White House Office of Science and Technology Policy (OSTP)

National Science and Technology Council (NSTC)

Committee on Science

**Regional Forum on Research Business Models**

### Appropriate Costs of the Research Enterprise

**WORKSHOP SUMMARY**

Hosted by:

University of North Carolina at Chapel Hill

Duke University

North Carolina State University

Research Triangle Institute

Chapel Hill, North Carolina

November 17, 2003

Prepared By:

Rose Li and Associates, Inc.

December 5, 2003

White House Office of Science and Technology Policy (OSTP)

National Science and Technology Council (NSTC)

Committee on Science

Regional Forum on Research Business Models

# Appropriate Costs of the Research Enterprise

Chapel Hill, North Carolina

November 17, 2003

# Executive Summary

The third Regional Forum on Research Business Models was held at the
Carolina Inn in Chapel Hill, North Carolina on November 17, 2003. The
goal of this third of four regional forums -- which are sponsored by the
Subcommittee on Research Business Models, under the White House Office
of Science and Technology Policy (OSTP) National Science and Technology
Council (NSTC) Committee on Science -- was to solicit suggestions from
the research community on

appropriate costs of the research enterprise in an effort to improve the
Federal research process. Although the U.S. research enterprise is
considered to be among the best in the world, it is recognized that
improvements can be made to rationalize the process to make it more
efficient.

The Chapel Hill forum echoed many of the public comments received by the
Committee and highlighted a number of pressing concerns shared by
research institutions about inefficiencies and administrative burdens
imposed upon them by Federal granting agencies. Participants called for
greater consideration of the proper balance between social value and
regulations, and for a more rigorous deliberation of their tradeoffs. As
science is inherently a self-correcting process through publications and
the process of scientific validation, the spontaneity of science must
not be inhibited, and unexpected and negative results should not be
dismissed as failures but rather as essential steps on the way to
scientific discovery.

Lessons from the United States' success in science and technology over
the last half century suggest that this success was associated with two
principles: total cost reimbursement and reasonable approximation.
According to many speakers, the steady deterioration in full-cost
reimbursement and the imposition of greater accounting and compliance
requirements are challenging this nation's preeminence in the sciences.
A problematic trend is that the costs of research are increasingly being
borne by universities. Indeed, one speaker concluded that universities
seem to have a poorer risk/reward profile, as compared to that of the
Federal government. This is because universities are obligated to cover
the fixed cost of tenured faculty and research infrastructure, despite
shifts in Federal program priorities.

There was significant discussion about the **bureaucratic accretion of
Federal regulations** and its onerous imposition of unfunded mandates.
Many speakers complained that at multiple times during the 1990s and in
more recent years, unfunded mandates were added with little attention to
their cost or added value for rational stewardship and accountability.
Actions should not be taken unilaterally with little regard for their
implications for the research community. **It was recognized that
political action is an important factor in policy-making**. Many argued
for greater representation of researchers in the policy formulation
process, to deflect the imposition of regulations that conflict with the
practicalities. Participants acknowledged the difficulties of engaging
faculty in the discussion, and suggested travel cost reimbursements to
encourage more scientists to become involved in the rule-making process.

Participants also believed that it would be helpful to bring OMB and
other "mission" agencies into the discussion early, and to **involve the
audit community**. The audit community was involved in the first phase
of the Federal Demonstration Project (FDP), but now seems to be on a
different track focused on evaluating agency programs. The role of the
NTSC in bringing viewpoints together cannot be underestimated. It was
also noted that developing good working relationships with agencies does
yield benefits to institutions.

The comments regarding Federal accounting standards and reducing
regulatory burden reflected strong sentiments in favor of streamlining
processes around common functions -- e.g., scientific integrity
policies, conflict of interest reports, and CV formats. In reducing and
simplifying business processes, it is important to assess the value of
new compliance initiatives: Do they fairly balance accountability and
responsibility? How do we measure their impact and outcomes?

Associated with the greater regulatory burdens, an inordinate amount of
**faculty time** is being spent on administrative tasks. Participants
stated that graduate students are turning their backs on research
because they do not like the model they see. Faculty members spend less
time in the lab and more time on administrative matters and the
competition for grant money. Despite the increasing awareness of the
importance of interdisciplinary research, as evidenced by the dramatic
increase in subawards, there are significant barriers that discourage
greater interdisciplinary research. In the prevailing culture of many
campuses, some department chairs discourage untenured junior faculty
members from collaborating with those outside their own departments. One
unintended and alarming consequence of this is that new talent is being
dissuaded from continuing on a research track, or from pursuing
interdisciplinary research. Such impacts are amplified in smaller
institutions.

Participants strongly stated that the funding of research should be an
investment rather than a procurement activity, and also called for
**greater recognition of existing accounting methods and effective ways
to measure research output** -- i.e., the peer review process;
scientific publications; progress reports; effective compliance
committees; audits; NIH's model for responding to the Government
Performance and Results (GPRA) Act; and other proactive monitoring
mechanisms. It was recognized that research does not lend itself to
traditional business model accounting. Another suggestion was to
consider accreditation programs as a self-governing way to avoid more
fragmentation and complexity.

The **complexity of issues surrounding cost-sharing** was another major
topic of discussion. Institutions are acutely aware of investment
tradeoffs, and money that must now go to cost-sharing initiatives must
come out of other budget line items. Concerns were raised about
ambiguities as to when cost-sharing is required, with some participants
alleging that programs are inappropriately considering cost-sharing as a
funding criterion in the scientific merit review process. Multiple
participants objected to the violation of long-standing practice to keep
peer review of scientific merit independent of funding considerations.
They reiterated that the "sacred line" between merit review and
financial considerations must be protected if the best science is to be
supported.

A **misconception about indirect costs** appears to be having a
disproportionate impact upon the research community, where it is
perceived that indirect costs represent profit or a slush fund. The
reality is that Facilities and Administrative (F&A) costs are part of
the real costs of conducting research and must somehow be reimbursed.
Independent research institutions pointed out that it is not possible to
shift costs to other lines of business if there is only one line of
business. Discretionary funds must come from fundraising and investment
income, which are also the only sources available to fund new
initiatives and pilot projects that are not yet ripe for research grant
funds. Applying discretionary funds to unfunded mandates puts R&D at
risk. More needs to be done to educate people to recognize indirect
costs as real costs, particularly if Federal government policies have an
impact upon these costs. Federal agencies are prohibited from publishing
financials/indirect cost data from contractors or recipients, but such
information for universities is available from various non-federal
sources.

Participants recognized that prior efforts have sought relief for
institutions from the 26 percent cap on F&A rates and salary caps (which
can have a deleterious effect on researcher retention), to no avail,
even in a surplus situation when Federal budgets were more flush. It
should also be recognized that if the cap is lifted, the Federal
research budget will not increase, so there will be fewer projects
funded. Caps have another more insidious consequence; they **hide true
costs**. Real costs are not known unless extra accounting or special
studies are conducted. Institutions have volunteered to assist Federal
agencies in understanding true costs.

Finally, no serious attention appears to have been given to the radical
changes in the costs of information acquisition and exchange produced by
digital technology. Some pointed to the increasingly sophisticated data
systems and personnel required for quality assurance. There were also
requests seeking reimbursement for the costs associated with
Institutional Review Boards (IRB) and Institutional Animal Care and Use
Committees (IUCUC).

If the Federal government is serious about trying to let universities
play their role as best they can, they must be willing to eliminate
arbitrary biases in the system, and to allow universities to exercise
unfettered academic judgment about how best to conduct their research.

Many of the issues raised at today's meeting will be synthesized at the
Washington meeting, to be held on December 9-10 at the USDA. At that
meeting, we will consider implementation tasks for subcommittees and
working groups. Additional comments are welcome to be submitted in
writing to <NSTC_rbm@ostp.eop.gov>

White House Office of Science and Technology Policy (OSTP)

National Science and Technology Council (NSTC)

Committee on Science

Regional Forum on Research Business Models

# Appropriate Costs of the Research Enterprise

Chapel Hill, North Carolina

November 17, 2003

# Meeting Summary

## 

## Opening Remarks

Dr. Cliff Gabriel, Deputy Associate Director for Science, Office of
Science and Technology Policy (OSTP), welcomed participants to the third
regional forum on Research Business Models (RBM). He thanked the North
Carolina hosting institutions and the staff from Federal agencies who
helped plan the meeting. He described the forum as an opportunity to
improve the research administration system for all participants,
acknowledging as well that the system for which improvements are sought
is remarkably productive and literally the envy of the world. He
described the current system as flexible, with excellent mechanisms for
collaboration across agencies and universities, particularly when
compared with other countries. The key question is whether current
structures and funding mechanisms are adequate for productive research,
and whether the relationship could be more productive.

