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EXAMINING THE OVERHEAD COST OF RESEARCH 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY 

& 

SUBCOMMITTEE ON OVERSIGHT 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

May 24, 2017 

Serial No. 115–15 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. LAMAR S. SMITH, Texas, Chair 

FRANK D. LUCAS, Oklahoma 

DANA ROHRABACHER, California 

MO BROOKS, Alabama 

RANDY HULTGREN, Illinois 

BILL POSEY, Florida 

THOMAS MASSIE, Kentucky 

JIM BRIDENSTINE, Oklahoma 

RANDY K. WEBER, Texas 

STEPHEN KNIGHT, California 

BRIAN BABIN, Texas 

BARBARA COMSTOCK, Virginia 

GARY PALMER, Alabama 

BARRY LOUDERMILK, Georgia 

RALPH LEE ABRAHAM, Louisiana 

DRAIN LAHOOD, Illinois 

DANIEL WEBSTER, Florida 

JIM BANKS, Indiana 

ANDY BIGGS, Arizona 

ROGER W. MARSHALL, Kansas 

NEAL P. DUNN, Florida 

CLAY HIGGINS, Louisiana 

EDDIE BERNICE JOHNSON, Texas 

ZOE LOFGREN, California 

DANIEL LIPINSKI, Illinois 

SUZANNE BONAMICI, Oregon 

ALAN GRAYSON, Florida 

AMI BERA, California 

ELIZABETH H. ESTY, Connecticut 

MARC A. VEASEY, Texas 

DONALD S. BEYER, JR., Virginia 

JACKY ROSEN, Nevada 

JERRY MCNERNEY, California 

ED PERLMUTTER, Colorado 

PAUL TONKO, New York 

BILL FOSTER, Illinois 

MARK TAKANO, California 

COLLEEN HANABUSA, Hawaii 

CHARLIE CRIST, Florida 

SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY

HON. BARBARA COMSTOCK, Virginia, Chair 

FRANK D. LUCAS, Oklahoma 

RANDY HULTGREN, Illinois 

STEPHEN KNIGHT, California 

DARIN LAHOOD, Illinois 

RALPH LEE ABRAHAM, Louisiana 

DANIEL WEBSTER, Florida 

JIM BANKS, Indiana 

ROGER W. MARSHALL, Kansas 

LAMAR S. SMITH, Texas 

DANIEL LIPINSKI, Illinois 

ELIZABETH H. ESTY, Connecticut 

JACKY ROSEN, Nevada 

SUZANNE BONAMICI, Oregon 

AMI BERA, California 

DONALD S. BEYER, JR., Virginia 

EDDIE BERNICE JOHNSON, Texas 

SUBCOMMITTEE ON OVERSIGHT

HON. DRAIN LAHOOD, Illinois, Chair 

BILL POSEY, Florida 

THOMAS MASSIE, Kentucky 

GARY PALMER, Alabama 

ROGER W. MARSHALL, Kansas 

CLAY HIGGINS, Louisiana 

LAMAR S. SMITH, Texas 

DONALD S. BEYER, Jr., Virginia, Ranking 

Member 

JERRY MCNERNEY, California 

ED PERLMUTTER, Colorado 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

May 24, 2017 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Barbara Comstock, Chairwoman, Subcommittee 

on Research and Technology, Committee on Science, Space, and Technology, 

U.S. House of Representatives ............................................................................ 4 

Written Statement ............................................................................................ 6 

Statement by Representative Daniel Lipinski, Ranking Member, Subcommittee on Research and Technology, Committee on Science, Space, and 

Technology, U.S. House of Representatives ....................................................... 8 

Written Statement ............................................................................................ 10 

Statement by Representative Darin LaHood, Chairman, Subcommittee on 

Oversight, Committee on Science, Space, and Technology, U.S. House of 

Representatives .................................................................................................... 13 

Written Statement ............................................................................................ 15 

Statement by Representative Donald S. Beyer, Jr., Ranking Member, Subcommittee on Oversight, Committee on Science, Space, and Technology, 

U.S. House of Representatives ............................................................................ 17 

Written Statement ............................................................................................ 19 

Statement by Representative Lamar S. Smith, Chairman, Committee on 

Science, Space, and Technology, U.S. House of Representatives ..................... 21 

Written Statement ............................................................................................ 23 

Witnesses: 

Mr. Dale Bell, Division Director, Institution and Award Support, National 

Science Foundation 

Oral Statement ................................................................................................. 26 

Written Statement ............................................................................................ 28 

Mr. John Neumann, Director, Natural Resources and Environment, U.S. Government Accountability Office 

Oral Statement ................................................................................................. 35 

Written Statement ............................................................................................ 37 

Mr. James Luther, Associate Vice President of Finance & Compliance Officer, 

Duke University; Chairman of the Board, Council on Governmental Relations 

Oral Statement ................................................................................................. 51 

