F&A Booklet
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12. How does our overall F&A cost rate compare
with other universities?
Chart IX (see below ) shows that F&A cost rates vary greatly among WSU peer institutions, and indeed a few institutions not shown on the graph lie outside the 43 percent to 58 percent range. The average rate among all research universities is around 50 percent; private universities have an average rate about 7 percentage points higher than that figure, whereas the average rate for public universities is approximately 3 percentage points lower than the overall average.
The differences in F&A cost rates have often been cause for scrutiny and discussion. There are a number of factors that give rise to these differences. The first factor to consider is the Buildings and Improvements cost pool. An institution that has a large number of research facilities, with some built recently at higher cost will have higher depreciation expenses than an institution that has a smaller and/or older physical plant. Thus, at WSU, where many researchers enjoy access to new facilities because nearly $1 billion was expended on new buildings during the 1990’s, this factor is a significant portion of the F&A rate. Additionally, private institutions generally try to recover as fully as possible the cost associated with research facilities, whereas public institutions have tended to be less aggressive, since their buildings are often funded in part by the state.
In some states, F&A cost rates have deliberately been kept low on the theory that aspiring research institutions would be more competitive for federal grants. Such decisions can result from a deliberate plan by the state and university to subsidize their research programs with nonfederal resources.
Significant differences, especially in the Buildings and Improvements and Equipment cost pools, also result when an institution decides to change from the use allowance method (simplified depreciation methodology) to a full depreciation calculation. This approach can be used to justify a significantly larger F&A cost return if the institution is willing to bear the cost of a much more extensive accounting effort. Many universities, both public and private, use full depreciation and WSU is proposing switching from the simplified method to full depreciation also. The additional accounting costs can be added to the F&A cost pools for administration, assuming that sum does not exceed the 26 percent cap.
Costs may also differ because of internal institutional policies regarding direct versus F&A costs and how they are defined. For example, at some universities equipment maintenance costs may generally be considered as F&A costs, while at others, they may be charged directly to the grant. In the same way, some institutions directly charge costs for animal care and disposal of radioactive materials directly to grants, while WSU has incorporated such expenses into the F&A, so that researchers are not tempted to not request needed animal care or to dispose improperly of radioactive wastes. As a result, a given university may show higher direct costs and lower F&A costs than comparable costs at WSU, even though the actual cost of the particular function is exactly the same at the two institutions.
Simple variations in the cost of utilities or labor in different geographic areas may contribute to rate differences. A study in 1988 showed electricity costs in the New York area were ten cents per kilowatt-hour compared to two cents per kilowatt hour in the Seattle area. Costs in Seattle have since gone up significantly, but they are still lower than most areas of the country. Similarly, heating and air conditioning costs vary widely across the country, as do labor and construction costs.
Thus, it is generally conceded that there are legitimate differences in costs between institutions that should be recognized by the federal government and other sponsors. However, it can be argued that institutions which arbitrarily limit themselves to F&A cost rates below their actual costs are simply allowing the granting agencies to underwrite disproportionately more services and newer facilities at competing institutions with relatively higher rates.
Chart IX
F&A Cost Rates of WSU Peer Universities
On-Campus Federal Research FY 2003
Click for larger chart