Dr. Gabriel briefly explained the structure of the Federal agencies
overseeing possible improvements to Federal research funding processes.
The work of the National Science and Technology Council (NSTC) is
achieved through four committees, which in turn have subcommittees and
working groups. The Committee on Science is co-chaired by Dr. Kathie
Olsen, Associate Director for Science, OSTP, Dr. Rita Coldwell at NSF,
and Dr. Elias Zerhouni at NIH. Today's forum was sponsored by the
Subcommittee on Research Business Models, under NSTC's Committee on
Science. The purpose of the RBM Subcommittee is to (1) identify and
address important policy implications arising from the changing nature
of scientific research, and (2) examine the impacts of these changes
upon the conduct of scientific research funded by the government and
carried out by academic, industrial, and government entities. The NSTC
is coordinating the development of documents to drive budget decisions
and strengthen the output of the Federal research process.

The comments received to date have shared misgivings about the emphasis
on "business processes," and the definition of outcomes for research
grants. Dr. Gabriel clarified that the term "business processes" is
meant to convey the whole array of activities that take place outside
the laboratory in support of research that are deserving of further
review. The goal is to maximize the return on scientific investments.

Looking ahead, the Committee will consider all public comments submitted
up until the full Committee meeting, which is scheduled to take place on
December 9-10 in Washington, DC. The committee is committed to focusing
upon the-low hanging fruit to show quick progress, while simultaneously
tackling more substantial, far-reaching issues.

Dr. Robert P. Lowman, Associate Vice Chancellor for Research, University
of North Carolina at Chapel Hill, welcomed participants to Chapel Hill
and the Research Triangle area. He explained that profits from the
Carolina Inn (meeting site) are shared with the University, which uses
the money to support student scholarships. He thanked the co-hosts of
this forum, Duke University, North Carolina State University, and the
Research Triangle Institute for their contributions.

Participants were encouraged to openly share their comments and
concerns.

## Summary of Public Comments

##### Geoffrey Grant, Staff Director, Subcommittee of Research Business Models (RBM) and Deputy Director for Management, Operations & Policy, Office of Budget, Finance & Award Management, National Science Foundation

Mr. Geoffrey Grant represented the public comments received by October
6, and incorporated topics of discussion from the Berkeley and
Minneapolis forums. The Committee has tried to reach out broadly to the
research community, and the summary of comments received represents a
growing body of work. Mr. Grant summarized the written comments provided
to date. Written comments are being accepted through December of 2003;
additional feedback, including comments provided during this forum, also
will be added. Verbatim written comments are available on the RBM
Subcommittee website (*http://rbm.nih.gov*), and a preliminary analysis
of the comments soon will be available on that website, as well.

By October 6, 46 respondents had sent in a total of 150 written
comments, of which 12 were from professional associations, 2 from
Federal agencies, 10 from individuals, 3 from industry or small
businesses, and 19 from universities. The comments are separated into 12
themes, corresponding to the Request for Information. Some of the
categories had many (and sometimes conflicting) comments. One
recommendation repeated across all categories was to establish
consistent policies and regulations across all agencies; this applied
across the board -- i.e., in accounting practices, other regulatory
requirements, or best practices. Standardized rules would simplify the
research process enormously, since each participating institution would
need to learn and implement only one process (which would be the same
for all). Respondents also offered comments on state and institutional
requirements.

**[(1) General (18 comments)]{.underline}**

In highlighting the major themes from the general comments, Mr. Grant
first discussed the need for caution regarding the overuse of a
"business model" perspective. He emphasized that research spending
should be considered more as an "investment" and less as a matter of
"procurement." Adherence to a business model would suggest that agencies
might coordinate "portfolios" of interconnected activities. It is
important not to put an undue emphasis upon outcome evaluation --
especially because, unlike in the business world, the elements of risk,
negative findings, and "failures" are (and should be) an integral part
of the research process.

**[(2) Principles of Partnership (18 comments)]{.underline}**

In discussing comments that were centered upon principles of
partnership, Mr. Grant stated that consistent interpretations must be
developed for agency and institutional best practices, norms, and
standards. The assistance nature of the relationship also needs to be
reaffirmed. Success depends upon stability, transparency, and a
reasonable level of predictability. Concerns were raised that policy
changes could have unintended, adverse consequences upon the research
enterprise. The system must be flexible, competitive, and responsive, as
well as supportive of the individual investigator, with funding
decisions based upon merit. The financial investment must be diverse, in
terms of the fields supported and modes of support. The process must be
open to new ideas and investigators from all research institutions,
regardless of size. We need to seek agreement among the funding agencies
and members of the audit and research communities, regarding acceptable
business principles and standards.

**[(3) Accountability (20 comments)]{.underline}**

Twenty (20) comments were received regarding accountability. Respondents
placed a high priority upon striving to return to a costing and
regulatory system that is equitable and effective, and appropriately
reflects the diversity of research providers. This was considered to be
even more pressing than articulating a new business model. The principle
of full-cost reimbursement was seen as vital. Two central considerations
were costs (including how they are charged and compensated) and
administrative regulations (including how they are complied with and
imposed). It is especially important to establish an ongoing process and
dialogue. Commentators also noted that a good business model cannot
tolerate a hybrid of conflicting goals. Accountability should be defined
in terms of scientific outcomes, not just in terms of
financial-administrative compliance, and should be evaluated through
publications and progress reports.

Comments also included a number of more detailed suggestions regarding
how to improve accountability. The NSTC was encouraged to examine NIH
GPRA goals, as appropriate, and to avoid requiring other new performance
goals. Federal agencies were asked to reduce or eliminate multiple and
overlapping agency audit requirements. This request was made because a
number of agencies currently insist upon performing their own audits and
are eliminating or streamlining subrecipient monitoring --- which is at
odds with increasing collaborative networks over the last 5 years; they
also eliminate Cost Accounting Standards requirements, or only
incorporate the principles of those requirements, rather than imposing
the standards as an unfunded mandate on recipients.

Respondents also sought consideration of applying a business-to-business
model to scientific collaborations; for example, if common standards
were adopted, one could consider "accrediting" institutional oversight
systems that deploy these standards and practices.

**[(4) Inconsistency of Policies and Practices among Federal Agencies
(21 comments)]{.underline}**

A surprising number of comments in this area suggested that the basic
principles are sound, but that the recent changes are burdensome. In
addition, agency practices vary considerably -- i.e., the variations in
implementing A-110 and the FAR. Accountability should be based upon a
business partnership and should emphasize scientific outcomes; it should
not be a matter of overlapping financial and administrative audits.
Continued increases in substantial compliance costs cannot be borne by
recipients without impairing the research enterprise. For scientific
partnerships to be successful, the principle of full-cost reimbursement
is vital. Thus, the administrative and salary caps, as well as caps on
stipends and tuition costs, are inconsistent with the basic objectives;
they also shift the legitimate research costs to the awardees. Imposing
salary caps can make it difficult to recruit and retain
physician-investigators. Perhaps more problematic are the cost-sharing
requirements in small institutions, where hiring decisions often are
affected by decisions regarding total support and cost-sharing
requirements.

Mr. Grant reported that Cost Accounting Standard (CAS) and Disclosure
Standard-2 requirements cost an estimate \$20 million in start-up costs
for the top 100 universities, yet only 25 of those have been audited and
approved. Respondents also sought coordination of the RBM with similar,
ongoing processes, especially the Initiative to Reduce Regulatory
Burden.

There is a strong preference for a government-wide policy regarding both
conflict of interest and misconduct in science. The NSF clarification on
cost-sharing was welcome, but some argued that it should be applied as
standard policy across all agencies. Requests also were made for
standard template award notices, with reference to terms and reporting
procedures. At the same time, it was the hope that flexibility be
preserved in the types of institutions receiving funds, not all of which
are research universities (e.g. Federal research laboratories). To the
extent that collaborations are encouraged with national laboratories,
more should be done to facilitate such collaborations. It also is
problematic to make awards for research that is sensitive but
unclassified. In addition, payment of an academic year salary is
inconsistent among agencies and even within some agencies.