Written Statement ............................................................................................ 54 

Dr. Richard Vedder, Distinguished Professor of Economics Emeritus, Ohio 

University, Department of Economics; Director, Center for College Affordability and Productivity 

Oral Statement ................................................................................................. 61 

Written Statement ............................................................................................ 63 

Discussion ................................................................................................................. 67 
Page

IV 

Appendix I: Answers to Post-Hearing Questions 

Mr. Dale Bell, Division Director, Institution and Award Support, National 

Science Foundation .............................................................................................. 84 

Mr. James Luther, Associate Vice President of Finance & Compliance Officer, 

Duke University; Chairman of the Board, Council on Governmental Relations ....................................................................................................................... 87

Appendix II: Additional Material for the Record 

Letters submitted by Barbara Comstock, Chairwoman, Subcommittee on Research and Technology, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 96 

Statement submitted by Representative Eddie Bernice Johnson, Ranking 

Member, Committee on Science, Space, and Technology, U.S. House of 

Representatives .................................................................................................... 102 
(1) 

EXAMINING THE OVERHEAD COST OF 

RESEARCH 

WEDNESDAY, MAY 24, 2017 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON RESEARCH AND TECHNOLOGY AND

SUBCOMMITTEE ON OVERSIGHT

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, 

Washington, D.C. 

The Subcommittees met, pursuant to call, at 10:05 a.m., in Room 

2318 of the Rayburn House Office Building, Hon. Barbara Comstock [Chairwoman of the Subcommittee on Research and Technology] presiding. 
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Chairwoman COMSTOCK. The Committee on Science, Space and 

Technology will come to order. 

Without objection, the Chair is authorized to declare recesses of 

the Committee at any time. 

Good morning, and welcome to today’s hearing titled ‘‘Examining 

the Overhead Cost of Research.’’ I now recognize myself for five 

minutes for an opening statement. 

The purpose of today’s hearing is to examine the overhead costs 

of research, including how the National Science Foundation and 

other federal agencies negotiate and monitor these costs, how these 

funds are used, and to hear recommendations for improving efficiency and transparency. 

Last year, this Subcommittee held a hearing on Academic Research Regulatory Relief, which looked at recommendations for 

streamlining federal regulations on academic research. 

It has been a pleasure working with Ranking Member Lipinski 

on this Committee to cut the red tape, and I look forward to continuing that bipartisan cooperation. 

Through legislation such as the American Innovation and Competitiveness Act, as well as the 21st Century Cures Act, both of 

which were signed into law in the past six months, we were able 

to listen to recommendations from universities and students to implement better practices designed to address inefficiencies and increase transparency. I was proud to sponsor the Research and Development Efficiency Act, which was included in the American Innovation and Competiveness Act. 

As we move forward with reforming regulations, it is important 

to look at whether or not there are opportunities to streamline 

overhead costs as well, so that more money can go directly into this 

important research. Last year, the National Science Foundation spent $1.3 billion on 

overhead or indirect costs—nearly 20 percent of the research budget. The National Institute of Health spends $6.3 billion on indirect 

costs—27 percent of the $24 billion extramural research budget. In 

a time of tough budgets, when only one out of five research grant 

proposals are funded, which we all know is too little, we must look 

at whether or not those overhead funds are being spent efficiently 

because we want to make sure more of those projects can be funded. 

There is no question that there are legitimate and necessary 

overhead costs for conducting the best research in the world. 

Since World War II, the federal government, Universities, and 

nonprofit research institutions have worked in partnership to conduct research in our nation’s interest. This partnership has served 

our nation well, spurring innovation to new heights. Universities 

and nonprofits provide laboratory space, pay the electric bills, buy 

equipment, and conduct accounting for federally funded research, 

while the federal government shares the cost by reimbursing certain expenses. 

However, over time that system has become more complex and 

in some cases more expensive, as we will hear from our witnesses 

today. Adding to that complexity is that since the 1960s, every institution negotiates its own indirect cost rate directly with the federal government. Today, indirect cost rates for universities and in-
5 

stitutions vary widely from less than one percent to over 60 percent. It raises a question of whether or not we have inadvertently 

created a system of have and have nots, where wealthy institutions 

benefit the most. 

Last year, Dr. Angel Cabrera, President of George Mason University—a University that serves many in my district—testified before 

the Subcommittee on the struggles of leading one of the fastest 

growing research institutions in the country, trying to break into 

the top tier while keeping tuition and fees low. I have a letter I 

am submitting for the hearing record from George Mason’s Vice 

President for Research, Deborah Crawford, on how GMU uses overhead costs. I appreciate George Mason’s input, and their commitment to transparency and keeping education costs low. 

