 Appropriations – Cap on Basic Research F&A Costs • 35% of Total Costs • Equates to Approx. 53.8% Cap on Indirect Costs as a Percentage of Direct Costs • New HHS Negotiator’s Manual • Tougher Positions in Certain Areas

10. Importance to research • Indirect costs represent services essential to research • Impossible to do modern research without incurring these costs • Someone must pay

11. Trends in indirect costs • F&A Rate surveys show that university F&A rates have held relatively constant at approximately 51 percent for at least the past six years. • F&A payments as a percentage of total funds awarded by NIH was stable at 28.5% for fiscal years 2003 - 2005, according to a recent study by the Government Accountability Office.

12. Comparative F&A Costs • Although no recent studies directly compare the costs of research conducted at universities with private industry, a 1996 study by Arthur Andersen & Co. showed that universities spend less on F&A costs than industry (31 percent of total costs versus 36 percent of total costs).

13. University contribution to research costs • A RAND study in 2000 estimated that universities were subsidizing between $700 million and $1.5 billion of F&A costs associated with federal projects as a result of various agency limitations, cost sharing requirements, and other related factors. • Universities are the second leading source of funds for university-based research. The FY06 NSF Survey shows that universities contribute more than $9 billion of their own funds to support their R&D activities, or nearly 20 percent of their total research and development expenditures. • Affiliated universities carry on many support activities for VA medical center research.