F&A Booklet
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9. Why should my grant pay F&A costs?
It is not uncommon for faculty members to feel that when they successfully compete for a grant, the F&A cost component is something that they are bringing to the university and donating to the institution. From WSU’s point of view, the faculty member’s proposal really addresses the direct cost elements only, and when a federal agency or other sponsor funds the research, the direct cost commitment to the faculty member must be supplemented to pay for a share of the institutional cost of research. The reimbursement of F&A costs is a matter between the institution and the sponsor, based on the principles outlined in Circular A-21. From the sponsor’s and the institution’s point of view, the F&A cost component is distinct from the direct cost award, and in the best of circumstances it simply reimburses the institution for the real cost to the University of a specific research project. Moreover, should the University waive such indirect costs, the sponsor needs to recognize that the University is contributing to the cost of the research. As such, the University has additional rights for ownership of intellectual property, etc, which the sponsor may not otherwise consider to be a portion of the total cost of the research.
These contrasting perceptions can be a cause for misunderstanding. The faculty member feels that she or he is contributing significant F&A cost dollars to the University, whereas the administration maintains that the University is simply being appropriately reimbursed for the F&A costs of the project. Moreover, the sponsor sometimes feels that the institution should waive the F&A expenses, since they are not direct expenses for the grant. There is typically a tendency for faculty and the sponsor to underestimate the nature and cost of essential support services. All too frequently, the recovered F&A costs do not fully cover the actual F&A costs of such research. For example, in FY02, the actual F&A recovery rate was only 17 percent, while the cost of providing such services, as discussed above, was 49.67 percent as shown by Chart V (see below). In many instances the cost of the space alone, if calculated at market rates, would be comparable to the full amount of the F&A generated by the grant.
The situation is even more complicated than the above analysis suggests. When a sponsor determines the amount of funds available to pay for the research, there is often no distinction between direct and F&A costs. The sponsor receives a total budget to carry out its program. Whatever funds the sponsor has to pay out for F&A costs are clearly unavailable to award for direct cost purposes. Thus, there is a fundamental trade-off made by the sponsor between direct and F&A costs, which makes this issue of legitimate concern to faculty considering the long-term funding prospects for their disciplines. Recognizing this tension, the National Science Board recently directed that the National Science Foundation couldn’t allow the amount of cost sharing provided by an institution to be a factor in the review of proposals. Moreover, they directed that if the budget is reduced by more than 10 percent, a corresponding description of the associated reduction in the project scope must be negotiated with the program officer. Such changes reflect recognition of institutional contribution to the research enterprise.
Some faculty members feel that if they could force sponsors to reduce the F&A costs a university can recover, there would be more money for their research program. That tactic might work in the short term, if the “savings” were used to help fund a larger number of grants. However, in the longer term, if the University lost revenue in this way, it would be forced to cut services, staff and faculty positions, reduce available research space, and trim other expenses, so that any initial advantage would be undermined or completely outweighed by later disadvantages. In reality, the university subsidizes many proposals for which the F&A cost rates are arbitrarily restricted by the agency. In light of this, the university continually strives to lower administrative costs and to conduct research in the most efficient and effective manner possible. Through these efforts, the university has lowered its costs, with more direct cost funds available.
Chart V
WSU Total Direct Costs and F&A Recovery History
Click for a larger
chart.
