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Sharon McMahon's avatar

One of the things we didn’t have space for in this article is something I don’t see many people talking about: we constantly complain that “big pharma” is biased and only does research that creates drugs that will profit them. So then the alternative to the drug companies funding the studies is to get government funding for it. If we want to eliminate or reduce both of these things, where does that leave us?

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Kris C.'s avatar

I am so glad I this topic came up. I think I can help people understand indirect costs (also known as Facilities and Administration costs or F&A) at research universities. To start: I am a researcher administrator at a university and my ENTIRE job is helping faculty apply for and budget for grants. Buckle up- this is long!

A few facts to understand:

1. All research institutions and universities must have a contract negotiated with a federal agency on how much F&A they can charge on grants. If you do not, the federal government already says you can only charge 10%.

2. There are different F&A rates for different locations. There is: On-Campus/ Off -Campus Adjacent ( less than 25 or 50 miles from campus)/ off campus remote (greater than 50 miles from campus). This is to account for faculty who do research in other places besides the university. DoD contracts have a different rate. There are even rates when it’s not just research but training programs or teaching.

3. You can go to your local university’ office of Sponsored Programs or office of Research and look up their negotiated rate.

4. In each of these contracts, there are also clauses about what is EXEMPT from charging indirect costs: tuition/ grad student stipends/ university fees/ fellowship costs/ major equipment over $10,000 (was $5,000) CANNOT be assessed indirect.

5. Private contractors and for Profit research facilities (like Starlink) also have negotiated F&A rates higher than 15%.

F&A/indirect go to so much more than administrative ‘bloat’. The indirect doesn’t just go to salaries and facilities. It goes to undergrad students/grad students/materials/ summer research/ and so much more. If you have a Kid in Grad school right now, these grants help them take LESS federal loans.

How is F&A charged? When you see a university or research facility say they have a 65% indirect rate for on campus research, that looks shocking. BUT that does NOT mean 65% of the funds go to the university.

Example:

*NIH puts out a call for proposals where they say we will fund the winning projects $400,000 per year over 2 years ($800,000). This is direct and indirect costs.

How much F&A can we charge? First let’s find the direct costs:

$400,000/ 1.65 (the 65%)= 242,424 direct costs can be budgeted.

$242,424 * .65 (65%)=$157,576 indirect costs

Over two years that’s $484,848 direct costs and $315,152 for a total of $800,000. Of that only 39% ($315,152/$800,00) of the funds are for F&A. Probably lower when there are costs exempt from F&A. The other 61% goes directly to research.

If we do the same math with the 15% cap. You would find that yes 87% goes directly to research. The remaining 13% (lower if there are costs exempt from F&A) however, won’t cover the actual running of the project.

Finally: there are a HOST of restrictions on what the researchers can use the funds for. And the government does regular audits each year to ensure compliance. So no: a researcher can’t just fly first class to a conference or take a vacation with the money. Direct costs can not fund items like lab maintenance (electricity and the like), food, and office supplies, which is why there is indirect. All costs have to be reconciled and reviewed. Including cost charged to indirect.

I hope this helps people understand.

*NOTE: NIH actually does things a little more complex but for the sake of the example I put it in more simple terms.

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