Research Messenger
Vol 2, Issue 6
June 12, 2008
The Acquisition and Distribution of Indirect Costs
The extensive review of the operations and directions of the SDSU Research Foundation (RF) that was conducted last year revealed a healthy organization: efficient in its submission of proposals and management of the resulting funds; sound in its operations in support of SDSU's research effort; and generally appreciated by the principal investigators (PIs) it serves.
The issues of greatest debate had to do with facilities and administration (F&A) costs, formerly called indirect costs– specifically how they were acquired and the amount to be redistributed and to whom. The RF Board of Directors has considered these issues and passed resolutions on both issues at its May 2008 meeting.
1. How F&A is acquired
BACKGROUND. The F&A rate negotiated between the RF and the U.S. Department of Health and Human Services (HHS) is 49.5%. The actual collection rate is 17%. The vast discrepancy is due to the range of projects proposed by our faculty and the funding sources that support them. SDSU has significant teaching and service commitments, and awards in these areas frequently carry F&A rates of 0–8%. Private foundations often limit F&A to less than 10%. The review group was charged with determining the cost of administering an award and with making recommendations on how to deal with proposals for which F&A income did not reimburse the RF for its basic expenses.
FINDINGS. The cost to the RF of submitting and administering an award is 9% if RF space is not required to conduct the project, and 15% if it is. Nearly half of the awards we receive do not return 9% F&A, with a resulting net cost to the RF of about $1.5 million annually. A survey of 17 other research institutions revealed that the RF was uncommon in imposing no restrictions on which proposals went forward. Only one other institution was so lenient. Most imposed these requirements: that a limit be placed on the number of low F&A proposals; that the potential loss to the RF be repaid from department or college funds; that no proposals be submitted that do not carry the full negotiated F&A rate (49.5% for us).
CONSIDERATIONS. While research has emerged as a core value for SDSU, it remains a young and vulnerable enterprise, operating within a system that emphasizes undergraduate education. In this context, putting further limits on the applications PIs may submit risks reducing the research trajectory of the university. The restrictions placed on faculty at other major research universities would not necessarily serve SDSU well. Nonetheless, there is a subset of proposals whose aims advance the individual (e.g. consulting contracts) more than the university, and whose administration drains our resources. These will now receive scrutiny.
RESOLUTION. The SDSU Research Foundation will continue to submit all proposals that carry an F&A rate of at least 8% because we receive so much from the Department of Education and from training grants, both of which typically pay 8%. We will inspect proposals with F&A rates of 0–7% to determine whether they satisfy at least one of the following conditions:
a) The goals of the award are important to the university or to its units, i.e., there is intrinsic value to the project that warrants support even at a financial loss.
b) The proposed project is part of, and integral to, a larger research effort that would be harmed by its exclusion.
c) The proposed project represents seed funding or in some other way promises future proposals at higher F&A rates.
The college deans have been charged with applying these standards. If, in the dean's judgement, none of the three conditions above is satisfied, he or she should withhold authority to submit the proposal. If you are uncertain how your proposal would fare, it would be wise to discuss it with your dean before investing effort in preparation.
2. How F&A is redistributed to the university
BACKGROUND. In negotiating our F&A rate with the Department of HHS, there is no provision for sharing F&A income with other parts of the university community. However, SDSU and most other research institutions choose to cover some of the expenses that F&A is intended to support (building maintenance, library acquisitions), freeing a portion of the F&A for redistribution.
These funds help support the University Grants Program, the Technology Transfer Office and our Washington representative, among other initiatives. But a majority – $1.9 million – is sent to university offices and individuals to advance the research effort. There are five levels that could lay claim to these funds: (1) the CSU (the Chancellor's Office), (2) SDSU's vice president for research (VPR), (3) the college (the dean), (4) the department (the chair), and (5) the principal investigator (PI) who generated the funds. The review group was charged with determining if the present distribution of F&A was ideally servicing SDSU's research enterprise.
FINDINGS. The actual percentages of the F&A returned to each of these five levels, after accounting for some costs that are beyond the scope of this message, are: chancellor 0%, VPR 1%, dean 7%, chair 0%, PI 12%. Compared to a national sample of 35 institutions, this return is uncommonly high to PIs, and low to central offices.
CONSIDERATIONS. Distributing the funds all the way out to PIs has served SDSU well. It has permitted entrepreneurial PIs to build a research environment within a CSU system that does not directly support the research effort. However, this is at the expense of depriving central offices of the resources they need to fund emerging areas, broad collaborations or major items of equipment. The review group proposed that the formula be altered to reduce funds to the PIs, and redistribute a larger portion of them to deans and chairs.
To assess the research community's response to this proposal, I distributed a Research Messenger inviting your comments. I received 38 replies offering arguments on both sides, but running about 2:1 in opposition. Stanley Maloy and Marilyn Newhoff convened a meeting of PIs to discuss the proposal. Some 60 attended, and an informal vote ran about 3:1 in opposition. Neither of the outcomes was surprising, given that there are more PIs than deans and chairs.
The RF Board of Directors considered the proposal over three quarterly meetings, listening to the views of PIs and deans and reviewing written comments from across the research community. Board members also considered the financial condition of the university as we enter a period of contraction in state funding, and the potential impact of a further disruption in the flow of resources to which the research community has been accustomed.
RESOLUTION. There will be no change in the formula for distributing F&A funds for the next two years, after which the management of the RF will revisit the issue.
We acquired a mass of data on the RF during the course of this review from internal questionnaires, national surveys and from a careful review of the central offices and real estate operations in which the RF is engaged. We continue to review those data in an effort to improve the efficiency and services of an organization that has already served SDSU well for 65 years.
Thomas R. Scott
Vice President for Research
San Diego State University