One of my priorities as Chair of the Research and Technology 

Subcommittee is to make sure we are always maximizing the taxpayers’ important investment in basic and fundamental research. It 

is important we give taxpayers confidence in how that investment 

is spent, so that we can continue to sustain and grow research 

funding. Ultimately, research is about creating good jobs and a secure future, a common goal I know we all share. 

And with that, I look forward to hearing the testimonies of our 

guests. 

[The prepared statement of Chairwoman Comstock follows:] 
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Chairwoman COMSTOCK. I now recognize the Ranking Member of 

the Research and Technology Subcommittee, Mr. Lipinski, for his 

opening statement. 

Mr. LIPINSKI. Thank you, Chairwoman Comstock and Chairman 

LaHood, for calling this hearing. This is an important oversight 

topic, and I thank our panelists for being here to share their perspectives. 

There’s always been some discussion within the research community about federal reimbursement for costs incurred by organizations that conduct research funded by the federal government, that 

is, work essentially done on behalf of the government. While most 

agree that direct costs for this research should be fully reimbursed 

by the federal government, opinions diverge when considering the 

extent of reimbursement for indirect costs, or overhead. 

Overhead costs incurred by universities provide the services that 

make cutting-edge research possible, such as electricity, chemical 

and radiation safety, libraries and research facilities, financial accounting, data storage and internet access, and many others. Indirect costs also include the support necessary to comply with the 

high administrative burden that comes with federal research funding. As the Chairwoman mentioned, I’ve worked with her on this 

Committee to reduce some of this administrative burden, and there 

is more bipartisan work that we should do in easing this burden. 

The bottom line is that indirect cost reimbursement is essential 

to American universities’ capacity to execute their research as well 

as train the next generation of scientists and engineers that our 

country needs. NSF is not the cognizant agency for indirect cost negotiations for universities. However, universities account for approximately 90 percent of the total amount budgeted by NSF for 

indirect costs each year. We may address NSF’s role in setting 

rates for nonprofits and small businesses, but the bulk of this debate centers around major research universities. 

There are many strictly enforced controls and regulations on reimbursement for indirect costs. One such control is that indirect 

cost reimbursements are based on modified total direct costs rather 

than total direct costs, excluding expenses such as graduate student tuition and equipment purchases, which are not expected to 

require extensive facilities or administrative support. As a result, 

indirect cost reimbursement rates as a percentage of total direct 

costs are much lower than the more commonly stated negotiated 

rates. According to Nature magazine, the average negotiated rate 

is 53 percent, but the average reimbursed rate is only 34 percent. 

I think it’s important that we’re all on the same page about exactly 

what these rates mean, and that we don’t let large numbers mislead us. 

Some have expressed concern that administrative inefficiencies 

and conflicts of interest have led to rising indirect costs. The evidence does not seem to bear this out. Based on Mr. Neumann’s testimony, GAO has not found that to be the case for NSF. GAO has 

expressed concern about possible rising rates at NIH, but NIH disputes GAO’s analysis. 

Some of our top universities believe that the government is not 

paying them a fair amount for the research they conduct. It’s my 

understanding that for every federal dollar a university is awarded 
9 

for research, the university contributes 30 to 40 cents of its institutional funds to make that research possible. At the University of 

Illinois, in fiscal year 2016, only 76 percent of actual indirect costs 

incurred on NSF grants were reimbursed, meaning that the university contributed $9.1 million of its own funds to close the indirect 

cost gap for its NSF grants alone. 

Annual university subsidies amounting to hundreds of millions of 

dollars nationwide clearly demonstrate a willingness on behalf of 

research universities to contribute their own resources to the research conducted at their institutions. Sometimes, these subsidies 

even support the research infrastructure that NSF, as part of its 

mission, aims to provide. For example, the University of Illinois is 

home to the Extreme Science and Engineering Discovery Environment, an NSF-funded user facility that supports other universities, 

research facilities, and NSF-funded projects around the country 

and the world. As with all NSF-funded projects at the U of I, the 

facility’s overhead costs are partially subsidized by the university, 

representing a contribution by the university to the national research infrastructure. 

Universities undoubtedly benefit from hosting prestigious research programs that enable them to recruit preeminent scientists 

and top students and spin off local companies and jobs. Yet it is 

hard for me to understand the argument by some that universities 

are making a profit. All of the evidence I have seen suggests otherwise. 

Furthermore, federally funded research is a public good. I consider it a win-win that it also benefits local economies. 

These are good debates to have and critical questions to address 

when talking about the health of the partnership between the federal government and research universities. I think we can all agree 

that we want this partnership to succeed at producing research 

that remains the envy of the world for many years to come. 

Thank you, again, to our witnesses for being here. I look forward 

to your testimony and a fruitful discussion on this important issue. 

I yield back the balance of my time. 

