I wasn’t planning on spending part of a Saturday writing about cost accounting principles and the like, but NIH-world was hit with a doozy of a policy announcement on Friday night:
Thanks for an excellent article on this - so many of the articles coming out don't really understand IDC. Two caveats, however:
1. When computing F&A rates, the federal government caps the portion for administration at 26% - no matter how much regulatory burden the government places on universities and how much administrative bloat Universities would like to fund from F&A, they can only justify 26% as administrative costs. Most Universities (including mine) are at this administrative cap. The different between 26% and the University's F&A rate can only be due to facilities costs.
2. Universities could change how they account for a portion of their indirect costs to account for them as direct costs. Doing so would be a good way to reduce IDC rates and increase transparency to agencies on where their fudns are going, but developing these cost models and accounting mechanisms takes time. For example, computer security compliance costs have typically been funded as indirect costs (and they're administrative and so are capped), but the recent DOD CMMC guidance allows Universities to direct charge for them. Most every University is still figuring out how to do so in a way that both makes sense and meets federal regulations.
This is an excellent post, and I endorse your proposals. But IDC rates in the 80s were higher than now even though they had far less annoying regulations then.
My favorite example is when Stanford used 200K of IDC money to refurbish a yacht.
I know you are joking, but the cost of that yacht was not just the price of that yacht. The optics were horrible and contributed to the suspicion and mistrust that many still hold. And when people throw around vague terms like "administrative bloat", I'm pretty sure that memories of the Stanford yacht come out of dormancy.
Thanks for this. Most of us directly affected by the potential cuts don't have the ability to dive into the legalese like this, so this is helpful to bring our blood pressure down a few notches.
Thanks for this. I certainly favor a rational approach to reconsidering indirect cost rate and, you know, following the constitution. But I would also caution against using vague terms like "administrative bloat", especially when the linked example is a fourteen year old book (which I read back then) that talks about the real problem of shrinking the full time faculty and decreasing their influence on curriculum, hiring more contingent (and very poorly compensated) faculty, and building out "student life" offices, that is mostly in relation to undergraduate education and mostly financed by big tuition increases. I spent my early career at an R1 where undergrad:grad enrollment was 3:1, that was in the midst of this transition, and it was painful to watch. I've been at an academic medical center (no undergrads) more recently and I can tell you that a lot of that stuff is very sparse and streamlined compared with a comprehensive R1, given the lower tuition revenue. The administrative costs to which IDCs contribute tend to be about research administration, including all the compliance requirements that ensure we are not buying mahogany toilet seats (another Stanford-yacht era scandal).
Many such campuses tend to be large employers in the areas where they are located. A sudden and catastrophic cut (with the implied threat of retroactive cost recovery) will result in massive layoffs, and not only in admin positions covered by IDCs. It will also mean empty or sparsely populated buildings, and much less efficiency for the remaining research enterprise.
I spent Friday night thinking about what my family finances will look like when I become unemployed, but fortunately after a good nights sleep and some reading I an now, like you, 99.9% convinced that this is not going to happen like this at this time.
Sign me up for the reform process-the slow, thoughtful, rational, well-intentioned process that aims to protect US dominance in biomedical research, not exact revenge on "woke professors".
Thank you. It is helpful and heartening to know that the appropriations language was added in response to a prior attempt to limit indirects. If a court says they can do it if it's limited to a single class, what counts as a class? Could that be all R01s, which would still be devastating? I can't find a definition of NIH "classes" of awards anywhere, just "types."
I used to write corporate reports for a living. You tried to pull a fast one there by adding R&D to GSA to determine Microsoft's indirect costs. R&D is not an indirect cost. It is an investment. GSA is the category of indirect costs. I am confident that there is no business in the US where GSA is anywhere near 50% .
How about you people come back with actual verifiable accounting data showing what your indirect costs are. I'll wager that you can't do it.
What I found interesting is that Bill Gates recently spoke to President Trump, and a hall mark of the BMGF is that they only allow 15% indirects. Makes me deeply wonder what the conversation was...what was taken away from that conversation.
Thank you for this totally wonky post. I had a sense that this would follow a similar path as the funding freeze, but good to know there is law on the books.
Thanks for an excellent article on this - so many of the articles coming out don't really understand IDC. Two caveats, however:
1. When computing F&A rates, the federal government caps the portion for administration at 26% - no matter how much regulatory burden the government places on universities and how much administrative bloat Universities would like to fund from F&A, they can only justify 26% as administrative costs. Most Universities (including mine) are at this administrative cap. The different between 26% and the University's F&A rate can only be due to facilities costs.