**[(5) Regulatory Requirements (17 comments)]{.underline}**

Concerns were raised about HIPAA as an impediment to clinical research,
while others sought to rationalize EPA hazardous waste requirements;
implement best practices; reduce redundancy and overlapping requirements
in animal welfare regulations; and enhance and promote alternatives to
animal use.

**[(6) Multidisciplinary Research (13 comments)]{.underline}**

Comments regarding multidisciplinary research called for eliminating the
existing political and practical barriers for projects that transcend
disciplines and/or specific agency missions. Multidisciplinary research
often requires greater administrative support. Teams need special
support, especially for young faculty members, who need to develop
independence within their disciplines by demonstrating independent
research and publications. There also should be more balance in the
research portfolio, to (1) encourage collaboration between Federal
laboratories and organizations within private industry, and (2)
eliminate artificial distinctions among research, education, and public
service. Other comments on this topic asked agencies to:

-   examine the sufficiency of "mid-size" multi-investigator funding;

-   improve oversight and extend its use more broadly;

-   coordinate inter-agency communication on project funding; and

-   increase the average amount and duration of individual awards, due
    to the large degree of effort that must go into producing them.

**[(7) Research Infrastructure (10 comments)]{.underline}**

In terms of research infrastructure, academic institutions have assumed
the burden for constructing new facilities. Multidisciplinary research
requires more (and predictable) levels of support for specialized
facilities and instrumentation support, independent of individual
project grants -- i.e., for sophisticated instrumentation, primates,
recombinant rodents, and other animals. Service centers should be able
to accumulate costs for replacement equipment or changes in technology.
Implementation of a Federal facility loan guarantee program also was
endorsed, and increased support was requested for specialized, shared
instrumentation, such as MRI and PET scanners or mass spectrometers.
Respondents also sought more cross-disciplinary support for special
facilities and Federal labs. Underscoring the need for actual
cost-recovery, a 2003 study by the Council on Governmental Relations
(COGR) reported a \$1 billion under-recovery, due to the administrative
cap. This is consistent with a RAND report for OSTP that estimated
under-recovery to be between \$700 million and \$1.5 billion.

Institutions are seeking relief from the administrative cap, to (1)
increase reimbursement for utility cost adjustment for all institutions,
(2) remove agency policies that provide less than full reimbursement,
and (3) promote fair rate negotiation. Others advocated that A-21 be
modified to allow direct charging of administrative services that are
directly linked to the performance of research. There was a call to
emphasize "rate determination," as opposed to "rate negotiation."

**[(8) Information Technology (9 comments)]{.underline}**

Comments in this category endorsed establishing one eGov solution, as
opposed to multiple agency solutions -- including national, uniform,
interoperative clinical information systems to support clinical trials.
Agencies should move more quickly to develop or support common
interfaces.

**[(9) Technology Transfer Optimization (7 comments)]{.underline}**

Respondents sought to:

-   reaffirm the Bayh-Dole tech transfer principles;

-   minimize agency-specific limitations on property rights;

-   address concerns about agency departures from principles and
    potential restrictions on royalties; and

-   promote exchange of tools among investigators while protecting
    proprietary rights.

**[(10) Inconsistency of Policies and Practices among Universities (11
comments)]{.underline}**

A few comments were received regarding inconsistent policies and
practices among universities. Some institutions do not waive or reduce
an award's facilities and administrative (F&A) costs that have not been
paid by sponsors, even though there may be good reasons for the
different treatment among the various institutions. Institutions also
vary in their acceptance of terms and conditions, e.g. restrictions upon
publications.

Four (4) comments addressed State and Institutional Requirements,
primarily seeking to reconcile stringent state requirements. No comments
have been received yet on the theme of Research Support, although one
general comment recommended the consistent application of the peer
review process across all agencies.

##### Question & Answer Period:

Concerns were raised about ambiguities as to when cost-sharing is
required. Some programs are inappropriately considering cost-sharing as
a funding criterion. Investigators do not want to offend program
officers who are exercising undue pressure, and seeking redress from the
grants office or grants policy office can seem equally intimidating.
Federal representatives were committed to addressing specific
allegations of inappropriate demands by program officials for cost
sharing, and assured participants that complaints would be handled in
confidence. A suggestion was made to establish an agency ombudsman who
could be a more neutral intermediary.

Explicit requirements for cost-sharing on NIH grants are rare, with the
possible exception of construction programs. Indirect costs are
sometimes cost-shared (e.g., training grants with a lower F&A rate,
which amounts to cost-sharing), but very few of the programs at NIH have
explicit cost-sharing requirements. However, participants were quick to
point out that in addition to obligatory cost-sharing on training
grants, there is obligatory cost-sharing for all salaries over the
salary cap. There is also almost a whole FTE on T32s, which effectively
constitutes cost-sharing.

The more general concern was how to pay for the increasingly burdensome
administrative activities related to overhead. One approach is to
re-examine existing processes, to see if they could be conducted more
efficiently, at less cost. The administrative burden falling directly
upon investigators rarely is reimbursed, since it does not appear as a
direct line charge on grants. This has the worst impact upon the
clinical investigators themselves, who often have complicated work
schedules. For these investigators, administrative overhead activities
must be met first, leaving them perhaps 20 percent time for research.
Clearly, this is a significant impediment to their research careers, and
to the research itself.

The public comments about simplifying Federal accounting standards
and/or reducing regulatory burdens reflected a strong desire to
streamline processes. One participant was concerned that researchers may
be inadequately represented during policy formulation. Having spent 1.5
years responding to Health Insurance Portability and Accountability Act
(HIPAA) requirements, this participant concluded that the regulations
seem to be imposed without careful consideration of practicalities.

## Panel Discussion: Costs, Accountability, and Electronic Research Administration

Ms. Judy Dillon from the Office of Research Support at Duke University,
who manages the preaward office for all parts of the university except
the Medical Center, served as moderator of the first panel. She briefly
introduced the three panelists.

Mr. Randy Main, CPA, has been the Vice President and Chief Financial
Officer (CFO) at Fred Hutchinson Cancer Research Institute (FHCRI) since
1984. The FHCRI is an independent biomedical research and patient
treatment organization with an annual budget over \$250 million, and
over 2,500 employees. Mr. Main holds an M.B.A., is a member of several
professional and industry trade associations, and is President of the
Association of Independent Research Institutes, which is actively
involved in shaping Federal reimbursement policies. He is also a board
member on the Seattle Institute for Biomedical and Clinical Research,
and is a Director on the Washington state tobacco settlement authority,
which is authorized by the State legislature to securitize future
revenue from the tobacco industry.

Ms.. Denise McCartney is Associate Vice Chancellor for Research
Administration at Washington University in St. Louis. She is responsible
for administrative and support activities for sponsored research. She
recently has focused upon enhancing the university's administrative
procedures supporting conflict of interest, research systems, scientific
integrity, and postdoctoral appointments. She is also responsible for
developing and implementing research compliance programs in conjunction
with the university's compliance office. Prior to accepting her current
position in 2001, she was Assistant Dean at Washington University
Medical School, where she was responsible for research administration,
human resources, performance and improvement, and faculty affairs. She
holds an M.B.A. from the University of Missouri-Columbia.

Ms. Elizabeth Mora, C.P.A., M.B.A., is the Director of Sponsored
Research at Harvard University, with responsibility for oversight of
preaward, postaward, cost analysis, compliance, and research system
administration and operations. Prior to joining Harvard in 1997, Ms.
Mora was a manager in the Regulatory Consulting Practice at Coopers and
Lybrand, where she worked with several research universities and medical
centers on cost compliance and other financial and regulatory changes
affecting institutions in the 1990s.

##### Randy Main, CFO, Fred Hutchinson Cancer Research Institute and President, National Association of Independent Research Institutes (NAIRI)

As a representative of the National Association of Independent Research
Institutes (NAIRI), Mr. Main is involved in reimbursement and cost
policy, which was the focus of his presentation. He began by reviewing
the characteristics of independent research institutes:

-   are single mission institutions established to support research;

-   tend to have disease- or condition-specific focus;

-   are small in size, with an average research budget of \$28 million
    (although five institutes have budgets over \$100 million);

-   are awarded just over 10 percent of the total NIH budget; thus,
    these institutes are not "big players," but ---

-   are competitive, with statistically significant, higher success
    rates than the national average; and

-   are subject to OMB Circular A-122, as opposed to A-21 for
    universities.

