Overspending on Overhead

Federal research dollars are needlessly wasted as scientists spend more and more of their time trying to recoup operational costs.

By | February 1, 2015

© ISTOCK.COM/TARIK KIZILKAYA

Chances of obtaining a grant from the US National Institutes of Health (NIH) and National Science Foundation (NSF) are at an all-time low: currently, less than 10 percent of proposals for R01s—NIH’s bread-and-butter research grants—are funded. In theory, this should encourage universities and scientists to be more efficient and resourceful in their use of funds once they score a grant. Yet, paradoxically, the current system creates incentives for tremendous waste, and does not make use of the available money. Policy change is necessary to ensure that tighter budgets are utilized in a way that supports the best work of scientific and societal value.

How is the current system wasteful? Because grant money is tight, investigators are forced to apply for more grants to increase their odds of winning one, pushing grant-funding rates down even further while increasing the portion of scientists’ time spent writing grants rather than collecting data, publishing findings, or teaching students. A first-year assistant professor at a Southern public research university who wishes to remain anonymous explains that, to his mind, winning a large federal grant is now the primary criterion by which junior faculty members earn tenure. He feels relatively little pressure to publish papers, but experiences immense pressure to write—and win—federal grants. Another assistant professor at a large state university in the Midwest further clarifies that although industry support and private foundation grants can help researchers circumvent the shortage of federal funds, these sources don’t help academics achieve tenure because they provide little or no support for overhead.

Overhead—the indirect costs such as libraries, electricity, facilities maintenance, new buildings, and administrative staff, among other things—is usually expressed as a percentage of the direct costs of research. These indirect costs vary, but usually constitute 30 percent to 70 percent of the total grant dollar amount. And the research bureaucracy at universities has mushroomed to deal with all the regulations associated with managing grant overhead—a positive feedback cycle leading to growing indirect costs.

Maria Zuber, vice president for research at MIT, stressed in a November Nature News article that research is a money-losing proposition for universities. Rising administrative costs and expensive start-up packages to recruit excellent faculty all contribute to costs that universities hope to recoup with overhead.

Large grants and fancy buildings and equipment bring prestige to the university and enable it to recruit star faculty.

Researchers have incentives to make their science as expensive as possible, because overhead is proportional to direct research costs. Furthermore, large grants and fancy buildings and equipment bring prestige to the university and enable it to recruit star faculty. Simply put, even if there is an economical way to do something, the system creates incentives for instead making it expensive.

Despite the challenges of accurately measuring scientific value and impact (see “Assessing Research Productivity,” The Scientist, January 2015), researchers will become free to use available funds to do creative and impactful research only when the incentives are changed to reward scientific value, rather than grant. The initial and most critical step toward this end is to break universities’ addiction to overhead.

Here’s how:

First, funding agencies could mandate a limit on overhead cost, perhaps by lowering overhead incrementally to allow administrations to adjust their resources over time. This would prevent ballooning of overhead and ensure that the majority of the money goes directly to research.

Second, the research overhead that currently goes toward teaching activities and new buildings—which include not only research labs but also administrative offices, teaching labs, and teaching auditoriums—should be made available through a separate mechanism rather than coming from research grants, because they support more than just research activities. Federal and state funding agencies could issue requests for applications to support teaching initiatives, curricula development, and internship opportunities for students. Public universities ought to receive additional public funding support that is dependent on the number of students they serve and on their ability to produce excellent student outcomes. This mechanism would create monetary incentives that are better aligned with students’ interests. In addition, in this framework good teachers could bring as much visibility, prestige, and funds to their university as superstar researchers do.  

Third, to compensate for the loss of overhead on research grants, state and federal governments should increase their direct funding for research and teaching infrastructure at public universities, conditional on meeting predetermined standards of efficiency and effectiveness. Another November Nature article covered research output, research expenditures, and efficiency for countries around the world. Although the United States spends the most money on research, it does not fare well in terms of efficiency.

Direct infrastructure funding would have several added benefits, such as allowing a greater percentage of research grants to directly support research, and consequently enabling investigators to produce more research with a relatively smaller grant. In turn, smaller grants would allow a more even distribution of funds in the research community and increase the grant-funding rate. This would help ensure continuous support to many labs and smooth out the disruptive “boom-and-bust” funding cycles that the system currently experiences.

Breaking US universities’ addiction to overhead funding would help ensure that the limited grant money available is used creatively and resourcefully to maximize the scientific impact and value of the research it supports. 

Viviane Callier is a research scholar at the Ronin Institute for Independent Scholarship and senior science writer at The Scientific Consulting Group.

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Avatar of: Grantsrme

Grantsrme

Posts: 1

February 2, 2015

I am a PhD that "left the bench" and am now a Certified Research Administrator.

