Big shift. Charles Holliday chaired a National Academies' panel that has recommended moving federal money from research to overhead.

The Real Cost of Research–And Who Pays

Jeff tries to explain how government works to readers of Science.

Most researchers will find it easy to support the majority of the recommendations in a new report by a National Academies panel given that the committee calls for spending tens of billions of new public and private dollars each year on research, training, and infrastructure at the nation's elite universities.

But one of the panel's 10 recommendations could be a real deal-breaker for many faculty members. It calls for full reimbursement of the overhead costs of federally funded research, that is, what universities spend on everything from maintaining labs to paying the salaries of administrators to assure compliance with all relevant federal and state laws governing the conduct of research.

Why should researchers care how much their institution receives in so-called indirect costs? Because the panel has proposed that these reimbursements come from the pot used to fund the actual research. That revenue-neutral approach is meant to appeal to legislators trying to reduce overall government spending. But it would mean less money available for individual researchers who already face long odds in obtaining a federal grant.

The proposal is only one of 10 recommendations in a 250-page report. And the explanation of its impact on researchers is almost buried in the text. "This change will entail no net change in cost to the federal government," the report explains, "since federal coverage of a higher portion of indirect costs would, at the margins, shift part of federal research funding from direct to indirect costs."

But Charles Holliday, a professional engineer and former DuPont CEO who chaired the panel, didn't pull any punches in a conversation with Science Insider immediately after the report was released yesterday. "We think that full funding is critical," he says. "So if it came down to it, if there were no new money available, we'd rather see more of it go to pay the full cost [of supporting research]. … Yes, if that were the only option, then cut into the amount of money available for research."

Holliday, who has spent his career in industry and is now board chair of the Bank of America, said he initially thought universities were simply making a poor business decision by accepting a grant for a faculty member's research from a federal agency that didn't provide adequate reimbursement. "As a businessman, my first reaction was, 'If you don't want the business, don't take it.' But they really have no choice but to take it" if they want to remain competitive, he added.

Each university negotiates its own reimbursement rate with the federal government, although its expenses for some categories of expenditures are fixed by federal regulations. In addition, some individual programs within an agency come with a fixed reimbursement rate that is artificially low.

Universities look for ways to make up the difference, Holliday explains, but those options often lead to undesirable consequences. "The current situation puts a lot of pressure on a university to increase tuition and push up the student-faculty ratio," he says. "It is just driving all the wrong behavior."

The last major change in the government's indirect cost reimbursement policy occurred nearly 20 years ago in the wake of a congressional investigation into the reimbursement practices of Stanford University and other elite institutions. Holliday contends that the government went too far in responding to the abuses that were uncovered, and he says the panel's recommendations are meant to strike a better balance.

"If you look out the window, there are a lot of things in this country that exist because they were a reaction to something that had gone wrong," he says. "But when that happens, you generally overdo it. So now is a good time to look back and say, 'Now what are the regulations that do make sense?' It's not going to happen overnight. It took us a couple of decades to get off the rails, and it may take us another decade to get back on track."

Universities need to do their part, Holliday says, by becoming more cost-efficient at supporting research on their campuses. Those savings, he adds, will translate into less money that needs to be withdrawn from the direct research pot. "Once you demonstrate those savings," Holliday says, "we think the federal government should be a lot more comfortable paying the full cost of the overhead to support research. So maybe the dollars don't go up that much."

Posted in Education, Funding