Regarding cost reimbursement practices, Mr. Main observed that
non-profit institutions are not reimbursed full costs; they actually are
expected to lose money on sponsored research awards -- a situation that
has worsened over time. Commercial contractors, on the other hand, are
awarded full costs, plus a profit. He attributed the difference in
treatment to attitude, on the part of both the government and the
commercial contractors. There is an inherent assumption that commercial
entities are better managed, and that they will not accept a Federal
award if it would cause them to lose money. An additional consequence of
the prevailing attitudes is that non-profits cannot be trusted to make
responsible business decisions, particularly decisions related to
constructing new facilities (e.g., lease purchase analysis). However,
since the government is not at risk for new facilities, the institution
must risk its own capital or be subject to capital markets, which will
finance only those projects that are deemed to be of reasonable risk.
Capital markets even have been known to force an institution to hire
someone who reports to the creditor.

Another common misperception is that indirect costs are not real costs,
or that indirect cost reimbursement provides a profit margin or "slush
fund," and that non-profit institutions have no incentive to manage
costs. Some of this perception may be due to the fact that public
institutions often *do* treat a portion of the monies as a slush fund
that goes back to individual departments. This creates a misperception
regarding non-profit institutions, which in reality have very limited
resources and must juggle to fund initiatives.

The reality is that Facilities and Administrative (F&A) costs are part
of the real costs of conducting research and must be reimbursed. It is
impossible to shift costs to other lines of business if there is only
one line of business. Discretionary funds come from fundraising and
investment income and are the only sources available to fund new
initiatives and pilot projects that are not yet submittable as research
grant proposals. Applying discretionary funds to unfunded mandates puts
R&D at risk. Mr. Main noted the need to address inconsistent cost policy
interpretation among regional offices, as well as the lack of central
office efforts to eliminate such inconsistencies.

Of course, one size does not fit all. Funding agencies, recipient
institutions, and selected models must be flexible. Developing
cooperative working relationships with agencies does yield results. A
case in point involved a particularly sensitive issue: the 26 percent
cap which had been established for universities (derived from the
average rate for all universities) does not apply to research
institutions. This difference in treatment was in part due to the
proactive efforts by research institutions to educate the OMB staff
through the conduct of site visits. In this way, OMB was persuaded that
there is nothing the research institution staff does that is not related
to research. After conducting site visits, the OMB did not include a cap
in the most recent revisions to the A-122 circular for research
institutions.

Mr. Main observed that the Federal government wants institutions to be
good stewards of tax payers' dollars, and he believes they are. It wants
research institutions to comply with the growing mountain of
regulations, and they do. Now the government must uphold its end of the
bargain and reimburse for full costs of stewarding the research dollars
and complying with regulations. He recognized that this is extremely
challenging and that priorities must be set. Nevertheless, it is
counter-productive to undermine the fabric, infrastructure, and
financial wellbeing of the institutions that are trying to conduct
research; it is equally unwise to make it virtually impossible for
universities to invest in new faculty and new equipment. Even if one
were to cut another 2 percent from indirect costs, there still would not
be enough money left to fund all the priorities.

##### Question & Answer Period:

One participant commented upon the difference between private and public
institutions, having worked at both. At a public institution, the cost
of tuition was not recovered. At the private institution, PI salary was
the main line item on grants, even though the investigator was teaching
and serving other administrative functions. At a public institution, the
bulk of her salary was covered, so Federal agencies essentially
benefited from the investigator's time at a reasonable cost. The "slush"
fund at public institutions is a misnomer, because these institutions
are struggling to cover their expenses. There is a general misperception
about how indirect cost rates are negotiated.

Denise McCartney, Associate Vice Chancellor for Research Administration,
Washington University

Scientific partnership is beneficial but increasingly complex, involving
not only university-government relationships, but also relationships
with industry, community agencies, hospital-academic medical schools,
and even international entities. Scientific partnerships have an impact
upon multiple facets of research, including research programs and
direction; measures of academic quality; faculty leadership and
participation; costs to support research; policies, procedures and
technologies; and compliance programs. The increasingly rapid pace of
scientific change is accompanied by a new emphasis upon unique models of
collaborative research and the growing role of technology in research
(e.g., "omics"). This in turn heightens the need for robotics;
data-mining and correlation in clinical systems; and support for
networks and relational databases.

Dr. McCartney observed that institutions are facing "mission tension."
The increased compliance requirements are of great concern. The
variability of research programs makes it difficult to implement a
standard implementation strategy, and the added complexity makes it
necessary to develop new organizational responses and external
monitoring processes. In addition, applicants often find the multiple
platforms for e-grants intimidating. Funding applicants need ever more
sophisticated skill sets. All of these changes are adding significant
complexity to the grant application process, and this translates to
increased costs that universities are finding it more and more difficult
to recover. For example, implementing HIPAA has been enormously costly.

Addressing cost concerns first will require finding a way to (1) compute
the true costs of research, (2) reduce the complexity of doing business
with Federal agencies, and (3) recognize existing accountability
methods.

To reduce the complexity of business processes, we need to assess the
value of new compliance initiatives, by asking questions such as:

-   Do they fairly balance accountability and responsibility?

-   How do we assess the impacts of the new initiatives?

-   How do we measure the outcomes?

We need to step back and assess the costs of new compliance initiatives,
to determine whether the cost is worth the outcomes and whether agencies
actually have the resources to implement new rules. For example,
research institutions rushed to meet the select agent deadlines -- but
the agencies were unable to respond in kind.

There are many opportunities for streamlining variable agency practices
around common functions: for example, scientific integrity policies, COI
reporting, and CV formats. It is inconvenient for investigators to have
to maintain different CV formats for different agencies, as well as for
the university. A single electronic platform should be established that
meets scientific needs and eliminates the need to master multiple
technologies and procedures for different agencies.

Effective accountability methods should be recognized as pro-active
mechanisms and continued, such as:

-   the peer review process;

-   scientific publications;

-   progress reports;

-   effective compliance committees that do indeed modify researcher
    behavior; and

-   audits and other monitoring mechanisms.

Dr. McCartney also raised the possibility of leveraging existing
accreditation programs to address compliance without adding more
fragmentation and complexity, essentially devolving to the research
community the responsibility of creating and applying standards
specifically for their use. Finally, we need to recognize that science
is inherently self-correcting, through the process of publications and
scientific validation. We need to allow for the spontaneity of science
-- which necessarily includes allowing room for unexpected or even
negative results.

##### Elizabeth Mora, Director for Sponsored Research at Harvard University

Ms. Mora has wrestled with many of the concerns already discussed,
through her participation in the Research Administrators Discussion
Group (RADG) in the greater Boston area. She provided a historical
perspective, reminding participants that OMB Circular A-21 was
introduced in 1958, then changed five times in the 1990s during a time
of heightened mistrust on the government's part toward university cost
accounting practices. Each time A-21 was changed, unfunded mandates were
added with little attention to their cost or their added value for
rational stewardship and accountability.

She identified a number of issues:

-   the principle of full-cost reimbursement is vital;

-   actions should not be taken unilaterally with little regard for
    their implications for the university community;

-   administrative compliance should be differentiated from scientific
    compliance; and

-   no serious attention is given to the radical changes that digital
    technology have made in the cost of information acquisition and
    exchange.

Ms. Mora pointed out that all issues are not equally important. For
example, do the rules give the proper relative weight to human subject
protection versus payroll certification? To assuring environmental
health and safety versus completing Disclosure Statements (that never
get read or reviewed)? To securing of biohazardous agents versus
providing lease-purchase analyses? Do the program sides of funding
agencies communicate adequately with their Inspector General regarding
the interpretation and the consequences of rule changes? What happened
to the operating principles proposed in Presidential Review Directive-4
(PRD-4)?[^1]

She suggested a number of potential solutions:

-   Actively engage OMB and OSTP in the dialog about caps, A-21,
    allocation of space costs, effort reporting/payroll certification,
    subrecipient monitoring, A-133 audit requirements, and recognition
    of the costs of digital information exchange.

-   Actively use FDP as a working group, which includes:

    -   having OMB at the table to help implement changes;

    -   pursuing pilot projects with momentum (e.g., subrecipient
        monitoring); and

    -   determining why agencies are dragging their feet on other
        proposed pilot projects (e.g., effort reporting, space
        allocations, etc.)

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-   Solicit university participation on PL 106-107, and determine what
    the working groups are doing to share goals and deliverables.

