The Costs of Doing Research:
Indirect Cost Recovery from Sponsored Projects
at Northern Arizona University
By William Grabe
Vice President for Research
As a research university, Northern Arizona University's mission includes creating and disseminating knowledge for the public good. And, like most research universities, NAU achieves this goal largely through the important research, scholarship, and creative activities of its faculty. The university's research mission also has its costs. While state allocations and tuition dollars enable the university to cover the cost of fulfilling its primary mission—educating its students—the same cannot always be said for the cost of creating and disseminating new knowledge—i.e., doing research.
Much of the scholarly and creative activity conducted by university faculty has limited cost, and faculty carry out this work with time and supporting resources provided by the university. However, in some cases of scholarly and creative activity, and in most cases of research in the sciences, external funding is necessary to achieve the faculty members' goals. In these situations, a range of supporting university administrators and offices must assist the researcher, and these forms of support must be paid for.
When we submit a proposal to and receive an award from the NSF, for example, considerable costs are incurred by the university. The federal agency understands these costs and is willing to cover a large percentage of them. This is why it allows us to include "indirect costs" in proposal budgets. The federal agency is saying, in effect, "We would like you to conduct these experiments and answer these important questions, and we're willing to cover the cost of doing so." It accepts that the costs associated with carrying out extramurally sponsored activities are both direct (to the project) and indirect, and must be borne by the external sponsor to the extent possible.
It's important for the campus community to understand the true cost (to the university) of doing research and why we charge external sponsors for this cost. The following FAQs are intended to help faculty, staff, and students understand these issues and how collecting indirect costs actually furthers the goals of faculty and the university in research, instruction, and public service.
1. Why do universities collect indirect funds?
External awards bring in money to the university so that specific projects can be carried out and research, community service, or enhanced instructional goals can be achieved. Seeking external research funding is certainly a central goal for the university, but it comes with many financial costs as well. Besides the "direct" costs of a project, such as salaries and wages, benefits, travel, operating costs, etc., there are the less easily identifiable "indirect" costs such as utilities, laboratories and offices, the library, and all the different administrative offices that support the project, from purchasing and the bursar's office to the Office of Grant and Contract Services and Post Award Accounting.
Most sponsors recognize that payment of both direct and indirect costs is essential for the success of a project. All indirect funds support the research enterprise at NAU, and we would not have the research support infrastructure without charging and collecting the allowable indirect costs from various agencies.
2. How much money in a grant proposal should be budgeted for indirect costs?
This is a very important question and one that has variable answers. The simple answer to this question is that NAU expects indirect costs to be included in the project budget "at the allowable rate" for each agency and for each type of project (research, public service, or instruction). NAU's approved rate for research is 49%; for public service, 28.2%; and for instruction, 51.2%, but many sponsors do not allow these rates to be charged. For example, there is a very large gap between our federally approved 51.2% rate for instruction and the maximum rate of 8% that is standardly allowed by the U.S. Department of Education.
While we would want to accept all grants in an ideal world, accepting grants that do not pay any indirect costs or pay a lower rate than our approved rates actually costs the university since another source of funding must be found to cover these costs. I want to be clear on this—the university actually loses money by accepting many of the grants that we do accept. We commonly accept these grants because the university has additional strategic goals (e.g., to encourage researchers to pursue new knowledge creation, to provide services for the wider state and national communities, to provide the greatest instructional opportunities possible). So, for example, the university may accept a financial loss to achieve a real gain in instructional opportunities for students. Various sponsors, from the federal government to foundations, limit the amount of indirect costs that can be charged on a project, and some sponsors prohibit any (zero) indirect costs.
3. What is indirects funding used for?
It costs quite a bit of money to support the processes of proposal submission, award administration, and regulatory compliance. Besides the costs identified above, indirect funds are also used by the university, colleges, and departments to provide equipment maintenance, large equipment purchases, start-up funds for new hires, seed funding for innovative research and instruction, not to mention maintenance of research facilities. These indirect funds also support university research initiatives through the Research Investment Fund (RIF), and they provide resources for addressing unexpected needs in the support of the many external grants across the university.
NAU maintains a general indirects budget account, and 70% of all indirects collected are directed to this account. This account pays the salaries of all of the Office of Grants and Contract Services (OGCS) administrators. The account also pays all of the salaries for Post Award Accounting Services and Fiscal Compliance (PAASFC), and some of the salaries in the Comptroller's Office. The account pays the salaries for all areas of the Office of Regulatory Compliance (ORC) and for the costs of compliance equipment, resources, training, and repairs/replacements. The account supports the university greenhouse, the animal lab facility, the Bilby Research Center, and Office of the VP for Research (OVPR) operations. The account pays for the auditing requirements to set future indirect rates based on NAU research space and research needs. Additionally, the account provides the funding for the Hooper Undergraduate Research Award and the Research Investment Fund administered by the OVPR.
In addition to the 70% of indirect funds collected centrally, the other 30% of indirect funds are distributed to colleges, departments, and centers (when appropriate). These funds are used to support various aspects of the research enterprise, and these funds are sorely needed to maintain a (limited) level of support for continuing research.
Looking at the long list of research office salaries, operations, funds, and logistics needs, it is clear that research, public service, and instructional projects are not sustainable without the collection of indirect costs. To put this more bluntly, sponsored/externally funded research would be significantly curtailed at NAU if PIs consistently asked for and received returns on indirect charges or full waivers of indirect charges.
4. Finding the Balance
External funds are certainly an important part of the resources that universities need to support the many research, public service, and instructional projects that faculty engage in. At the same time, if a university accepts many grants with little or no indirect funding, these real costs must be covered from other resources, or in other cases, deferred (e.g., research-support staffing needs, facility maintenance). Faculty have a right and a privilege to pursue their individual research and scholarly goals with external grant funding, but these activities should largely pay for themselves rather than be heavily subsidized by the state or by students' tuition dollars. In trying to maintain the balance between research costs on one hand and faculty and university goals on the other, every university must balance whether or not to accept all grants that could be awarded. Overall, external grants must generate enough indirect funds to cover much of the actual costs of providing the required facility and administrative (F&A) services necessary for the success of each project.