Facilities and administrative costs are necessary to America’s scientific enterprise
(EDITOR’S NOTE: This item was originally published as a guest opinion piece for Stat News.)
Imagine that one evening you go out to a neighborhood restaurant and order a steak dinner. It is delicious, and everything is going well – until the check comes, and you demand that the proprietor knock the price down by a third. Your rationale? You refuse to pay for anything other than the cost of the meat and the labor of the chef and the server. You saw the price on the menu and ordered the steak at that price, but you tell the owner that you don’t think that you should have to cover any of his costs for the restaurant’s rent, electricity, the gas used to cook your steak, the purchase and maintenance of kitchen equipment, the cleaning crew, costs of compliance with local health regulations, or bookkeeping. The owner turns to you and says, candidly, “Sorry, but without all those other things I have to pay for, there’d be no steak dinner.”
America’s research universities are facing a similar challenge while working to deliver life-saving scientific advancements and cures for the American people. Every time they compete and win a grant to conduct federally funded scientific and technological research, they have to pay not just for the project labor of the researchers and any needed supplies or materials, but all the costs necessary to conduct the research in the first place. America’s research universities, like the restaurant business owner in your neighborhood, pay those other necessary costs in advance in anticipation of being reimbursed by the customer later on.
The National Institutes of Health (NIH) recently announced a sudden cut in the level at which it would reimburse research universities for these up-front expenses to conduct federal research. While the action is currently being blocked by the federal courts (after the Association of American Universities, the Association of Public and Land-grant Universities, and the American Council on Education; a coalition of other higher-education organizations ; and a group of state attorneys general filed lawsuits), the issue is far from settled – and similar cuts from other science-funding agencies may be coming down the pike.
Indeed, this and other recent cuts and threats to future research funding are significant contributors to the chaos now roiling America’s scientific enterprise. This has, in turn, led to staff layoffs, hiring freezes, significant reductions in graduate student admissions, and other negative ramifications for the critical scientific research conducted by American universities on behalf of American taxpayers to advance key national objectives relating to their health, economic well-being, and national security, among others.
What’s happening here? In brief: Not-for-profit research universities – just like other nonprofit research institutes, national laboratories, and for-profit businesses -- regularly are awarded competitive grants and contracts from the federal government to conduct scientific research that seeks to benefit our country’s public health, economy, and national security. This research incurs both what are known as “direct costs” as well as “Facilities & Administrative” (F&A) costs.
Direct costs include what you might expect – expenses such as the test tubes, beakers, chemicals, biological materials, and any special equipment needed to perform that research project; the labor costs for the professional scientists and graduate assistants who conduct the research; and expenses for things like the travel or other materials that might be necessary to do the research.
But direct project costs do not take into account the other significant – but less visible -- underlying institutional costs essential for the researcher to conduct the research.
This second category is referred to as F&A (or sometimes “indirect costs”) because they are expenses, shared across various research projects, which the institution incurs to perform the research, but which cannot be reimbursed as direct project costs. They include things like the costs of building and maintaining the laboratories where the research occurs; the cost of utilities to keep the lights on and ensure that labs and equipment are adequality powered; the maintenance and operation of specialized equipment or core facilities shared by multiple researchers working on different research projects (like electron microscopes or 3D printing facilities); and the expensive high-speed data processing and computing power necessary to store and analyze data resulting from the research. These expenses also include the cost of labor for other staff whose jobs are necessary for the research, but not directly involved in it – staff such as the specialized lab technicians who ensure that the labs are operational and the compliance officers who ensure that the research is conducted in accordance with the vast array of applicable federal and state rules (regulating things like human patient health and safety and animal subject safety as well as ensuring that sensitive or proprietary research data isn’t exposed to potential theft by our nation’s adversaries).
Since it would be impossible (or, at least, incredibly inefficient) for the government and the research institutions to itemize each one of these necessary expenses for every federal research award, the government negotiates an overall reimbursement formula, or “rate,” for these F&A costs for each university conducting research. These rates lead to a reimbursement that is generally between 25% and 33% of the total value (i.e. of the sum of direct costs plus F&A) of each grant. And the rates are subject to regular government audit.
But even under the current government rules, these reimbursements don’t actually fully cover the F&A expenses that universities incur in conducting groundbreaking research on behalf of the federal government. This is, in part, due to a pre-existing artificial cap on F&A reimbursements to universities that is imposed by the federal Office of Management and Budget (OMB) as well as other specific federal program restrictions on F&A. According to data from the National Science Foundation , in FY23, universities incurred $6.8 billion in research expenses that were not reimbursed by the federal government. It's also important to note here that the for-profit businesses and national laboratories that conduct research on behalf of the federal government get their full F&A costs reimbursed.
So, even as universities already face unreimbursed expenses when conducting research on behalf of the American people, some officials would attempt to cut these research funds even further. While the proposed NIH cuts to lifesaving medical research are on hold for the moment, similar executive branch efforts to cut research funding could be in the offing at other federal agencies that fund critical scientific advances meant to benefit Americans. And some in Congress may also be considering legislation that would attempt to codify such cuts.
A cut to the reimbursement of necessary research costs is a cut to research, plain and simple. The longstanding government-university research partnership has yielded amazing discoveries and advances for Americans over the decades and has provided among the best returns on any investment the federal government has made over the last century. Researchers work every day to find better treatments for cancer, heart disease, and diabetes for our loved ones. They drive scientific innovations and inventions that help boost our U.S. manufacturing and new business startups. Researchers explore new and better ways to help farmers increase crop yields, fight off pests and plant diseases, and ensure the safety of our food supply. They develop new cutting-edge technologies that help keep our nation secure and bring our troops home safely.
Instead of arbitrarily shortchanging federal F&A reimbursements, we should adequately reimburse necessary research costs to ensure that universities and their scientists can continue to power American scientific advancements and make the critical discoveries that will help drive our nation’s global economic, health, and national security leadership over the next century.