-   Bring funding agencies, the audit community, and the university
    research community closer together to seek agreement on acceptable
    principles and processes.

-   Look at "best practices" across agencies, and adopt these across all
    agencies.

-   Work through FDP to reduce administrative burdens by eliminating the
    non-value added unfunded mandates in A-21.

Ms. Mora concluded with one final observation: The government considers
negotiated cost savings (which it sees as the difference between the
rate proposed by the institution and the final negotiated rate) as a
tremendous cost-saving technique; universities, on the other hand, see
it as cost-shifting. In FY2003, the amount of this savings or shifting
for DHHS was estimated at \$465 million dollars.

##### Question & Answer Period:

Participants raised a number of distinct issues.

It was pointed out that HIPAA Privacy protections and NIH data-sharing
policy all demand sophisticated data systems that require quality
assurance and professional help. Nobody seems to be addressing how to
recover the costs associated with maintaining data quality in support of
researchers.

There has been no real discussion about the cost of Institutional Review
Boards (IRB) and Institutional Animal Care and Use Committees (IUCUC).
Despite the fact that researchers and staff need to be trained about how
to comply with IRB and IUCUC requirements, these committees have not
been added as line items -- despite the growth in cost of IRBs
documented by a COGR-sponsored study. NIH offers grants to help offset
IRB costs, but this does not entirely offset all biomedical IRB costs.

The University of Massachusetts was recently informed that rodents will
require USDA oversight, subjecting them to a whole host of new
regulations with respect to storage of food, staffing, and
recordkeeping. This is expected to add an enormous administrative cost.

Circular A-21 implies that research is conducted within a single
department, not in a collaborative fashion. This makes it very difficult
for multi-centers or two universities collaborate. Regulations are
currently unclear and must be addressed.

Cost accounting standards were dropped in 1979, because they were found
to be unworkable. These same cost accounting standards were reinstated
-- without resolving the inherent redundancies -- in response to the
audit crisis of the 1990s on the West coast, when the government
received approximately 5 cents on the dollar.

It is difficult to absolutely account for space usage, given its
multiple functions and incidental uses. For example, it should not be
counted as non-research use of space when a graduate student eats while
working in a lab that was set up for Federal research, or when a student
asks a question of a faculty member who happens to be in the laboratory
at the time.

Mr. Geoffrey Grant asked about the general level of under-recovery and
how the shortfall is being covered by research institutions. There is no
26 percent cap at FHCRI, but there are caps on faculty salaries, as well
as caps on rates that cannot increase until the next competitive
renewal. With the continual pressure on the amount funded from R01s,
most institutions have found it necessary to supplement faculty salaries
in order to remain competitive. Generally, institutions are making up
the difference through fundraising and by pulling from their investment
revenues, or from drawing down their cash reserves. For FHCRI, there are
no alternative lines of business. Research is the whole focus, and
recovering costs is critical to their economic viability.

## Luncheon Speaker

Mr. Matt Ronning, Associate Vice Chancellor for Research at North
Carolina State University introduced Dr. Marye Anne Fox. Dr. Fox is a
Distinguished University Professor of Chemistry, who became North
Carolina State University's 12^th^ Chancellor in 1998. NCSU is the
largest public institution in the state of North Carolina, and focuses
on science and technology. Dr. Fox is an elected member of the National
Academy of Sciences (NAS) and has served on its Executive Committee. She
currently serves on the President's Council of Advisors on Science and
Technology (PCAST), which has a role in putting some of the issues under
discussion on the agenda for Federal action. She also serves on the NAS
Committee on Science and Engineering Public Policy, as co-chair of the
National Research Council's Government-University-Industry Research
Roundtable, and as a member of the North Carolina Board of Science and
Technology.

##### Marye Anne Fox, Chancellor, North Carolina State University

Dr. Fox described the Research Triangle area as a highly collaborative
setting that provides wonderful opportunities to cooperatively build a
research enterprise. She shared her view of science and today's
overriding issues, in the context of the forum's discussion.

She reflected upon how the fields of science and engineering in the U.S.
have progressed from the backwaters of the 19^th^ century to a position
of preeminence in the world today. Despite this stature, the U.S. faces
several challenges on the horizon, which are quite evident and need to
be addressed soon. One of the important forces that transformed this
nation's scientific enterprise was the 1950s vision of formulating
national agencies to respond to scientific goals, which resulted in the
creation of the NSF and the NIH to complement the DOD and Atomic Energy
Commission. The criteria responsible for this transformation and our
success to date include six key components:

1)  **Scientists have agreed to critique themselves**. Internal
    competition, through the peer review process, is used to select the
    most creative among an array of proposals. Peer review ensures that
    objective criteria are used for making investment decisions. Peer
    review ensures accountability to the U.S. citizens, who are
    essentially investing in the scientific enterprise.

2)  **Federal government long has accepted in principle that they are
    responsible for the full cost of the scientific research that is
    conducted in universities**. Universities exist in the U.S. as
    agents to conduct basic research, as contrasted with systems
    elsewhere, i.e., in Germany or other nations throughout Europe. (For
    example, the Max Planck Institute and CNRS laboratories in France
    have a very different approach.) In the U.S., universities are the
    places where basic research is conducted and can be translated into
    intellectual property. Inherent in this idea is that universities
    are equal partners with the Federal government, and that the Federal
    government will cover the full cost of scientific research.
    Unfortunately, however, this has not happened. Over several decades,
    research costs have shifted to the universities themselves. Such
    cost-shifting has mitigated against one of this nation's most
    successful tenets of scientific infrastructure.

3)  **Rational decisions need to be made across agencies, in order to
    effect synergy**. Each Federal scientific agency conducts merit
    reviews, invests funds, and has a mission orientation that is
    decided politically. Since coordination occurs through the NSTC, it
    is important for the science and engineering fields that the NSTC
    functions well. The NAS, for example, recently conducted a study
    that included input regarding international benchmarking. Three
    separate areas were identified as targets for comparisons of
    investments made by the U.S. and by other countries: Mathematics,
    materials science, and immunology (which brings together basic and
    clinical sciences). Dr. Fox recommended a review of such
    international benchmarking as a way to look at the potential
    consequences of cuts in certain agencies or in particular areas.

4)  **Appropriate infrastructure is provided after rational decisions
    are made.** Funding commitments made by the Federal government imply
    a focused attempt to provide appropriate infrastructure, once
    rational decisions are made. For example, large or extremely
    expensive pieces of equipment that involve collaboration by
    scientists (such as telescopes or electron microscopes) are made
    available to university researchers. Universities must have shared
    instrumentation, and investments need to be made at the middle
    level. It is very difficult to have instrumentation that costs
    between \$100,000 and a few million dollars, so the criteria for
    making judgments have become increasingly difficult. Start-up costs
    for building interdisciplinary departments have escalated in the
    past several decades. Universities need the flexibility to make
    start-up investments in order to help researchers succeed.

5)  NSF is responsible not only for basic research but also for
    **training in science and engineering.** This involves developing a
    workforce component, and an appreciation for the public
    understanding of science. The absolute number of Americans being
    trained in the physical sciences has continued to decline over the
    last several years, a figure that has been matched by absolute
    numbers of students from abroad. Competition on the world market
    will become more intense as other countries become more
    technologically advanced. The phrase clearly applies: "manufacturing
    moves development moves research." This country's workforce can only
    gain from an investment in science and technology.

6)  **Inherently, an investment in science is an investment in this
    country**. Like any business with a bottom line, scientists must
    accept the fact that they are, and need to be, accountable.

In examining lessons from America's success in science over the last
half century -- and to guarantee our preeminence in science during next
century -- Dr. Fox believes that scientists must continue to critique
themselves; the Federal government must continue to cover the full costs
of research; and we need to make rational decisions about investments,
build an appropriate infrastructure, and create a climate in which the
research-related workforce at every level can flourish in a way that is
accountable to the public.

Dr. Fox considers it problematic that the costs of research increasingly
are being borne by the universities themselves. Between 1994 and 2001,
there has been a 71 percent increase in institutional costs in support
of research, whereas total Federal funds have increased by approximately
2/3 of that amount. Institutions have less authority to make decisions
at the local level, just at a time when state appropriations are
declining. The increasing compliance requirements are becoming
burdensome. If tuition is not allowed to rise, there will be no other
source of funding unless the public is supportive; it is inappropriate
to make students bear the cost of research.

