The United States federal government is the primary source of research funding for American universities. Last fiscal year, the National Institutes of Health (NIH) and the National Science Foundation (NSF) invested a combined $57 billion into scientific research across the major disciplines, and additional research and development funding comes from agencies such as the Department of Defense and Department of Energy. Most of these federal dollars go to non-governmental academic research institutions. At our university, the University of California, over $5 billion in federally funded research was awarded in 2024, the most recent year for which data are available. Without question, federal government funding is the lifeblood of American academic scientific innovation and has led to countless discoveries that have benefited the public.
Federal research funds are awarded in two primary categories: direct costs, which fund the scientific team and the funded project’s research supplies (e.g., test tubes, reagents, equipment, computers), and indirect costs, which pay for the institutional facilities and administrative (F&A) expenses of supporting the scientific teams and the project. Importantly, almost all costs of federally funded research (direct and F&A) are paid through reimbursement—funds flow only when the research they are supporting has been conducted and paid for by the university. Universities are required to submit documentation of expenditures to the federal funder to receive payments.
Because universities rely on F&A funds to reimburse the costs of critical research infrastructure, modifications in how and how much the federal government provides for F&A costs (e.g., through the recalculation of reimbursement rates, changing the list of allowable covered research costs, or the implementation of caps on the total amount of reimbursement available for certain activities) have an enormous impact on the infrastructure of American research universities. Ensuring that these funds are reliably available for institutions is critical to continued advancements in science and technology.
F&A Cost are Real Costs but Poorly Understood
The federal F&A process has evolved over the 81 years since the publication of “Science, the Endless Frontier,” Vannevar Bush’s presidential report on national science strategy that led to the creation of the National Science Foundation and the expansion of Congressional investment in extramural (i.e., non-governmentally conducted) federally funded research. A recent report commissioned by the Association of American Universities and the Council for Government Relations provides an excellent in-depth review of this evolution.
Congress quickly realized, once it began to invest in extramural research, that America’s universities (and other recipients of federal research grants) required financial support beyond the immediate costs of the scientific team’s time and supplies to conduct federally funded research. This “research overhead” primarily supported research facilities (e.g., building depreciation, utilities, security, and maintenance) and administration (e.g., grants and contracts, accounting, compliance, and departmental management).
Initially, these institutional costs were covered with a fixed payment, then a fixed percentage, and finally, a process of accounting for the specific costs of each university’s research portfolio through a process of federal review with subsequent negotiation of appropriate rates. The top research universities often have rates of 60-70 percent, meaning that for every direct dollar awarded, an additional 60-70 cents in indirect dollars are added.
Over the years, as research has gotten more specialized and compliance with federal policies on research conduct and security has gotten more complicated, Congress has revised the F&A process to meet the increasing cost and complexity of these activities. Today’s F&A rates are set through a complex and thorough process that is codified in the Office of Management and Budget’s (OMB) Uniform Guidance.
The Federal Government is Questioning the Current F&A Model
There is once again an active debate in Washington DC about how best to fund the institutional F&A costs of today’s federally funded research. Lawmakers have raised concern about the lack of transparency and the unnecessary complexity of the current F&A model for over a decade. During the first Trump administration, the President’s 2018 budget proposed a flat 10 percent rate for F&A, arguing that this would allow more federal dollars to directly support high-priority research. Congress rejected this proposal and added legislative language to the annual Appropriations bill directing the NIH to continue F&A payments using the historical negotiated rates. Congress has renewed this “Appropriations rider” on F&A every year since.
However, the second Trump administration has recently resurfaced this issue, attempting to directly implement a 15 percent cap in 2025. This cap was blocked after multiple stakeholders challenged the policy and it was found illegal by the federal courts. Currently, the Congressional appropriations bills for the 2026 funding year include provisions that prohibit agencies from adjusting existing F&A cost rates. However, it is possible that an update to OMB’s Uniform Guidance, to be released later in 2026, may challenge this Appropriations language in an attempt to further influence these rates.
We Need Stable and Sustainable Federal Funding for F&A
It is of paramount importance to academic research institutions that the federal government provides predictable payment for the institutional F&A costs of federally funded research. In the absence of stable and sustainable funding for these costs, universities cannot financially forecast and invest in the cutting-edge infrastructure of tomorrow. To remain the world’s leaders in innovation and discovery, American universities need to provide the latest in research space, administrative oversight, and equipment management to their researchers. If they don’t, top researchers will leave for greener pastures overseas, and researchers who stay will be less productive and unable to compete with their foreign colleagues.
One timely example of this need for infrastructure investment is artificial intelligence (AI). The use of computational technologies like AI in research is exploding, from applications in basic foundational science to use in applied fields like medicine and engineering. Supporting AI-enabled research requires institutions like ours to purchase or lease access to compute, supply space and utility-based infrastructure, and hire leading experts in research technology and security to keep our AI resources operating in a reliable, efficient, and secure manner. Universities rely on F&A reimbursement to help support many of these ongoing costs, and significant changes to or instability in the payment model will complicate their ability to meet the scientific needs of their researchers.
We believe it is in everyone’s best interest to leverage this political moment of debate over F&A to develop a future model for payments that best meets the evolving needs of all parties. The current F&A payment model is increasingly confusing to policymakers who feel it lacks transparency and diverts too many dollars away from actual research to institutional overhead. Today, some policymakers do not understand that F&A costs are real costs of performing research at academic institutions. For academic research institutions, the current model is increasingly underpaying for the F&A costs of conducting federally funded research and is requiring institutions to subsidize more and more of federal research costs from other institutional sources. It is time for a change.
In recognition of this debate over F&A and the central importance of a stable and sustainable mechanism for funding of federal research at America’s universities, a multistakeholder group of associations representing academia and scientific research organizations recently developed an alternative model for federal research funding called the Financial Accountability in Research (FAIR) model. The FAIR model’s goal is to increase accountability and transparency of the federal research funding process by eliminating the institutional F&A rate methodology and creating new categories for F&A costs that are itemized for each research project.
This model has been presented to Congressional appropriators and has been incorporated into the larger ongoing conversation. Once the current federal appropriations bills are finalized, Congress will need to decide if and how it continues the F&A discussion in the coming fiscal year.
Any future plan for F&A payments must come through thoughtful and deliberative dialogue across stakeholders. The FAIR model represents an important starting point for such a discussion, and it is heartening to hear from Congressional leaders across the aisle that the FAIR model addresses some of their concerns over transparency and accountability. We encourage the academic community and other stakeholders in the F&A debate to engage with policy makers as the FAIR model and other potential approaches are discussed in the coming year.
