Download a PDF version to print or share.
Attain Partners was engaged by the Association of American Universities (AAU) and Council on Governmental Relations (COGR) to conduct a study examining current facilities and administrative costs (F&A), or indirect costs (IDC) reimbursement practices followed by colleges and universities, private industry labs, and federal and national labs receiving funding to conduct federally funded research and development activities.
Facilities and administrative (“F&A,” sometimes also called “indirect”) costs are a major cost component of all federally sponsored research projects. They represent the necessary costs required to perform research activities, and some form of reimbursement for F&A costs is provided to all organizations that perform federally sponsored research (e.g., universities, non-profit independent research institutes, national laboratories, and private for-profit contractors). For universities, their reimbursement represents, on average, 25% to 30% of the total project budget.
The federal policy on the reimbursement of these research costs is crucial to all research organizations, including universities, because these payments are essential to supporting research in the United States. However, for decades both policymakers and even university faculty have expressed significant confusion about how F&A reimbursement rates work because of the complex formulas used to set them.
In accordance with this OMB guidance, the F&A reimbursement “rate’ for universities and most non-profit organizations is not calculated as the percentage of a total federal research award but is instead a composite of different cost pools supporting research allocated across a subset of direct costs.
It is important to note that the government’s approach to indirect cost accounting and reimbursement for universities and nonprofit research organizations is different than its approach for other entities conducting federally sponsored research. This fact has contributed to the resulting confusion – and that confusion, in turn, is now imperiling the funding needed for America’s research institutions to continue performing groundbreaking research that improves health, saves lives, and nourishes America’s innovation ecosystem.
To dispel this confusion and foster a better understanding of the current F&A cost reimbursement system, AAU and COGR engaged Attain Partners to prepare a paper that answers common questions such as:
1. What are the differences in indirect cost rates and recovery among the research performing entities?
2. How does the federal reimbursement policy for universities compare with that for private industry?
3. Are there differences in reimbursement policies between private and public universities?
Key Findings
1. Even under the federal government’s longstanding F&A reimbursement scheme, universities already subsidize a substantial portion of the indirect costs required to conduct federally funded research. These costs include construction and debt service, capital equipment purchases, utilities, federal regulatory compliance, and general and departmental administrative support—all often paid upfront by universities and only partially reimbursed through negotiated F&A rates.
2. On average, the effective reimbursement rate for universities’ actual indirect costs is likely lower than that of private industry. This is due to federal caps (e.g., 26% limitation on administrative costs), limitations on salary reimbursements, cost sharing, and other downward pressures on rates. These constraints lead to significant under-recovery of universities’ actual costs. In FY 2023, universities reported a $6.8 billion under-recovery in indirect costs, which does not include administrative costs in excess of the 26% cap.
3. Federal and national labs (Government-Owned, Government-Operated [GOGO] and Government-Owned, Contractor-Operated [GOCO]) are primarily funded upfront by the federal government. GOCO labs, often operated by universities or other contractors, receive more comprehensive reimbursement for indirect costs than universities conducting similar research using their own facilities.
4. Private industry laboratories operate with uncapped indirect cost rates and fewer restrictions than universities conducting research on behalf of the American people. These labs are allowed to recover all related costs and aim for profitability, using flexible cost accounting practices governed by the Federal Acquisition Regulations (FAR) and Cost Accounting Standards (CAS). The indirect cost structures vary widely and are not directly comparable to university indirect cost rates.
5. Differences between public and private universities’ F&A rates are not due to differing rules or negotiation processes. Both follow the OMB Uniform Guidance and undergo annual financial and compliance audits. Variations stem from factors such as:
- Geographic cost differences
- Type and intensity of research (e.g., biomedical vs. behavioral science)
- University’s choice to dedicate specialized resources to the development of indirect cost proposals.