In recent years, foreign graduate students and visiting international
scholars have encountered increasing difficulties in obtaining visas and
having their work published. The expedited fee of \$1,000 per head
appears to be pure extortion. Many foreign students simply do not have
the resources. Has the government gone too far in placing restrictions
on free movement, requiring select agent registration, and imposing
premium visa-processing fees? All of these recent developments fly in
the face of the sort of free exchange that is necessary for scientific
endeavors to succeed.

Dr. Fox also raised the concern that cost-sharing is too sensitive a
criterion for awarding grants, and it seems to be influencing the
scientific merit ratings. The inappropriate consideration of
cost-sharing contradicts the principle that peer review for scientific
merit is the best process for identifying and funding the best science.

Dr. Fox attended a meeting at which an OMB official spoke about the new
requirements that OMB is considering in regard to data retention,
record-keeping on human subjects, and peer review of regulatory issues.
It appeared that the OMB is assuming that the universities can simply
add these requirements to the indirect cost rate. This official seemed
unaware that indirect cost rates are subject to a prevailing cap.

Because of the desire to stretch dollars, Federal agencies resist
providing release time for faculty. Unfortunately, when unfunded
mandates are combined with no relief for investigators, scientists end
up either rushing through perfunctory form-filing (most likely, with
inaccuracies) or spending time on administrative paperwork, which eats
into time that could (and should) be spent on research. Clearly, neither
of these scenarios is satisfactory.

In looking at what can be done to address these problems, we need to
build an infrastructure that supports collaborative activities,
including collaboration among colleges within one university. It is
important to continue to invest in the Federal Demonstration Project
(FDP) and how we can improve operations and efficiency. We need to
regularly review the regulations under which technology transfer can
take place. It is important to be mindful of earmarks, because on the
one hand they obviate against peer review, but on the other hand they
capture the desires of the general public. Earmarks should be subject to
same kind of scrutiny and peer review as are regulatory agencies.

One cannot underestimate the role of the NSTC in bringing viewpoints
together. Universities are relying upon the leadership at OSTP to try to
make rational decisions. Dr. Fox pledged her support to help OSTP do
their job.

## Panel Discussion: Principles of the Partnership: Assistance and Procurement; Intramural or Extramural

Mr. Eddie Story, Director of Office of Research Contracts, Research
Triangle Institute (RTI) International moderated the second panel and
introduced the speakers.

Dr. Susan Braunhut is Professor of Biological Sciences at the University
of Massachusetts. In addition to her teaching and research
responsibilities, she is Director of Graduate Studies for the Department
of Biological Sciences and serves on the University's five-campus
Conflict of Interest Committee. She also holds multiple patents.

Dr. Donald Cotton is the Associate Vice Chancellor for Research and
Technology Transfer at Arkansas State University. He has held a number
of high-level research administrative posts, including Department Chair,
Director of Research and Sponsored Programs, Associate Vice President
for Research, Graduate Dean, Director for the Center of Science and
Mathematics, and Vice President for Research. He has extensive
experience working with partners in building competitive research firms.
He has served on the boards of numerous private foundations and has
worked with policymakers to build strong private-public partnerships.

Mr. Christopher McCrudden was appointed Treasurer of Princeton
University in 2001, after a 28-year career at Princeton where he began
as Assistant Controller in 1973, and rose through the ranks as Associate
Controller, Director of Budget, Associate Treasurer, and Director of
Finance. Mr. McCrudden is the senior financial officer for the
University, and serves on a number of audit committees. He received his
M.P.A. from Syracuse University, where he was also a Mellon Fellow.
After military service, he worked in the Office of Management and Budget
(OMB). He recently completed a 7-year term on the COGR governing board.

##### Susan Braunhut, Biological Sciences Department, University of Massachusetts Lowell

Dr. Braunhut presented a faculty perspective on the status of the
research partnership. She explained that, although she had been funded
through Federal grants since 1986, it was not until 1996 (when she
attended her first FDP meeting) that she became aware of the
complexities of post-award activities, and OMB Circulars A-110 and A-21.
One of the first considerations when talking about the faculty
perspective is that grants administrators have insulated faculty from
having to understand research business regulations. The culture within
the research administration group has been to protect investigators from
having to understand the nuts and bolts of grants management. This needs
to change if faculty are to be effective advocates for system
improvements. Currently, faculty do not fully understand the
implications of cost accounting or compliance regulations; it is
important to engage scientists in the process.

As has been mentioned, changes in recovery have a clear impact upon
research and science (e.g., cost-sharing as review criteria;
inconsistent policies and practices among Federal agencies;
administrative caps; and caps on salaries, stipends, and tuition costs).
She cited as a prime example the DOD's Prostate Cancer Research Program,
in which reviewers are asked to consider the cost-sharing aspect. This
crosses "the sacred line," where science should be judged on the merit
of an idea, not upon whether the institution competitively can provide
cost-sharing. This sacred line (between merit review and financial
considerations) must be protected.

With the proliferation of web-based forms and templates, faculty are
being asked to do more administrative activities (i.e., entering
information); unfortunately, it is impossible to cover administrative
support through indirect cost reimbursement. Salary caps also have a
deleterious effect upon the retention of clinical researchers. The need
for faculty to serve on IRB and IUCUC committees has meant recruiting
more faculty to try to spread the load, since full proposal reviews are
often required.

From a faculty perspective, the changes in accountability have had an
impact upon research and science. Faculty fear that research outcomes
cannot be measured accurately using the existing business model. When a
research project ends, its true impact may not be known for some time.
Counting students does not measure talent or quality. The long-term
payoff is never measured. Research simply does not lend itself to
traditional business model accounting. The funding of research should be
seen as an investment rather than a procurement activity. For faculty,
training students in the laboratory counts as contributing to the
research enterprise.

Finally, information technology and new science areas (i.e.
bioinformatics and nanotechnology) are driving interdisciplinary
approaches in research. The significant growth in sub-awards that is
being seen at some institutions reflects the growth of interdisciplinary
science. Nonetheless, there are many barriers to this type of work,
including multiple agency missions, duplicate audit requirements,
onerous subrecipient monitoring, and occasional conflicts among and
within university organizations and cultures. Another barrier to
interdisciplinary research is the prevailing culture, in which some
department chairs discourage untenured junior faculty from collaborating
with those outside their own departments.

##### Question & Answer Period

A participant commended Dr. Braunhut for her level of involvement as a
faculty member, and asked what can be done to involve other faculty
members. Dr. Braunhut believed that those who are most engaged are
chairmen, deans, and faculty who have become curious about what goes on
in the funding process. She suggested that efforts first be made to
engage those who are most curious, although sometimes institutions must
force their faculty to pay attention.

##### Donald Cotton, Associate Vice Chancellor for Research and Technology Transfer, Arkansas State University

Dr. Cotton presented his remarks from the administrative perspective of
the Experimental Program to Stimulate Competitive Research (EPSCoR)
community. EPSCoR is a joint program of the NSF and several U.S. states
and territories. It is designed to promote the development of the
states' science and technology resources through partnerships involving
state universities, industry, and government, as well as the Federal R&D
enterprise.

If there were consistency on the compliance side, as there is on the
accounting side, it would be easier to develop the infrastructure. From
the EPSCoR perspective, we cannot afford to allow emerging institutions
to be left behind. There is definitely a bias in the system. If it were
not for those Federal agencies that help less well-known but equally
competitive institutions to engage the system (e.g., the NIH or NSF
process), intellectual capital would be lost. The EPSCoR community is
strategically positioned to play a significant role in setting the
national agenda.

The challenges include how to access the system. There are
inconsistencies in many of the reporting systems, and in some of the
guidelines for cost-sharing. It is important for institutions to
understand sustainability and cash flow. Unreimbursed costs place a
greater burden on students. The human dimension is to give all an
opportunity to participate.

One size does not fit all, even though fiscal policies are placed upon
institutions as unfunded mandates. Many good faculty members serve on
human subjects committees, but they receive minimal training. Training
programs are difficult to initiate.

Partnerships and collaborations are critical. It is necessary to enhance
connections between research and national goals, and to stimulate and
promote partnerships. We need incentives and resources that will enable
people to participate in this process. Subawards are increasing and are
challenging every institution.