[The prepared statement of Mr. Lipinski follows:] 
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Chairwoman COMSTOCK. Thank you, Mr. Lipinski, and I now recognize the Chairman of the Oversight Subcommittee, Mr. LaHood, 

for an opening statement. 

Chairman. LAHOOD. Thank you, Chairwoman Comstock and 

Ranking Member Lipinski. Good morning and welcome to today’s 

hearing: ‘‘Examining the Overhead Cost of Research.’’ I would like 

to welcome today’s witnesses to our hearing and thank each of you 

for your attendance today. 

The purpose of today’s hearing is to examine opportunities to 

stimulate innovative research at universities and nonprofit research institutions, while assessing measures to reduce overhead 

costs of conducting research. 

As part of our hearing today, we want to foster a discussion regarding whether we are directing precious taxpayer resources toward research in the most efficient and effective manner. Part of 

our discussion today will include learning more about how the National Science Foundation, charged with administering federal 

grant funds for countless research institutions, negotiates indirect 

costs rates, as well as the share of indirect costs in cumulative 

grant funding. 

We will hear from GAO today about a new study, finding that 

the growth of indirect costs at NSF has exceeded the growth of direct research costs and recommending improvements for better cost 

controls. As part of its study, GAO found that from 2000 to 2016, 

indirect costs represented 16 to 24 percent of NSF’s total grant 

funds. In total, GAO found that for fiscal year 2016, NSF awards 

included about $1.3 billion for indirect costs, representing approximately 22 percent of the total $5.8 billion in grant awards for fiscal 

year 2016. 

Further, during its analysis of NSF’s fiscal year 2016 grant 

awards, GAO found that 90 percent of NSF’s awards included indirect costs. GAO also discovered that the proportion of indirect costs 

ranged from less than one percent of the grant award to 59 percent 

of the grant award, in some cases. 

GAO analyzed the types of awardees that budget for indirect 

costs, including federal, industry, small business, and universities, 

identifying universities as having some of the highest indirect cost 

rates. 

As part of its review, GAO identified potential areas for improved 

oversight of awardees’ use of indirect grants, including reporting 

information about indirect costs when awardees request reimbursement, enhancing NSF’s online approach to award payments to include collecting information on indirect costs, and consistently following NSF’s own guidance for tracking and setting indirect cost 

rates. 

In light of GAO’s study, we want to ensure we are doing our due 

diligence to further innovative research initiatives, while ensuring 

taxpayer dollars are expended in the most efficient way possible by 

directly furthering research. 

As many in this room know, encouraging innovative research, 

like that conducted at universities and nonprofit institutions across 

this nation, is vital to the long-term success of our economy and 

our nation. 
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Close to my own district, I have seen this work firsthand at truly 

outstanding research institutions, like the University of Illinois-Urbana and Western Illinois University in Macomb. My district is 

also located close to the National Center for Supercomputing Applications located on the campus of the University of Illinois, which 

houses the Blue Waters supercomputer. This is one of the most 

powerful computers in the world, and it is capable of algorithms 

that can help inform a broad range of research, ranging from tax 

and budget-based research to cybersecurity. Western Illinois University, along with other research institutions, use the Blue Waters 

supercomputer to conduct innovative research that helps empower 

scientists and researchers across the world by informing novel research initiatives. 

During my time in Congress, I have made it my priority to help 

support these endeavors. In fact, last Congress, I sponsored the 

Networking and Information Technology Research and Development Modernization Act (NITRD), which was designed to help bolster policies for research related to high-end computing, cybersecurity, and high capacity systems software. This legislation aims to 

reduce bureaucracy and red tape that so often hampers innovative 

research initiatives, while ensuring that taxpayer dollars are spent 

effectively. It is my goal that the NITRD legislation, which was 

passed by the House of Representatives last Congress, as well as 

similar pieces of legislation, will be a core part of the 115th 

Congress’s agenda and assist universities and research institutions 

in pursuing much-needed and potentially revolutionary new research. 

As we are conducting this groundbreaking research, we must— 

we cannot forget whose money we are spending. We must all strive 

to be good stewards of taxpayer dollars. 

I hope that today’s hearing will help us examine some of the 

issues that may be hampering innovative research, such as rising 

overhead costs. Universities and nonprofit research institutions are 

at the forefront of innovative inquiries and studies that often result 

in lasting implications to help better our society technologically. 

Understanding that research is essential to furthering U.S. innovation as we in Congress must learn how we can increase effectiveness of taxpayer dollars used to fund research. 

I know each of the witnesses here today will help encourage a 

fruitful and engaging discussion and provide insight on ways we 

can improve the efficiency of university research by examining 

overhead costs. 

I thank each of the witnesses for their testimony today and look 

forward to an informative discussion. Thank you. 

[The prepared statement of Mr. LaHood follows:] 
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Chairwoman COMSTOCK. Thank you, Mr. LaHood. 

