House Hearing Looks at R&D Overhead Costs

House Hearing Looks at R&D Overhead Costs

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On 24 May, the House Science Subcommittees on Research and Oversight held a joint hearing to examine the overhead costs being applied to federally-funded research.

Full Committee Chair Lamar Smith framed the hearing’s focus in his opening statement, noting “ongoing indirect costs consume a larger and larger share of funds for scientific research and many universities are pressing to raise indirect costs even higher. In fact, some indirect costs rates have now reached 50 percent of the grant and higher. There is no question that there are legitimate costs associated with carrying out the best research in the world. The question is, are taxpayers paying for these costs in an efficient and transparent manner, or are we unnecessarily subsidizing excess, bureaucracy and waste? Or is the NSF becoming just another source of revenue?”

According to Smith, $1.3 billion of the National Science Foundation’s annual research budget is currently consumed by indirect cost payments to universities and research institutions, an amount sufficient to fund an additional 2000 scientific research projects.

Rep. Barbara Comstock (R-Va.), chair of the Research and Technology Subcommittee, also opened by noting that 27 percent of the National Institute of Health’s $1.3 Billion research budget is being allocated to indirect costs and stated that “In a time of tough budgets, when only one out of five research grant proposals are funded, we must look at whether or not those overhead funds are being spent efficiently.”

Oversight Subcommittee Chair Darin Lahood (R-Ill.) highlighted his efforts as a sponsor of the Networking and Information Technology Research and Development (NITRD) Modernization Act to reduce bureaucracy and red tape impeding research, and offered that while “understanding that research is essential to furthering U.S. innovation, we as Congress want to learn how we can increase the effectiveness of taxpayer dollars used to fund research.”

One of the drivers for the hearing was a preliminary report by the General Accounting Office on indirect costs for research at the National Science Foundation, which found that indirect costs on NSF awards for the period FY2000-2016 ranged from 16 percent to 24 percent of the total annual amounts awarded, and that the percentage generally has increased since 2010.

In his associated testimony, John Neumann, director, Natural Resources and Environment for the congressional Government Accountability Office (GAO), added that the proportion of indirect costs to individual research project ranged from less than 1 percent to 59 percent of the total award because of the type of work being funded by the awards, and the ways in which different organizations account for their costs.

William Bell, director of NSF’s Division for Institution and Award Support, explained that “Indirect costs are real and necessary costs of conducting research. They represent expenditures for shared services (e.g., facilities, laboratory supplies, utilities, computer networking, data storage, administrative support, government-mandated audits) incurred in the performance of, and integral to, research. The federal government has a longstanding practice of funding both direct and indirect costs.”

He also warned that “unless paired with reductions in regulatory and administrative burdens, curtailing or ceasing reimbursement of indirect costs could include increases in tuition and adverse impacts on less well-endowed institutions (e.g., minority-serving institutions, and two-year colleges).”

Professor Richard Vedder, director of the Center for College Affordability and Productivity at Ohio University, made a case for adoption of a system of fixed reimbursement rates, citing noted economists’ warnings that the current indirect cost system “creates unnecessary distortions in the operations of universities and has very high transaction costs.” Citing a moral imperative, Vedder offered that it is possible to get more actual research activity per dollar of total funding by paring support for indirect cost provisions in funded research grants.

James Luther, associate vice president for finance at Duke University, provided the perspective of a premier medical research university on the subject of indirect costs. He noted that indirect costs for construction, renovation, utility costs and wages/cost of living vary significantly by region, and that rates also vary depending upon the types of research conducted at an institution and the facilities necessary to conduct the research. He noted that certain types of research are much more facilities and administrative (F&A) intensive than others, comparing the overhead required for a biomedical research institution engaged in cutting-edge genomic research versus the costs of an institution engaged in social science or observational research.

Luther also cautioned that “federal funding doesn’t fully cover F&A costs apportioned to federal studies. This is due, in part, to a cap on administrative costs put in place for research universities in 1991, but also to a significant increase in federal requirements that have and will necessitate additional infrastructure and staff.”

Citing F&A costs as part of the real costs of doing research, Luther warned that “any reduction in federal funding, including funding for research infrastructure, will result in less research, slower scientific progress, fewer medical treatments, fewer jobs, and likely fewer universities conducting research and undergraduates and graduate students educated in a research setting.”

To view the hearing or review the witness statements, go to: https://science.house.gov/legislation/hearings/joint-research-and-technology-and-oversight-subcommittee-hearing-examining

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