The field of scientific research is undergoing a paradigm shift. In the
future, collaboration, partnering, and networks will be valued over
individual competition and strategic units; outcomes will be
increasingly market-driven; resource limitations will translate into
greater cost-sharing; and the government increasingly will be viewed as
partner rather than customer. Critical success factors for states will
include (1) cost-effective and competitive opportunities, (2)
participation and recognition, and (3) major investments. For example,
few institutions participated in the NIH Academic Research Enhancement
Award (AREA) program. While orphan programs are not mainstream, they
provide a way to become mainstream, and as such their effectiveness
should be reviewed periodically. We will stand the test of peer review,
as well as of earmarks. We need major investments in terms of
infrastructure and equipment (some without cost-sharing) and should
explore innovative approaches being used across the country (e.g.,
issuing bonds).

Dr. Cotton concluded by recommending continued support for quality and
competition, emphasizing mainstream programs to build the scientific
enterprise; investment in our future; promotion and support of
partnerships; and expanded economic opportunities. Without question, the
prevailing culture is harnessing science to support jobs and
development.

##### Christopher McCrudden, Treasurer, Princeton University

Mr. McCrudden acknowledged the thoughtful presentations that preceded
him and began his remarks by raising questions directed at assessing the
state of the government-university partnership. If we had to identify a
mutual objective for this partnership, it might be to produce research
for the good of society and the nation. The problem is that, absent the
government, a university might respond that their objective is really to
produce new knowledge for the good of mankind. This broader view and
mission of universities increasingly is coming into conflict with the
government's more limited focus, either in scope or geographic area. He
conjectured that the term "partnership" may be used in lieu of
"procurement."

What are the risks and benefits incurred by both sides of the
partnership? The government provides funding and identifies a list of
programmatic priorities. Universities provide a stable supply of faculty
and talent with new ideas, research support services, and cost-sharing.
The risk to the government is that research may not yield the expected
scientific results, and/or that funds are not spent as anticipated. The
reward to the government is that it is benefiting from subsidized
research, without having to staff national laboratories. The
university's biggest risk is that, with recent shifts in research
funding, it is incurring ongoing financial obligations. The shift in
funding may be taking place either because universities are not
successful in winning grants, or because the funding agency is no longer
interested in supporting a particular area. When funding shifts, the
university continues to be obligated to cover the fixed cost of tenured
faculty and infrastructure. The benefits to universities from grant
monies include expanded research programs -- which help them support not
only their graduate students but also faculty salaries (i.e., at least
summer, and sometimes full-year salaries). Mr. McCrudden concluded that
universities seem to have a poorer risk/reward profile, as compared to
that of the Federal government.

How has the partnership evolved? Mr. McCrudden echoed earlier comments
about the evolution of the research enterprise after World War II,
during which time the country witnessed how well universities could
mobilize its research capabilities in order to shift their focus to
high-priority areas. However, the flourishing of science during this
early period was associated with two principles: total cost
reimbursement and reasonable approximation. Since then, full-cost
reimbursement has steadily deteriorated and greater accounting
requirements have been imposed. He attributes this trend to a breakdown
in trust that began with the events at Stanford University, which led to
an attitude that somehow universities cannot be trusted -- an attitude
that has no foundation in fact. What happened at Stanford University
(and at many other institutions) was that the government repealed its
rule regarding reasonable approximation, without publicizing this
change. The ensuing climate of distrust meant that government auditors
would not allow Stanford to correct what could have been an honest
mistake.

After a contentious period, the partnership between the government and
universities now seems to be improving. Presidential Review Director-4
(PRD-4) had encouraging good words to share recently, when it indicated
that the government recognizes that research and training are closely
intertwined. It even took positive actions -- such as clarifying the
potentially divisive treatment of graduate students, and clarifying
goals regarding cost-sharing (particularly relating to faculty volunteer
efforts during academic year).

Yet, the question must be asked -- are regulations being put in place to
support government policies, or are we dealing with unintended
consequences? Mr. McCrudden listed several examples of possible,
unintended consequences. Current regulations put junior faculty at a
competitive disadvantage if they are funded as an NSF young
investigator, since this award mechanism does not allow the university
to recover the costs of providing lab facilities. Does the government
really intend to favor senior investigators in the provision of lab
space? Universities have the opportunity to institute modern systems to
support research, which would bring down research costs overall.
However, there is no way to pay for such upgrades. Does the government
really wish to discourage modern systems that support research?
Universities are afraid to make renovations and are taking on
substantial debt, because the government might change its rules in the
midst of a 30-year amortization. Does the government really wish to
discourage institutional investment in facilities?

The Government appears not to care about universities seeking the
lowest-cost solution, since regulations effectively discourage the most
cost-effective solutions. Mr. McCrudden presented another example in
which the hiring of theorists might be favored when a university cannot
recover the cost of hiring experimentalists. Does the government really
wish to see a concentration of certain types of research at certain
universities?

If the Federal government is serious about allowing universities to
fulfill their role as centers of important research, they must be
willing to (1) eliminate arbitrary biases in the system, and (2) allow
universities to exercise unfettered academic judgment regarding how to
best conduct their research. This willingness will determine how the
research partnership ends up. We probably want to end up like the very
successful partnership of Hewlitt and Packard -- whose company and
products have benefited shareholders, employees, and consumers, and now
is contributing to society at large through its philanthropy.

The other model is from Charles Dickens' classic, *A Christmas Carol.*
Like the business partnership between Jacob Marley and Ebenezer Scrooge,
one of us may have to come back from the grave to tell the other that
our partnership failed because we were too worried about our ledgers and
accounts.

##### Question & Answer Period:

Can the U.S. sustain military hegemony and scientific superiority at the
same time? The complexity of disparate Federal regulations and various
mechanisms of accountability cannot be addressed without the involvement
of OMB. One might conclude that there is a disincentive for OMB to
become involved. There are political factors at work, and one needs to
view these issues in the context of a larger national (and
international) agenda. We need to have a unified approach to research
funding sources, and we must not undermine the efforts of our fellow
researchers in other universities and university systems. As an example,
senior issues are better funded than children's issues in this country.
This is very likely because senior citizens are highly active and can
vote, and their interests are represented by a very powerful national
organization. One forum participant suggested that major changes will
occur only through communal effort, and only through active and forceful
political action.

## Public Comment

A representative of FASEB, who is also a faculty member at UNC,
underscored the importance of having "bench scientists" involved at the
front end, to avoid unintended consequences. One might even consider
paying for scientists to participate. Dollars are needed to attend this
meeting, for example, which cannot come from grants. He also stated that
faculty effort needs to be adequately reimbursed. This includes not just
cost-sharing but service on IRBs and IUCUCs, etc. He reported that one
of his colleagues takes approximately 10 percent of his effort (12-20
hours per month) reviewing proposals and attending IUCUC meetings. This
is a significant amount of time to expect faculty to donate. Another
issue is the physician-scientists K awards which are essentially
cost-sharing vehicles, with a cap of \$75,000 on salary. Even 85 percent
of a surgeon's effort is not \$75,000/year. This has the effect of
directing people's career decisions, e.g., spending more time in the
operating room to cover salaries, thereby discouraging a research
career. Cost-shifting is a huge issue. Some indirect costs should be
treated as direct costs.

Judy Dillon from Duke University, who works in the preaward office, read
a statement by Tom Davis, who is in Duke's postaward office and has been
engrossed in rate negotiations. His letter raised a number of concerns,
including increased requirements for compliance activities related to
Federally funded research and their associated costs; the imposed cap on
the administrative component of F&A, which is too low to permit recovery
of actual expenses; and agency policies that restrict the rates to be
less than that negotiated by the university. Duke University has
administrative costs that exceed the 26 percent cap implemented by OMB
in 1991 and made effective in 1993. This results in increasing the
amount of Duke funds to comply with Federal regulations. In addition,
Duke makes significant expenditures to comply with existing regulations,
such as human subjects protections, conflict of interest, disposal of
hazardous waste, safety monitoring tasks, space studies, HIPAA, Patriot
Act and Homeland Security, bioterrorism, and training in responsible
conduct of research. These unfunded mandates will jeopardize Duke's
ability to support its research enterprise.

The research compliance officer for UNC Chapel Hill echoed Duke's
concerns, and shared her concern regarding how Federal agencies obtain
their cost data. Her experience from working with HIPAA suggests that it
is a well-founded fear that the Federal government will rely upon
completely inaccurate cost data to design regulations that dramatically
underestimate the cost of compliance.

