By Kritika Agarwal
A new paper released by Attain Partners and commissioned by AAU and COGR shows that universities on average are reimbursed less by the federal government for the indirect research costs they incur than private industry contractors and federal laboratories. The report also shows that universities use their own institutional funds to subsidize a significant portion of the costs involved in performing research on behalf of the American people.
Indirect costs, also known as facilities and administrative (F&A) costs, are the shared behind-the-scenes expenses that make research possible. As AAU explains in an FAQ, F&A costs typically cover “necessary research infrastructure and operating expenses,” including maintaining state-of-the-art laboratories, operating high-speed data networks, ensuring national security and export control compliance, protecting human research subjects, handling radiation safety and hazardous waste, and staffing the administrative and regulatory functions needed to manage grants and keep researchers and participants safe.
The federal government typically reimburses universities for some of these costs, so universities can provide scientists with the buildings, equipment, utilities, and personnel they need to deliver scientific, technological, and medical breakthroughs.
But over the last year, the federal government has tried repeatedly to cap the indirect cost reimbursement rate for universities at 15%, arguing that it would save taxpayer dollars, simplify grant administration, and improve transparency. (These efforts are currently on hold due to legal action.)
Some critics have also claimed that indirect cost reimbursement rates at universities are higher than at other entities that perform research for the federal government (such as national/federal laboratories or private industry contractors).
Attain’s comprehensive cross-sector analysis of indirect cost rates and recovery undercut these claims on several fronts:
- Attain noted that, even though the accounting practices used to reimburse indirect costs are different for each type of entity and, therefore, hard to compare, universities recover a lower percentage of indirect costs as a total of grants and contracts compared to both federal labs and private industry.
- Attain also found that the federal government often does not reimburse universities for indirect and related costs that it generally reimburses to other research entities. “Universities typically pay the indirect costs upfront and recover only a portion of the federal sponsors’ share of costs, effectively subsidizing federally funded research,” Attain noted.
- The most recent Higher Education Research and Development Survey released by the National Science Foundation found that universities had $7.06 billion in unrecovered F&A costs in FY24 (6% of all university expenditures on research and development). In fact, these HERD data also suggest that the overall percentage of total institutional support provided by universities themselves has significantly increased over the last 50+ years while the federal share has significantly fallen.
- Private industry laboratories, for example, “operate with uncapped indirect cost rates and fewer restrictions than universities,” Attain noted, adding: “These labs are allowed to recover all related costs and aim for profitability.” (Attain cautioned, however, that the indirect cost structures for reimbursing private industry labs “vary widely and are not directly comparable to university indirect cost rates.”)
- Further, Attain found that private universities do not have consistently higher indirect cost rates than public universities, as is often assumed. Higher rates at private universities are generally the result of geographical cost factors as well as the type of research supported by the institutions. The paper shows that institutions in the same location supporting similar research have comparable indirect cost rates, irrespective of their public or private status.
Because of widespread misperceptions about indirect costs, the university research community recognizes that a more transparent approach is needed for determining indirect cost rates and recovery. Last year, leaders came together to develop a new model for funding indirect costs.
The proposed Financial Accountability in Research (FAIR) model not only addresses concerns about transparency and accountability, but it also offers an alternative to arbitrary 15% caps on indirect cost rates that federal agencies have proposed and that, if implemented, would devastate the university research ecosystem. The AAU Board endorsed the FAIR model last year, calling it “a sound, common-sense approach to ensuring that the essential costs of conducting research are supported.” In September, 164 national organizations, including AAU, sent a letter to congressional appropriators expressing support for the FAIR model, noting that efforts to cut indirect costs would lead to less research in the United States and undermine our global leadership in science.
As lawmakers and agencies continue to debate research funding policy, Attain’s new study and the FAIR model together provide a compelling roadmap for sustaining the university research driving American discovery and innovation.
Kritika Agarwal is assistant vice president for communications at AAU.