And I now recognize the Ranking Member of the Oversight Committee, Mr. Beyer, for his opening statement. 

Mr. BEYER. Thank you, Chairwoman Comstock, and thank you, 

Chairman LaHood, for having this hearing today. 

I generally agree with the questions raised by Ranking Member 

Lipinski about overhead costs on federally funded research but I 

also want to emphasize the importance of the National Science 

Foundation and our other science agencies in spurring innovation, 

economic growth, and technological advancements in multiple arenas. 

I’m a small business owner, and I understand that indirect 

costs—overhead—are still costs that have to be covered and funded. I cannot run my automobile dealerships without electricity for 

light, heat, the tools, without accountants to manage our budgets, 

without IT gurus to maintain the computers that manage every aspect of our inventory and sales processes, and without the mortgages on our buildings. These kinds of overhead costs are just as 

necessary to run a science lab as they are to operate an automobile 

dealership. 

Of course, we must always strive to improve the management of 

federal research grants, and of course, we must search for effective 

and efficient methods to spend and to oversee these funds. But 

should we drastically cut federal funds to science agencies that lead 

to innovative technological discoveries, as the Trump Administration has proposed? Absolutely not. These would be foolhardy decisions that would jeopardize our economic competitiveness and our 

ability to develop important national security technologies and 

make vital medical and other scientific advancements. 

So I’m deeply concerned about efforts by this Administration, the 

budget we saw yesterday, to drastically reduce scientific funding to 

the National Institutes of Health, the Department of Energy, the 

Environmental Protection Agency, the National Oceanic Atmospheric Administration, the National Science Foundation, and many 

others. This shortsighted abandonment of our investment in 

science can only harm our economy, our health, our world leadership, and our ability to innovate in the middle and long term. 

The National Science Foundation plays the fundamental, 

foundational role in funding scientific research in the United 

States: sine qua non. The NSF builds our scientific knowledge, improves our security, expands our economy, and helps us compete. 

Each year they award more than $7 billion in approximately 

12,000 new grant awards to nearly 2,000 institutions. The National 

Science Foundation accounts for nearly one-quarter of all federal 

research funding for basic science conducted by America’s colleges 

and universities. 

Look, I don’t think any Member of Congress is opposed to exploring reasonable and responsible opportunities to ensure that our 

federal funds are spent as efficiently and effectively as possible. 

Improvements in financial management are always possible and 

should be pursued but let’s be fully aware of the unintended consequences of our actions. Let’s be certain any changes we make 

keep the best scientists doing the most important work for the National Science Foundation. Let’s make sure we’re not initiating a 
18 

race to the bottom, with prizes to the lowest bidder doing the least 

valuable research. 

I look forward to hearing the testimony of our witnesses, and I 

trust we’ll have a constructive dialogue about the important role of 

the federal government in funding science. 

Thanks, Madam Chair. I yield back. 

[The prepared statement of Mr. Beyer follows:] 
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Chairwoman COMSTOCK. Thank you, and I would point out that 

the Administration’s budget proposal, like every other President’s, 

is just a proposal, and Congress gets to decide on that, and this 

Committee has had a very strong record of supporting science and 

research. 

So I now recognize Chairman Smith for his statement. 

Chairman SMITH. Thank you, Madam Chair. Congress allocates more than $6 billion per year of taxpayers’ 

money to the National Science Foundation to support scientific research and education at universities and nonprofits. This investment contributes to American innovation, economic competitiveness 

and national security. 

Congress also authorizes the NSF and other federal science agencies to reimburse universities and nonprofit research institutions 

for the overhead expenses they incur for federally supported research projects. These are called indirect costs. Indirect costs are 

allowed in order to pay for such expenses as light and water bills 

for university laboratories, security services, and compliance with 

federal regulations. 

However, indirect costs have expanded and expanded again. One 

point three billion dollars of National Science Foundation’s current 

annual research budget is now consumed by indirect cost payments 

to universities and research institutions. That is almost one-quarter of National Science Foundation’s research budget. One point 

three billion dollars would pay for 2,000 more scientific research 

projects in critical areas like physics, biology, computer science and 

engineering. Science and innovation in these fields will improve our 

future economic and national security. 

Universities and non-profits should certainly be reimbursed for 

reasonable costs of sponsoring federal-funded research. However, 

as we will hear today from the GAO, ongoing indirect costs consume a larger and larger share of funds for scientific research, and 

many universities are pressing to raise indirect costs even higher. 

In fact, some indirect costs rates have now reached 50 percent of 

the grant and higher. 

There is no question that there are legitimate costs associated 

with carrying out the best research in the world. The question is, 

are taxpayers paying for these costs in an efficient and transparent 

manner, or are we unnecessarily subsidizing excess, bureaucracy 

and waste? Or is the National Science Foundation becoming just 

another source of revenue? 