There are so many faults with your argument that I don't think you understand the basics of what "overhead" is, how it is calculated and how it is negotiated/regulated. Only the cost of doing research is included in the calculations. Overhead is determined by what is called the F&A (Facilities and administrative rate). FYI

1) The F&A rate on federal grants is negotiated regularly (every couple of years) with the federal agency that funds the majority of the University's federal research (called the "cognizant agency"). Institutions don't just get to charge what they wish. 

2) Teaching space and all teaching activities are EXCLUDED from the rate calculation. 

3) the amount of the rate that is due to administrative overhead is capped by the feds at 26%. 

4) Tuition, construction costs  and the large equipment is not charged F&A.

5) It's impossible to obtain "too much" overhead, period. It's called an F&A RATE because it is directly proportional to the costs of doing research. 

6) Investigators do not get more grants just to get more overhead. On the contrary, they wish they could have those funds for doing their research. 

7) Extreme care is taken to assure that a grant proposals costs are allowable, allocable, reasonable and determined consistently. Allocation means that you can't ask to purchase a widget for a project that you will not be using it on. 

8) Spending on grants must be regularly audited to assure that it has been done correctly.

9) Smaller grants are not necessaryily a good idea because investigators may not be able to get enough funding to do the amount of research needed for the project.

10) Even IF teaching and construction costs went into the overhead /direct infrastructure costs, State and Federal governments don't have any extra money floating around. And anyway, you would be robbing Peter to pay Paul if there were these funds. For example, IL where I reside, has the worst deficit  of all states- $45 billion by some accounts, and an unfunded state pension crisis. And where whould this magical funding come from? Taxes, which nobody wants to increase. 

11) The complete regulations are listed on the White House Office of Management and Budget, at http://www.whitehouse.gov/omb/grants_docs.

12) The blame for this money shortfall goes on the costs of the wars that blew out the budget surplus - and then some- during the Bush administration, not the cost of overhead. 

 

Avatar of: Neurona

Neurona

Posts: 70

February 3, 2015

What Grantsrme said.  Except in WI, where state support is set to be massively yet cut again.  

Avatar of: Beagle

Beagle

Posts: 2

February 3, 2015

This article may use broad strokes to paint the picture, but the fact remains that institutions have moved from evaluating scientists and science to counting (overhead) grant dollars. This is having a significant negative impact on mission.

Avatar of: sierrafrogs

sierrafrogs

Posts: 2

Replied to a comment from Beagle made on February 3, 2015

February 3, 2015

While what Beagle suggests may be true at the administrative level at some universities, I think that department faculty, where tenure evaluations, promotions, and merit increases begin, are generally more concerned with the quality of the research and the contribution to the field than in how much money a tenure-track faculty person brings in.  After all, research grants, especially large research grants, can have a substabtial element of "what's hot" in their compositions, but faculty quality and research accomplishments have a lot more influence on department and university reputation ("what's hot" always changes).  Even if institutional budget offices don't always understand that, the departments and established faculty generally do.

Avatar of: NV_joe

NV_joe

Posts: 1

February 3, 2015

Most of Grantsrme comments are accurate but a few are incorrect.

The point of the article was to suggest that administration and the "overhead" for scientists doing research can and are spirling out of control. This is true. There is a lot of fat in the system.

few more comments:

1) The F&A rate on federal grants is negotiated regularly (every couple of years) with the federal agency that funds the majority of the University's federal research (called the "cognizant agency"). Institutions don't just get to charge what they wish. 

True. They can't charge what they wish but the ebb and flow of grants dollars means that when there are periods of low funding the overhead on grants goes up. There are less resarch dollars to pay for costs. This is simple economics. F&A is calculated as a ratio of indirect expenses to direct expenses...so if grant funding decreases unless the university shuts buildings, retires equipment and cuts positions it is going to charge a higher overhead.  

4) Tuition, construction costs  and the large equipment is not charged F&A.

There is overhead on a portion of large equipment and there are depreciation costs for both construction of new space and large equipment that factor SIGNIFICANTLY into F&A rates. Graduate stipends bear overhead.

5) It's impossible to obtain "too much" overhead, period. It's called an F&A RATE because it is directly proportional to the costs of doing research. 

THis statement makes no sense. You feed a hungry engine. YOu get more grants to recover more overhead to hire more people and grow. That's the whole point. And if you grow too slowly your overhead rate will go down and if you grow quickly or cant cut costs in a down year your rate goes up. It's economics 101 of running a business.

7) Extreme care is taken to assure that a grant proposals costs are allowable, allocable, reasonable and determined consistently. Allocation means that you can't ask to purchase a widget for a project that you will not be using it on. 

This is plain nonsense.

 

 

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