One of most critical scarce research resources in the science
enterprise, faculty time, has not been given due attention. A good
manager ought to find ways to make the most effective use of time.
Whenever a faculty member spends time on issues that add no value, or
that someone else could do, he or she is wasting a precious resource.
Unfortunately, schools cannot afford to hire additional staff, because
of F&A restrictions. Thus, the direct cost of faculty time is
essentially charged as an indirect cost of research. Faculty members are
expected to spend precious time on tasks that do not necessarily add
value. Faculty are trained to conduct research, not to fill out forms
and stay abreast of the latest compliance details. The crux of the
problem is how to design a system that makes optimal use of faculty
time.

A dean from the University of Idaho reported heightened faculty
frustrations about spending more of their time working as business
managers and doing menial tasks. The university-government agency
partnership has drifted from it original role as an investment
relationship to one that is focused upon the procurement of
deliverables. This can dampen scientific creativity, and scientists feel
demoralized by the process. Smaller institutions have special challenges
that need to be addressed. The University of Idaho has eight
colleges/deans, which makes it a relatively small university. It has
significant advantages but also significant disadvantages, because
cost-shifting causes much more serious problems. Deans are forced to
trade off hiring decisions against cost-sharing on EPSCoR grants.
Cutting costs and retrenching positions has led to creating certificate
programs in order to generate income, and exploit land where businesses
are located in order to raise money. Even these innovative steps have
not improved the balance sheet, though, because the funds are used to
pay off deficits. Some of the income from these enterprises are used to
cover EPSCoR grants; unfortunately, small successes mean that greater
cost-sharing is expected.

There is a widespread perception and concern that research is required
to have an immediate social impact, which inhibits scientists from
pursuing basic science.

In terms of partnerships, can agencies do more to synthesize and report
research results across disciplines and over time to the policymakers,
in order to increase the proportion of GNP going into research? Many
agencies support both extramural and intramural research. It is
counterproductive for intramural labs to compete with outside
researchers. Earmarks further complicate matters.

Those in the higher technology realm (GIS, instrumentation, isotope
analysis, etc.) are hiring administrative staff on their grants, in
order to address a spectrum of issues ranging from managing visas to
dealing with the new rules/regulations of RFPs. Essentially, they are
setting up their own mini research institutions. This appears to be an
inefficient use of the scientists' talents and time. Participants
strongly recommend that we move toward outreach -- the true power of
integration is in each individual's individual mind. We must find ways
to encourage and reward those PIs who make outreach service, education,
and translation take place in a most seamless way.

Reflecting upon the overall economic model, one participant observed
that at one time, the marginal cost of conducting research was less than
the marginal revenue, because of the large fixed costs. It was often
possible to squeeze research into other lines of business to supplement
costs. The actual extent of cost-sharing did not have to be documented.
The marginal revenue was attractive to universities. However, once
documentation became stricter, suddenly the costs of documentation
overwhelmed the marginal revenues. Institutions must minimally cover
their marginal costs of doing the research.

One participant appreciated the high involvement by NIH and NSF -- two
agencies that seem to be the easiest to work with and the most
accessible. She observed that representatives from mission agencies were
less visible, for example from the Department of the Interior, USDA,
NOAA, DOD, and DOE. The worst cases of underrecovery occur with agencies
other than NIH and NSF. Faculty who are strong in applied areas of
research and want to contribute in areas of fisheries, remote sensing,
and other fields, must seek funding from these underrepresented mission
agencies. This participant would like to see greater involvement by the
mission agencies in this discussion. In the area of electronic research
administration, NSF has been highly effective (i.e., with Fastlane), but
other agencies need to adopt a compatible system, so that applicants do
not need to learn a new process for each agency. Federal participants
clarified that many of the mission agencies mentioned have been involved
in the organization of forums.

Kate Phillips representing COGR brought to the group's attention the
availability of two documents: (1) a brief descriptive paper by COGR on
revenues and obligations for disbursing revenues using recent statistics
from NSF; and (2) a paper on the nature of the researcher-Federal agency
partnership. The latter paper tries to illustrate the dilemma of what
has been forced upon the universities, and how the faculty are adjusting
to the new decisions. COGR will submit formal written comments, as well.

## Wrap-Up

##### Chuck Paoletti, Office of Naval Research

Mr. Chuck Paoletti highlighted the main themes that surfaced from the
discussions. Very interesting questions were raised about the proper
balance between social value and regulations, and there was a call for a
more conscious decision about considering the tradeoffs.

The issue of **administrative caps** has been around a long time. Prior
efforts have tried to address caps, to no avail -- even in a budget
surplus economy, when institutional budgets were "flush." It is probably
even more difficult to address this topic in today's economic context.
He recognized that total unrecovered costs are building up in the
system. The Office of Naval Research (ONR) has been on record since the
1990s as opposing caps. There is an underlying principle in dealing with
commercial firms, which is not to negotiate such a good deal as to put
them out of business. No such paradigm exists for the dealing with
universities. At the same time, we must overcome the assumption that
universities will always be there, that students will always pay
tuition, and that tuition and other sources of revenue will always be
available to pay for unrecovered costs. It should also be recognized
that if the cap is lifted, the Federal research budget will not
increase, and fewer projects may be funded.

**Institutions are more acutely aware of investment tradeoffs**. It is
not always clear where revenue comes from and how decisions are made.
Some states have rules indicating that money should go toward teaching,
not research; thus, institutions may not always want it known how much
of the other funds they receive go to support research.

There is a definite sense that **bureaucratic accretion of Federal
regulations** is imposing onerous burdens upon institutions.

A **misconception about indirect costs** appears to have a
disproportionate impact upon the research community, where it is
perceived that indirect costs represent profit or a slush fund. We need
to do more to raise awareness that indirect costs are real costs,
particularly if Federal government policies have an impact upon those
costs.

**Impact on faculty time**. It is painful to see how much time faculty
members are spending on administrative tasks. Graduate students are
turning their backs on research, because they do not like the model they
see. Faculty members are spending increasingly less time in the lab and
more time on administrative matters and the competition for grant money.
It is frightening to consider what will happen to scientific research in
the United States, if new talent is being discouraged from continuing on
a research track. The impact is amplified in smaller institutions.

The **complexity of issues surrounding cost-sharing** also was
discussed. Dr. Paoloetti would hate to see Circular A-21 become more
complex. However, some have made suggestions about removing items from
A-21 that offer little value, such as documentation of lease-purchase
arrangements, depreciation allowance, and space allocation studies. The
joke about the graduate student eating pizza in the lab is not far from
reality. Perhaps we need to dramatically change the model. Even those
who negotiate indirect costs for agencies wonder about the necessity for
all the required data.

It would be helpful to **involve the audit community**. They were
involved in the first phase of FDP, but now seem to be on a different
track, coming in separately to evaluate agency programs and developing
A-133 compliance supplements without public comment.

**Measuring research output is difficult**. Fundamental research output
yields publications and reports, but often these results do not flow up.
The Government Performance and Results Act (GPRA) was supposed to
increase accountability in identifying research output. One suggestion
was to explore NIH's model for responding to GPRA as an example of
documenting productivity from research investments.

**Political action is an important factor in policy-making**. A number
of participants called for bench scientists to become involved in policy
making. This can be difficult: Many scientists do not want to worry
about the details, but are expected to comply with thousands of pages of
arcane regulations. We must do a better job of explaining the impact of
these regulations. One suggestion was to provide travel reimbursements,
to enable more scientists to participate in the rule-making process.

**Caps hide true costs and can mislead agencies basing decisions on cost
data generated from grant budgets**. Real costs cannot be known without
doing extra accounting or conducting special studies. Institutions have
volunteered to assist Federal agencies in understanding true costs.

**Greater involvement of "mission" agencies was sought.** Mr. Paoletti
noted that research dominates the missions at NIH and NSF. For some of
the other agencies (e.g., Defense, Interior, etc.), a much smaller
proportion of their activities are focused on fundamental research. It
is difficult for an agency whose primary mission is to build roads or
take care of forests -- and has a small research component, as compared
to research-oriented agencies -- to focus a great deal of attention on
research funding issues.

At the Washington meeting to be held on December 9-10 at the USDA, many
of the issues raised today will be synthesized, and we will begin to lay
out implementation tasks for subcommittees and working groups.
Additional comments are welcome to be submitted in writing to
<NSTC_rbm@ostp.eop.gov>

[^1]: The PRD-4 was issued in September 1996 by the Assistant to the
    President for Science and Technology to review the
    government-university partnership and recommend ways to strengthen
    it.