Energy : About grants: What are "indirect costs"? . Alternatif Energy

Before blogging further about science, I wanted to explain something about the way research grants work in the US.  Consider this part of my series of posts intended to educate students (and perhaps the public) about careers in academic research.

When you write a proposal to a would-be source of research funding, you have to include a budget.  As anyone would expect, that budget will list direct costs - these are items that are clear research expenses.  Examples would include, say, $30K/yr for a graduate student's stipend, and $7K for a piece of laboratory electronics essential to the work, and $2K/yr to support travel of the student and the principal investigator (PI) to conferences.   However, budgets also include indirect costs, sometimes called overhead.  The idea is that research involves certain costs that aren't easy to account for directly, like the electricity to run the lights and air conditioning in the lab, or the costs to keep the laboratory building maintained so that the research can get done, or the (meta)costs for the university to administer the grant.  

So, how does the university to figure out how much to tack on for indirect costs?  For US federal grants, the magic (ahem) is all hidden away in OMB Circular A21 (wiki about it, pdf of the actual doc).  Universities periodically go through an elaborate negotiation process with the federal government (see here for a description of this regarding MIT), and determine an indirect cost rate for that university.  The idea is you take the a version of the direct costs ("modified total direct costs" - for example, a piece of equipment that costs more than $5K is considered a capital expense and not subject to indirect costs) and multiply by a negotiated factor (in the case of Rice right now, 56.5%) to arrive at the indirect costs.  The cost rates are lower for research done off campus (like at CERN), with the argument that this should be cheaper for the university.  (Effective indirect cost rates at US national labs tend to be much higher.)

Foundations and industry negotiate different rates with universities.  Foundations usually limit their indirect cost payments, arguing that they just can't afford to pay at the federal level.  The Bill and Melinda Gates Foundation, for example, only allows (pdf) 10% for indirect costs.   The effective indirect rate for a university, averaged over the whole research portfolio, is always quite a bit lower than the nominal A21 negotiated rate.  Vice provosts/presidents/chancellors for research at major US universities would be happy to explain at length that indirect cost recovery doesn't come close to covering the actual costs associated with doing university-based research.  

Indirect cost rates in the US are fraught with controversy, particularly now.  The current system is definitely complicated, and reasonable people can ask whether it makes sense (and adds administrative costs) to have every university negotiate its own rate with the feds.   It remains to be seen whether there are changes in the offing.