I recently met with a university president who described having 

to spend $1 million to build a new lab in order to recruit a highprofile scientist from another institution. Why should taxpayers 

foot the bill for this scenario? 

Another ongoing investigation of a researcher, who received millions in NSF grants over the years, revealed that he used indirect 

funding to pay his salary as president of the nonprofit institution 

as well as administrative salaries for his family members. Why was 

this allowed to happen, and how does National Science Foundation 

monitor the use of indirect funds? 

Our challenge is to ensure America remains first in the global 

marketplace of ideas and products, without misusing taxpayer dollars. We must conduct research efficiently and responsibly so that 
22 

taxpayers know they are getting good value for their investment in 

our nation’s scientific research and innovation effort. 

Madam Chair, I look forward to hearing from our panel of witnesses today about how indirect cost rates are negotiated and monitored, how the funding is used, and how we can better control 

overhead costs, including possible caps or other limitations. 

I’ll yield back. 

[The prepared statement of Chairman Smith follows:] 
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Chairwoman COMSTOCK. I now recognize briefly Mr. Perlmutter 

for an introduction. 

Mr. PERLMUTTER. Thanks, Madam Chairwoman, and I appreciate 

the moment of personal privilege. 

The Chairwoman was bragging a little bit about George Mason. 

My friends, Mr. LaHood and Lipinski, were bragging about the 

University of Illinois. 

Chairman SMITH. Here it comes. 

Mr. PERLMUTTER. Well, I actually get to brag about the University of Colorado. There are five budding scientists from the university here today in physiology, molecular, cellular and developmental biology, neuroscience, public health, and environmental biology. So if the students from the University of Colorado CU Boulder, would you please stand so everybody can see you? 

So my university takes these subjects very seriously, and I’d just 

like to thank you all for being here and listening to this, what is 

kind of a dry subject but very important to universities and how 

they receive their grants. 

So thank you for being scientists, thank you for coming to the 

Congress of the United States and listening to the Science Committee. 

And with that, I’d yield back to the Chairwoman. 

Chairwoman COMSTOCK. Thank you, and I appreciate the students. Welcome, and nice to see so many young women scientists 

here. So thank you. 

I’ll now introduce our witnesses. Our first witness today is Mr. 

Dale Bell, Division Director for Institution and Award Support at 

the National Science Foundation. In this position, Mr. Bell provides 

oversight across NSF’s financial assistance awards through NSF 

policy and business systems requirements as well as cost analysis 

and awardee monitoring. Prior to NSF, Mr. Bell worked across the 

federal sector as a consultant for program execution management 

and strategic planning. He has a bachelor’s degree in political 

science from the Johns Hopkins University and a master’s degree 

from Georgetown University School of Business. 

Our second today is Mr. John Neumann, Director of Natural Resources and Environment at the U.S. Government Accountability 

Office. With over 25 years of experience, he leads auditing efforts 

in the science and technology area including the management and 

oversight of federal research and development programs, protection 

of intellectual property, and federal efforts to support innovation. 

He graduated cum laude with a Bachelor of Arts degree in political 

science from the State University of New York at Stony Brook and 

holds a master’s of business administration from American University. Mr. Neumann also earned a juris doctorate from Georgetown 

University. 

Our third witness today is Mr. James Luther, Associate Vice 

President of Finance and Compliance at Duke University. He also 

serves as Chairman of the Board of the Council on Governmental 

Relations. Mr. Luther’s responsibilities include post-award areas in 

asset management oversight for the University and School of Medicine, negotiation of Duke’s indirect cost and fringe benefit rates, 

and all aspects of Duke’s research costing compliance program. He 
26 

earned his bachelor’s of science in engineering from the United 

States Naval Academy and a master of arts from Duke. 

Our fourth witness today is Dr. Richard Vedder, Distinguished 

Professor of Economics Emeritus at Ohio University, in Athens, 

Ohio. Dr. Vedder has been an economist with the Joint Economic 

Committee of Congress, a Fellow of the George W. Bush Institute, 

and an Adjunct Scholar at the American Enterprise Institute. He 

also directs the Center for College Affordability and Productivity. 

Dr. Vetter has written over 100 scholarly papers published in academic journals and books on the U.S. economy and public policy including the book Going Broke by Degree: Why College Costs Too 

Much. He received his Ph.D. in economics from the University of 

Illinois. 

I now recognize Mr. Bell for five minutes to present his testimony. 

TESTIMONY OF MR. DALE BELL, 

DIVISION DIRECTOR, 

INSTITUTION AND AWARD SUPPORT, 

NATIONAL SCIENCE FOUNDATION 

Mr. BELL. Chairman Smith, Chairman Comstock, Ranking Member Lipinski, Chairman LaHood, Ranking Member Beyer, and distinguished members of the Research and Technology and Oversight 

Committees. My name is Dale Bell, and I serve as the Division Director for the Division of Institution and Award Support at the National Science Foundation. I appreciate the opportunity to testify 

before you this morning, and I’d like to say that this is a sexy topic 

for me, so thank you for the opportunity. 

