University Research:

Effect of Indirect Cost Revisions and Options for Future Changes

RCED-95-74: Published: Mar 6, 1995. Publicly Released: Mar 6, 1995.

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Pursuant to a legislative requirement, GAO reviewed the government's regulations that allow universities to recover indirect costs associated with federally funded research, focusing on the effects of the Office of Management and Budget (OMB) revisions that: (1) established a 26-percent cap on federal reimbursements for universities' administrative costs; (2) further clarified and tightened certain indirect cost accounting procedures; and (3) control indirect cost growth, improve the consistency of cost treatments, and streamline indirect cost accounting procedures.

GAO found that: (1) the 26-percent administrative cost cap affected 69 to 82 of the 140 universities surveyed and reduced annual administrative costs reimbursements by about $104 million; (2) the cap also lead to more uniform indirect cost rates among the universities; (3) the 1991 revisions eliminated or reduced some previously allowable indirect costs; (4) the effects of the 1993 revisions are not fully known because federal agencies are implementing them through renegotiated multiyear rate agreements; (5) the change in the treatment of tuition remission costs could reduce the number of science and engineering doctoral candidates at 4 universities; (6) OMB has proposed several revisions to its indirect cost principles to control indirect cost growth and improve accounting procedures; and (7) federal and university officials oppose a total cap on indirect cost rates because it could adversely affect the universities' ability to provide modern laboratory facilities and equipment.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In April 1996, NSTC recommended that OMB continue to allow universities to charge tuition remission through cost allocation to the fringe benefits pool, providing there is no additional cost to the government, until a more comprehensive study can be conducted. This study would be designed to determine if, it is in the national interest to continue to allow flexibility in how tuition remission is charged to federally sponsored research. This could include OMB limiting the use of the fringe-benefit pool for this purpose to agencies that do not fund research-training grants. In May 1996 memorandum OMB, responded that it had concluded that Circular A-21 should not be modified to allow a university to take tuition remission expenses for research activity and charge those expenses indirectly, such as by allocation to a fringe-benefits pool. OSTP will ask NSF to monitor the trends over the next several years and report to OMB and the President's Science Advisor by October 1, 2000.

    Recommendation: Given the universities' concerns about the effects of the tuition remission change, the National Science and Technology Council (NSTC) should evaluate the implications of this change. This evaluation should take into account: (1) the supply and demand for scientists and engineers with doctorates; (2) whether graduate students' participation in research is likely to be inhibited by the tuition remission change; and (3) what, if any, alternatives can best address this issue.

    Agency Affected: National Science and Technology Council


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