2. Universities could change how they account for a portion of their indirect costs to account for them as direct costs. Doing so would be a good way to reduce IDC rates and increase transparency to agencies on where their fudns are going, but developing these cost models and accounting mechanisms takes time. For example, computer security compliance costs have typically been funded as indirect costs (and they're administrative and so are capped), but the recent DOD CMMC guidance allows Universities to direct charge for them. Most every University is still figuring out how to do so in a way that both makes sense and meets federal regulations.
This is an excellent post, and I endorse your proposals. But IDC rates in the 80s were higher than now even though they had far less annoying regulations then.
My favorite example is when Stanford used 200K of IDC money to refurbish a yacht.
https://web.stanford.edu/dept/pres-provost/president/speeches/941018indirect.html
Ah yes, the Stanford yacht scandal . . . I think that it would probably be cheaper just to pay for the occasional yacht than to have all of the paperwork that ensued after that scandal! https://goodscienceproject.org/articles/how-to-actually-reduce-the-administrative-burden-on-research/
I know you are joking, but the cost of that yacht was not just the price of that yacht. The optics were horrible and contributed to the suspicion and mistrust that many still hold. And when people throw around vague terms like "administrative bloat", I'm pretty sure that memories of the Stanford yacht come out of dormancy.
Thanks for this. Most of us directly affected by the potential cuts don't have the ability to dive into the legalese like this, so this is helpful to bring our blood pressure down a few notches.
Thanks for this. I certainly favor a rational approach to reconsidering indirect cost rate and, you know, following the constitution. But I would also caution against using vague terms like "administrative bloat", especially when the linked example is a fourteen year old book (which I read back then) that talks about the real problem of shrinking the full time faculty and decreasing their influence on curriculum, hiring more contingent (and very poorly compensated) faculty, and building out "student life" offices, that is mostly in relation to undergraduate education and mostly financed by big tuition increases. I spent my early career at an R1 where undergrad:grad enrollment was 3:1, that was in the midst of this transition, and it was painful to watch. I've been at an academic medical center (no undergrads) more recently and I can tell you that a lot of that stuff is very sparse and streamlined compared with a comprehensive R1, given the lower tuition revenue. The administrative costs to which IDCs contribute tend to be about research administration, including all the compliance requirements that ensure we are not buying mahogany toilet seats (another Stanford-yacht era scandal).
Many such campuses tend to be large employers in the areas where they are located. A sudden and catastrophic cut (with the implied threat of retroactive cost recovery) will result in massive layoffs, and not only in admin positions covered by IDCs. It will also mean empty or sparsely populated buildings, and much less efficiency for the remaining research enterprise.
I spent Friday night thinking about what my family finances will look like when I become unemployed, but fortunately after a good nights sleep and some reading I an now, like you, 99.9% convinced that this is not going to happen like this at this time.
Sign me up for the reform process-the slow, thoughtful, rational, well-intentioned process that aims to protect US dominance in biomedical research, not exact revenge on "woke professors".
Thank you. It is helpful and heartening to know that the appropriations language was added in response to a prior attempt to limit indirects. If a court says they can do it if it's limited to a single class, what counts as a class? Could that be all R01s, which would still be devastating? I can't find a definition of NIH "classes" of awards anywhere, just "types."
I used to write corporate reports for a living. You tried to pull a fast one there by adding R&D to GSA to determine Microsoft's indirect costs. R&D is not an indirect cost. It is an investment. GSA is the category of indirect costs. I am confident that there is no business in the US where GSA is anywhere near 50% .
How about you people come back with actual verifiable accounting data showing what your indirect costs are. I'll wager that you can't do it.
What I found interesting is that Bill Gates recently spoke to President Trump, and a hall mark of the BMGF is that they only allow 15% indirects. Makes me deeply wonder what the conversation was...what was taken away from that conversation.
Thank you for this totally wonky post. I had a sense that this would follow a similar path as the funding freeze, but good to know there is law on the books.
And, cue the MAGA-state Senators clamoring for "a more targeted approach" https://www.al.com/news/2025/02/katie-britt-vows-to-work-with-rfk-jr-after-nih-funding-cuts-cause-concern-in-alabama.html
My fear is that this "targeting" will be entirely about punishing blue states.
Wow that COGR figure! 😳
This is where the Muskrats could have a useful effect on academic science and also reduce the cost of research.