October 6, 2003

Mr. Michael J. Holland

**Office of Science & Technology Policy**

1650 Pennsylvania Avenue, N.W.

Washington, D.C. 20502

Subject: NSTC Research Business Models Comments

Dear Mr. Holland:

This is in response to the OSTP Federal Register Notices of August 6 and
September 16, 2003 inviting public comments on the policies, procedures,
and plans affecting the business relationship between federal agencies
and research performers with regard to basic and applied scientific and
engineering research. We appreciate the opportunity to submit comments
for consideration by the NSTC Committee on Science; Subcommittee on
Research Business Models.

Universities Research Association, Inc. (URA) is a consortium of 90
leading research-oriented universities primarily in the United States,
with member institutions also in Canada, Japan, and Italy. The nonprofit
URA corporation was formed in 1965 at the behest of the President's
Science Advisory Committee and the National Academy of Sciences. In
1967, it began the design and construction of the Fermi National
Accelerator Laboratory (Fermilab), a federally-funded research &
development center (FFRDC), near Chicago. URA continues to manage and
operate the DOE-owned national laboratory under a performance-based
Management and Operating (M&O) contract with a modest fee to cover
inherent performance, contract, and statutory monetary risks. URA also
receives some of its research funds under grants from DOE, NSF, and NASA
for various related research projects.

With regard to the [business relationship]{.underline} between federal
agencies and research performers and managers of FFRDCs such as URA, we
strongly encourage the return to a partnership of trust and cooperation,
rather than an "arms length" procurement-based relationship. A true
partnership increases the fruits of scientific research at a reasonable
expenditure of taxpayers' money.

Unfortunately, over the past several years, DOE has moved more toward an
arms length relationship with its FFRDC contractors and also has shifted
more risk from the Government (traditionally a self-insurer of such
risk) to its contractors, beyond that required by statute. Contractors
are, however, unable to obtain insurance to cover the complete range and
magnitude of the additional risks. Under this circumstance, FFRDC
contractors have had to establish self-insurance pools for the
uninsurable risks. But obviously, it is more costly to set up separate
self-insurance pools on a contractor by contractor basis, than having
the Government self-insure for them.

In addition, we have seen a shift from DOE establishing its scientific
goals and objectives for its national laboratories, to it prescribing
how the work should be done at each, thereby imposing some redundant and
unnecessary management and management reviews.

Another area of improving performance and management of federally funded
research is in the [cost principles]{.underline} applied to contracts
for research. While improvements have been made such as the greater use
of FAR cost principles, there should be more use of common and
consistent Government cost principles, particularly as it regards
contract **overhead** costs and **Bid & Proposal** (B&P) costs. For
example, some federal agencies limit the reimbursement of overhead by
applying caps or ceilings. If overhead costs meet the test of
allowability they are a real expense and should be reimbursed in full.
Another example is DOE not reimbursing M&O contractors for B&P costs in
a climate of wider use of competitively awarded contracts by DOE.

Lastly, in regard to contract and grant costs, there should be common
and consistent [audit]{.underline} practices and principles applied to
research. For example, audit results should not differ solely based on
which audit arm of the Government happens to perform an audit.

We trust that your Subcommittee finds our comments constructive, and we
thank you once again for the opportunity to submit them.

Sincerely,

William A. Schmidt

General Counsel