October 6, 2003

Michael J. Holland

Office of Science & Technology Policy

1650 Pennsylvania Ave., N.W.

Washington, DC 20502

(via email: mholland@ostp.eop.gov)

Dear Mr. Holland:

We are writing, as senior research officers for our institutions, to
comment on broad aspects of the business relationship between research
universities and the federal agencies, in response to the request for
information by the National Science and Technology Council Subcommittee
on Research Business Models in the Federal Register of August 6, 2003.
Our individual universities will provide specific information
separately. For well over fifty years, the relationship between research
universities and the federal agencies has been the envy of the
international community. By all measures, the returns on federal
investments in promising research in all areas of science and
engineering have been extraordinary. American and American-trained
researchers consistently receive a large share of the international
awards for pioneering science. Americans are healthier and live longer
thanks to medicines and treatments that draw not just on the biomedical
sciences, but on basic research in areas as diverse as computer science,
materials science and electrical engineering.

These points are emphasized in a June 5, 2003 memorandum to the heads of
executive departments and agencies, from John Marburger, Director of
OSTP, and Mitchell Daniels, Director of OMB, who stated "Science and
technology contribute significantly to the highest priorities of this
Administration.... The President's FY 2004 Budget sets forth a research
and development (R&D) agenda for the forthcoming fiscal year that
reflects these priorities and seizes important opportunities for
discovery and development while sustaining the basic R&D machinery
needed for continued U.S. leadership in science and technology." We
applaud the administration's recognition of the strength of the U.S.
science leadership. We are pleased that OSTP/NSTC have recognized that
scientific leadership is sustained best on a path that recognizes the
singular role of higher education and academic research.

Essential for a productive review of the business models underlying the
research relationship between the government and the university
community is a commitment by both parties to recognize and optimize the
immediate and long-term public benefits of research. The government and
the universities also share a bond of responsibility for educating
future generations of scientists and engineers, creating knowledge
through fundamental research, and assuring national leadership in
investigator-initiated research.

The Federal government is not the only source of research support, but
it remains the largest, and for research whose benefits are long-term
and the ultimate financial rewards unknowable, it is hard to imagine
another. However, the fraction of funding provided by the Federal
government has steadily declined since reaching a peak of more than 73%
in 1966. In 2000, the federal government accounted for an estimated 58%
of the funding for research and development performed in academic
institutions, its lowest share since the late 1950s (NSF Science and
Engineering Indicators 2002). The long-standing business relationships
between the government and the university community are based on the
cost principles embodied in OMB Circular A-21. Modifications over the
last 15 years have eroded these principles.

The request for advice on how to facilitate the team approach and
streamline its management engages issues important to all. An increasing
number of complex problems require a wide variety of tools and the
collaboration of a team of investigators whose expertise spans two or
more traditional disciplines. For such research, the single investigator
model is not the best approach. We offer three examples of effective
approaches. For several decades, our universities have conducted
materials science research in centers that require teams of physicists,
chemists, electrical and mechanical engineers, and others. These centers
support central facilities for synthesis and analysis; quickly identify
and fund the most promising "seed" projects; and direct the most
successful of these towards new sources of sustained funding. Second,
teams of biological, social and physical sciences are addressing
problems in neuroscience and cognitive science, in computational biology
and biotechnology, and in nanotechnology, that call for collaborations
across a wider range of disciplines and, with the benefit of information
technology, across geographically distant locations. Third, each
regional or national synchrotron X-ray source permits dozens of
experiments to be conducted simultaneously, experiments that span a wide
range of disciplines from the physical sciences through biology to
agriculture and the environmental sciences. They attract academic,
industry and government scientists, often as part of the same team, and
offer a relatively bureaucracy-free environment in which administration
is largely centralized. These examples, selected from many possible,
demonstrate that team science, conducted on a scale larger than that of
an individual laboratory, can be both scientifically and
administratively effective.

It is illuminating to examine the paradigm of team research in the
context of federal policies. The promotion and management of
collaborative research among investigators and across disciplines and
institutions is more complex than the management of a single
investigator laboratory. Indirectly, these complexities have contributed
to some of the additional requirements with which universities must now
comply. The more cumbersome and intrusive this oversight, the less
incentive investigators have to collaborate. Even if the additional
oversight is handled as deftly and efficiently as possible, and even if
agency policies are revised to make them as simple and uniform as
possible, an increase in the level of expenditures for infrastructure
and administration in the capped administrative category and the *de
facto* capped library category is inevitable.

