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Overhead

Overhead

From the Dean's Desk

April 13, 2017

The Trump administration has proposed cutting $5.8 billion—19 percent—from the National Institutes of Health’s 2018 budget. One of the stated aims of the reduction is to improve administrative efficiency by eliminating a large portion of indirect or “overhead” payments to universities and other research institutions. The average NIH indirect payout is 34 percent while at some places it rises to as high as sixty-two percent of funds received.

One third—sure seems like a lot for indirect costs. What in the world can they be doing with all that money? And then they say they invest even more that isn’t covered by indirect costs! How in the world can that be? Surely it’s not coming to me and my lab!

Let’s look at the big picture. Many grants, especially from foundations, do not fund indirect costs at all, or do so only at very low levels. For industry grants, we press for full indirect costs because it seems inappropriate to subsidize for-profit companies with our own not-for-profit dollars. As you know, the NIH does not allow indirect costs for patient care and equipment, while their rate for training grants is only eight percent. For CWRU SOM, our indirect NIH cost rate is 37 percent, while our overall effective indirect costs, including foundations and industry, are about 30 percent.

What do indirect costs cover? Well, your laboratory requires sufficient space and needs lighting, heat, air conditioning, electricity, water, trash collection, emergency power, and more. Just as you pay a mortgage or rent, pick up the tab for your utilities, and spend on home repairs as needed, the medical school houses your research lab—and pays for its upkeep. Then you need library facilities and administrative support to manage your grants. 

And then add in everything the government requires to comply with their ever-increasing regulations: effort reporting, conflict of interest reporting, IACUC, export controls, accounting, purchasing, human resources. That’s just the bare minimum. Once we total up all allowable costs for supporting your research and calculate the amount as a percent of direct costs, that number only becomes the starting point for negotiating the indirect cost rate. Almost always, the government lowers the requested amount by several percentage points. Those real, negotiated-away costs can never be recovered.

So, if you work indoors, read the literature, see people in the hallways, and have your grants accounted for you, you do benefit from indirect costs!

In addition to what indirect costs cover, there are other things they do NOT. You understandably want to be paid your full salary whether or not you have salary coverage on grants, and usually you want to keep your research going even if your grant isn’t immediately renewed. After all, you expect to recover your grant funding, and you have to keep your work moving. But unfunded research time is not recoverable from indirect costs.

You also want to be paid at your salary level, not at the NIH-capped level, for your NIH research time. Indirect cost recovery will not pay for that. You would like opportunities for both pilot and bridge funding—again, not covered by indirect costs. Finally, you want (and we want you to have) stimulating, productive colleagues, but recruitment costs for faculty to support research programs are not recoverable as indirect costs.

All of a sudden, 34 percent doesn’t seem so bad. And the AAMC calculation that the average investment by medical schools in research over and above indirect cost recovery is 53 percent of external funding, direct and indirect combined, makes a lot more sense.

Do you want modern lab space, vital core facilities, full library access, and strong colleagues, all of which help your research thrive? Support continued payment of the negotiated cost rate!

Pam