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.
I'm not joking. It would literally be cheaper for the US system to tolerate occasional scandals like that, than to force all universities to spend so much on compliance.
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.
Some of the administrative bloat arises from "pre-award" administration. Since only 1 in 8 to 1 in 10 proposals submitted to NIH gets funded, the vast majority of this pre-award effort/cost is wasted. A simpler approach would be to have a 12 page scientific proposal with a budget that outlines effort and research costs, submitted with minimal or no administrative pre-award review. This can be peer reviewed at NIH, and projects likely to be funded based on scientific merit can then go back to the submitting institution for full pre-award clearance.
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."
Your article made some good points but I find this statement problematic: "While 65-70% may be far too high..." Too high based on what rationale? Sure, it is high compared to other universities, but how does it compare to say US government research facilities at say NIH or NASA? And how does it compare to the indirect costs at say biotech companies or pharmaceutical companies or AI companies? They share some of the same indirect costs such as buildings, electricity, computer servers, human resources staff, legal staff, accounting staff, and electron microscopes. It would be interesting to know how their indirect rates compare if you could set up the accounting in a comparable fashion. It may be that in the bigger scheme of things universities are not as expensive as some think.
Thank you for this article but it lacks something important. Some significant indirect costs are already funded as direct costs in grants, for instance: salaries, benefits and training. For example, the PI’s salary is funded by the grant, not by the university. These are expensive costs that are not included as indirect costs by universities. So people have valid reasons to complain when they find out that government is providing 50-70% of the grant value to indirect costs. We knew in academics that indirect costs were excessive but it is the first time that somebody is trying to change it.
Well done! John Adams famously wrote that the United States should be "a government of laws, and not of men," .... this is a distraction to our scientific research community. Our confidence that we are A Nation of Laws can get everyone back to doing what matters most.
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.
Not sure what you mean by "you people." If you're talking about universities, they most definitely do produce accounting data to the federal government pursuant to quite detailed rules in 2 CFR.
As for Microsoft, that was admittedly a rough analogy. On the other hand, universities incur indirect costs that wouldn't affect Microsoft -- institutional review boards, animal ethics committees (IACUCs), clinical trial infrastructure, buying an expensive electron microscope to be shared amongst different labs, and much more. The point of the comparison was just to say that large organizations do spend money on activities that aren't directly billable to a customer/donor, but that improve the whole operation. You haven't refuted that point at all.
You people is academics and administrators who live off my taxpayer dollars, and, as far as I can tell, live very well. It is also anyone else who runs to their defense.
I assume you think that universities produce accounting data but they don't. They may send mounds of paper to Washington with lots of numbers on it but its is not accounting data. It does not comply with GAAP and has no relation to economic values.
A small example. Every college financial statement I have seen shows scholarships as a cost and uses the tuition rack rate as revenue. Scholarships given by the schools out of their pockets are discounts and are not costs at all. That is go to jail stuff for a business. (Pell grants and other third party funded scholarships are not costs, they are revenue.)
You cite Institutional Revue Boards as a cost private business do not have to incur. I will wager that Pharmaceutical companies involved in drug trials have to do something much the same. I can testify of certain knowledge that IRBs are metastatic fountains of nonsense. I have been watching them drive my wife insane for years.
The real point is that the universities want money and assert the enormous value of what they have done in the past as a justification and demand generous cost plus contracts to do it in the future.
First past results justify nothing. What they want the taxpayers to stump up for is what will happen in the future. They give no guarantees that our money will do anything other than produce career advancement for the fat and happy.
Second debating what their costs might be is useless. If they really knew what their costs were, and I sincerely doubt it, and if they had systems to account for their costs, they could hit the print button on their reports and show it to us. I don't think they can or they would have done it already.
Third, cost plus sucks. It sucks for the Pentagon and sucks for the National Institutes. We need better models for funding and for deciding what to fund.
Fourth, our taxpayer dollars have purchased an enormous amount of garbage. My phone has decided I need to see notices from the website:
Fifth: The grant making system has been accused of cronyism, old boyism, and backscratching. I think the accusations at least deserve deep investigation. If they are true. The situation needs to be addressed.
Sixth I could go on but I won't the research funding problem is only a subset of the problems the colleges have become. They wanted to play politics, now politics is going to play them. They forgot the first rule. The wheel is always spinning, the door always swings both ways.
I offer the following not as proof of the assertions contained therein, but as evidence that the current system is fraught with enormous issues about the quality of the work it is funding.
"An epidemic of scientific fakery threatens to overwhelm publishers: More than 10,000 scientific papers were retracted last year as “paper mills” exploit the system." By Adam Marcus and Ivan Oransky on June 11, 2024
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.
I'm not joking. It would literally be cheaper for the US system to tolerate occasional scandals like that, than to force all universities to spend so much on compliance.
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.
Some of the administrative bloat arises from "pre-award" administration. Since only 1 in 8 to 1 in 10 proposals submitted to NIH gets funded, the vast majority of this pre-award effort/cost is wasted. A simpler approach would be to have a 12 page scientific proposal with a budget that outlines effort and research costs, submitted with minimal or no administrative pre-award review. This can be peer reviewed at NIH, and projects likely to be funded based on scientific merit can then go back to the submitting institution for full pre-award clearance.