Given this background, it is disappointing to read a list of questions
in the Federal Register that makes little mention, if any, of the
underlying problems as we see them. These are:

1.  a shifting of direct costs from the government to the university in
    various types of cost sharing;

2.  an inadequate recognition of the burdens of unfunded regulatory
    mandates; and

3.  an increased level of facilities and administrative costs associated
    with team research.

.

These problems must be addressed within a context in which the recovery
of administrative costs has been capped. As a consequence, the
universities are obliged to use their own funds to cover the increasing
costs of compliance with, for example, human subjects research, HIPAA,
and growing expectations of elaborately defined stewardship
responsibilities. (Reference the recent DHHS OIG expectations for NIH
grant management). In contrast, cost principles for R&D support for
other non-profit grantees and the commercial sectors permit them to
fully recover administrative costs. Only the cost principles for the
academic community are burdened with an administrative cap.

Another refinement of A-21 Cost Principles has shifted virtually all the
costs of clerical and administrative support from direct costs to
indirect costs. Modest administrative support directly related to
research can and should be supported as a direct cost. For many
investigators, the impact of this accounting change coupled with the
capping of administrative costs and the imposition of Cost Accounting
Standards, eliminated [all]{.underline} support. Investigators not only
do the business of research, they are clerks, travel agents, purchasing
agents, and low-level compliance officers. A good business model does
not call upon faculty members to divert time from research to make
photocopies of data records, or to fill out appointment forms for
technicians. But universities cannot adequately fund the research
administrative staff if their administrative costs are capped.

At a more basic level, OMB and rate negotiators appear to have replaced
standard business-like processes that would base the reimbursement of
facilities and administrative costs on actual costs by an arbitrary
"principle" of "budget neutrality." In the face of instructions to
negotiators to permit no increased payments by the government, the
insistence on submission of increasingly detailed documentation to
substantiate costs that will not be reimbursed is difficult to fathom.
Also difficult to understand is the increased attention being placed on
sub-recipient monitoring. Not merely must we assure that our university
manages our own awards in compliance with all federal regulations, we
must also redundantly monitor each others' business practices on
collaborative projects. Such requirements create an additional
disincentive to the new and efficient kinds of multi-disciplinary,
multi-institutional collaborations noted above.

Institutions are therefore being forced to commit increasing percentages
of their own resources to R&D. University resources come from tuition,
endowment income, state and federal appropriations, gifts, and sponsored
research. To support R&D, the first should not be tapped, the second and
third are limited by restrictions, and the fourth unrealistic in the
case of alumni and friends, limited to short-term and directed research
in the case of industry, and decreasing in the case of foundations. It
is inconceivable to us that any prudent "new" business model could be
fashioned that did not begin with a fair and reasonable funding
relationship between the parties.

Our institutions are eager to work with the Subcommittee to define such
models, giving special attention to the opportunities for sharing
facilities, streamlining multi-institutional funding mechanisms,
instituting reasonable cost principles and establishing closer research
relationships between universities, government laboratories, and the
private sector. We welcome the opportunity to comment and offer to meet
with OSTP, NSTC and the Subcommittee to discuss these concerns further.

Sincerely yours,

Arthur Bienenstock

Vice Provost and Dean of Research and Graduate Policy

Stanford University

Theodore J Cicero\
Vice-Chancellor for Research\
Washington University

Alice Gast

Vice President for Research\
Massachusetts Institute of Technology

David Goodstein

Vice Provost

California Institute of Technology

Andrew Hamilton

Deputy Provost for Science and Technology

Yale University

William Happer

Chair, Princeton University Research Board

Princeton University

Raphael Kasper

Associate Vice Provost for Research

Columbia University

Keith Moffat

Deputy Provost for Research

University of Chicago

Paul C. Martin

Dean for Research and Information Technology

Harvard University

Theodore O. Poehler

Vice Provost for Research

Johns Hopkins University

Robert C. Richardson

Vice President for Research

Cornell University

Copies to: Dr. John H. Marburger, Director, OSTP

> (by email: jmarburger@ostp.eop.gov)

Dr. Kathie L. Olsen, Deputy Director, OSTP (by email:
kolsen@ostp.eop.gov)