Since its establishment in 1950, the mission of NSF has been to 

promote the progress of science, to advance the national health, 

prosperity and welfare, and to secure the national defense. To do 

so, NSF awards grants and cooperative agreements with an eye toward advancing the scientific frontier to approximately 2,000 organizations consisting of colleges, universities, K–12 school systems, 

businesses, science associations, and other research organizations. 

The federally sponsored research enterprise is a partnership between the federal government and the institutions performing the 

research. Both are committed to achieving mutually beneficial outcomes and both agree to share in the cost of enterprise that enables 

this research. 

NSF reimburses awardees for direct costs such as salaries, equipment and travel that can be attributed to a specific project. NSF 

also funds indirect costs. Some call these overhead or facilities administration. These are costs which are not readily identifiable 

with a specific research project but are still necessary for the general operation to carry out the research. Examples of indirect costs 

may include laboratory occupancy costs, hazardous chemical and 

biological agent management, libraries, IT systems, data transmission and storage, radiation safety, insurance, administrative 

services, and compliance with government regulations including institutional review boards for human subject research. Note that 

only resources used for research are counted, and the federal government partially reimburses awardees for these expenses through 

the use of an indirect cost rate. 
27 

The amount of indirect costs budgeted to NSF awards has remained stable. Recent NSF analysis of data developed in the course 

of the GAO audit shows that annual funding for indirect costs 

across NSF’s entire portfolio of awards averaged about 20 percent 

of the total amount awarded over the last 17 years. 

NSF does not negotiate indirect cost rates for colleges and universities, which make up about 91 percent of NSF’s awardees. Per 

the Office of Management and Budget’s Uniform Guidance, indirect 

cost rate negotiation cognizance for all colleges and universities is 

assigned to the Department of Health and Human Services or the 

Department of Defense’s Office of Naval Research. 

NSF is the cognizant agency for negotiating indirect cost rates 

for about 100 of its over 2,000 awardee organizations, or about five 

percent. To put this in perspective, of the approximately 45,000 

awards in NSF’s active portfolio, over 98 percent were made to organizations that negotiate indirect cost rate agreements with other 

federal agencies. 

Organizations for which NSF is the cognizant agency largely consistent of nonprofits such as independent research institutions, laboratories, museums, professional scientific societies, and foundations. 

Accountability over indirect cost starts with the rate negotiation 

process. OMB Uniform Guidance sets requirements to be applied 

by all federal agencies. All entities for which has NSF has rate cognizance as required to regularly submit indirect cost rate proposals 

for review. 

Calculating an indirect cost rate is an involved process. The negotiation process begins with submission of indirect cost rate proposals and supporting documentation. A rate negotiator, an expert 

in cost analysis, reconciles the proposal with the organization’s audited financial statements and other financial information and ensures that costs have been allocated in accordance with the Uniform Guidance. 

NSF exercises various forms of oversight over the application of 

the indirect cost rate. This includes single audits, incurred cost audits and other post-award monitoring efforts. In addition, NSF 

monitors the use of indirect costs through transaction testing as required under its implementation of the Improper Payments Act. 

Excellence in stewardship is an NSF strategic goal. The agency 

welcomes the oversight provided by this Committee and the GAO. 

NSF has already strengthened its internal procedures related to 

the indirect cost rate negotiation process as a result of the GAO engagement, and we remain a fully engaged partner in ensuring accountability for taxpayer investments in the federal research enterprise. 

This concludes my oral testimony. More detail on the points I 

briefly highlighted today can be found in my written statement. I 

would be pleased to answer any questions you may have. Thank 

you. 

[The prepared statement of Mr. Bell follows:] 
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Chairwoman COMSTOCK. Thank you. 

And we now recognize Mr. Neumann. 

TESTIMONY OF MR. JOHN NEUMANN, DIRECTOR, 

NATURAL RESOURCES AND ENVIRONMENT, 

U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. NEUMANN. Thank you. Chairwoman Comstock, Chairman 

LaHood, Chairman Smith, Ranking Members Lipinski and Beyer, 

and members of the Subcommittee, thank you for the opportunity 

to be here today to discuss our ongoing work on the National 

Science Foundation’s oversight of indirect costs on awards for scientific research and education. 

NSF funds billions of dollars in awards each year to universities, 

elementary school systems, science associations, and other research 

organizations. For most awards, NSF reimburses awardees for both 

direct and indirect costs incurred. Direct costs such as salaries and 

equipment are those that can be attributed to a specific research 

project. Indirect costs are those that cover the genera operation of 

an awardee’s organization such as the cost of operating and maintaining facilities or the salaries and expenses for general administration. 