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."
Wow that COGR figure! 😳
Your article made some good points but I find this statement problematic: "While 65-70% may be far too high..." Too high based on what rationale? Sure, it is high compared to other universities, but how does it compare to say US government research facilities at say NIH or NASA? And how does it compare to the indirect costs at say biotech companies or pharmaceutical companies or AI companies? They share some of the same indirect costs such as buildings, electricity, computer servers, human resources staff, legal staff, accounting staff, and electron microscopes. It would be interesting to know how their indirect rates compare if you could set up the accounting in a comparable fashion. It may be that in the bigger scheme of things universities are not as expensive as some think.
Thank you for this article but it lacks something important. Some significant indirect costs are already funded as direct costs in grants, for instance: salaries, benefits and training. For example, the PI’s salary is funded by the grant, not by the university. These are expensive costs that are not included as indirect costs by universities. So people have valid reasons to complain when they find out that government is providing 50-70% of the grant value to indirect costs. We knew in academics that indirect costs were excessive but it is the first time that somebody is trying to change it.
Well done! John Adams famously wrote that the United States should be "a government of laws, and not of men," .... this is a distraction to our scientific research community. Our confidence that we are A Nation of Laws can get everyone back to doing what matters most.
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.
Not sure what you mean by "you people." If you're talking about universities, they most definitely do produce accounting data to the federal government pursuant to quite detailed rules in 2 CFR.
As for Microsoft, that was admittedly a rough analogy. On the other hand, universities incur indirect costs that wouldn't affect Microsoft -- institutional review boards, animal ethics committees (IACUCs), clinical trial infrastructure, buying an expensive electron microscope to be shared amongst different labs, and much more. The point of the comparison was just to say that large organizations do spend money on activities that aren't directly billable to a customer/donor, but that improve the whole operation. You haven't refuted that point at all.
You people is academics and administrators who live off my taxpayer dollars, and, as far as I can tell, live very well. It is also anyone else who runs to their defense.
I assume you think that universities produce accounting data but they don't. They may send mounds of paper to Washington with lots of numbers on it but its is not accounting data. It does not comply with GAAP and has no relation to economic values.
A small example. Every college financial statement I have seen shows scholarships as a cost and uses the tuition rack rate as revenue. Scholarships given by the schools out of their pockets are discounts and are not costs at all. That is go to jail stuff for a business. (Pell grants and other third party funded scholarships are not costs, they are revenue.)
You cite Institutional Revue Boards as a cost private business do not have to incur. I will wager that Pharmaceutical companies involved in drug trials have to do something much the same. I can testify of certain knowledge that IRBs are metastatic fountains of nonsense. I have been watching them drive my wife insane for years.
The real point is that the universities want money and assert the enormous value of what they have done in the past as a justification and demand generous cost plus contracts to do it in the future.
First past results justify nothing. What they want the taxpayers to stump up for is what will happen in the future. They give no guarantees that our money will do anything other than produce career advancement for the fat and happy.
Second debating what their costs might be is useless. If they really knew what their costs were, and I sincerely doubt it, and if they had systems to account for their costs, they could hit the print button on their reports and show it to us. I don't think they can or they would have done it already.
Third, cost plus sucks. It sucks for the Pentagon and sucks for the National Institutes. We need better models for funding and for deciding what to fund.
Fourth, our taxpayer dollars have purchased an enormous amount of garbage. My phone has decided I need to see notices from the website:
retractionwatch.com/
Who is supposed to be stuck with that cost?
Fifth: The grant making system has been accused of cronyism, old boyism, and backscratching. I think the accusations at least deserve deep investigation. If they are true. The situation needs to be addressed.
Sixth I could go on but I won't the research funding problem is only a subset of the problems the colleges have become. They wanted to play politics, now politics is going to play them. They forgot the first rule. The wheel is always spinning, the door always swings both ways.
I offer the following not as proof of the assertions contained therein, but as evidence that the current system is fraught with enormous issues about the quality of the work it is funding.
"Why Most Published Research Findings Are False" by John P. A. Ioannidis Published: August 30, 2005 https://doi.org/10.1371/journal.pmed.0020124
"An epidemic of scientific fakery threatens to overwhelm publishers: More than 10,000 scientific papers were retracted last year as “paper mills” exploit the system." By Adam Marcus and Ivan Oransky on June 11, 2024
https://www.washingtonpost.com/opinions/2024/06/11/scientific-journals-retractions-paper-mills/
The current funding system does nothing to solve the problem or even mitigate the expense.
I want to add this to the list above:
"I want to read you an email that I was asked to keep confidential because I think it explains some of my worries about academia."
https://backreaction.blogspot.com/2025/02/i-was-asked-to-keep-this-confidential.html
Note: Bona Fides of the author of the linked clip:
https://www.npr.org/2023/09/23/1199469798/youtube-star-scientist-sabine-hossenfelder
My bona fides:
https://en.wikipedia.org/wiki/On_the_Internet,_nobody_knows_you%27re_a_dog
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.
This is where the Muskrats could have a useful effect on academic science and also reduce the cost of research.