Today I’d like to provide some preliminary observations from our 

ongoing work that is focused on two areas: first, what is known 

about indirect costs of NSF awards over time, and secondly, the extent to which NSF has implemented guidance for setting indirect 

cost rates for the organizations it’s responsible for. 

Our first preliminary observation is that indirect costs on an 

NSF award range from 16 to 24 percent of the total amounts the 

agency awarded each year from 2000 to 2016. NSF has provided 

some explanation for the variation in indirect costs from year to 

year, and we are continuing to evaluate those factors. 

Another observation related to this variation is that the average 

indirect costs also varied across types of awardees which included 

universities, small businesses, industry and others. Specifically, we 

observed that in fiscal year 2016, university awardees had the 

highest average indirect costs, about 27 percent, while industry 

had lower average indirect costs of 14 percent, and we’re continuing to evaluate the reasons for that as well. 

I should also note that our preliminary analysis of indirect costs 

is based on NSF budget data because NSF doesn’t require awardees to report information about actual indirect costs separately 

from direct costs when requesting reimbursement for work done on 

a specific award. 

In our review of NSF’s guidance for setting indirect cost rates for 

the organizations it’s responsible for, we also had several observation including that NSF staff did not consistently implement the 

guidance and the guidance itself did not include certain details. For 

example, in 2008, NSF created a database for tracking its active 

indirect cost rate proposals in response to recommendations made 

by the NSF Inspector General in a prior audit. However, NSF staff 

haven’t consistently updated the data in its tracking system to reflect the current status of its indirect cost rate proposals. 

Also, we observed that NSF guidance does not describe specific 

steps for supervisor review of the indirect cost rate proposals to en-
36 

sure that only allowable and reasonable indirect costs have been 

proposed for NSF awards. 

Lastly, we observed that NSF’s guidance has not been updated 

to reflect changes from OMB’s Uniform Guidance for Federal 

Awards, which became effective at the end of 2014. 

In closing, I would note that we’re continuing our ongoing work 

to examine NSF’s data on indirect costs over time and its implementation of its guidance for setting indirect cost rates. As you 

know, NSF awards billions of dollars to organizations each year 

and it’s essential that NSF ensures efficient and effective use of the 

federal science funding through its oversight of indirect costs. 

This concludes my prepared remarks. I’m happy to respond to 

any questions you may have. 

[The prepared statement of Mr. Neumann follows:] 
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Chairwoman COMSTOCK. Thank you. 

And I now recognize Mr. Luther for five minutes. 

TESTIMONY OF MR. JAMES LUTHER, 

ASSOCIATE VICE PRESIDENT OF 

FINANCE & COMPLIANCE OFFICER, DUKE 

UNIVERSITY; CHAIRMAN OF THE BOARD, 

COUNCIL ON GOVERNMENTAL RELATIONS 

Mr. LUTHER. Good morning, Subcommittee Chairwoman Comstock, Ranking Member Lipinski, Subcommittee Chairman LaHood, 

Ranking Member Beyer, and members of the Research and Technology and Oversight Committees. My name is Jim Luther. The 

perspective I represent today is both as a compliance officer and finance individual at Duke University as well as the Board Chair for 

the Council of Government Relations, which is a group of about 190 

of the nation’s major research universities, medical centers and research institutes. 

I’ll start by expressing my appreciation for this opportunity to 

discuss the federal university research partnership and how universities are reimbursed for the cost of conducting federally funded 

research. Academic institutions have been working in partnership 

with the federal government for decades to advance national security, health and prosperity. This partnership allows for significant 

cost efficiency in the use of federal funds where the government is 

unbound from maintaining its own facilities and personnel, and it 

has yielded tremendous results. 

United States leads the world in scientific innovation, which has 

led to significant economic benefits, job growth, and advances in 

healthcare and defense that benefit all Americans. 

The federal government contributes over 50 percent of funding 

for academic research. These funds include direct costs of personnel, supplies and equipment as well as facilities and administrative costs that represent critical infrastructure that supports the 

research. F&A costs cannot be viewed separately from direct costs. 

Together they represent the total cost of performing research. 

If direct costs are thought of as the gas for the research engine, 

F&A reimbursements represent the oil. The research engine requires both. 

My remaining comments are summarized in four points. Number 

one, there is a longstanding, time-tested commitment to the partnership. Number two, the effectiveness of the partnership is demonstrated by the cures that have impacted human health, improvements in defense, infrastructure, engineering, biology, social 

science, and other areas. Number three, the current system recognizes cost and infrastructure differences. Some research is more expensive than others because of geography but, more important, the 

type of research. And finally and most importantly, the current system recognizes that F&A is a real cost of doing research. 

Research institutions provide the physical infrastructure where 

research is conducted. This includes construction and maintenance 

of specialized facilities and labs, which support diverse research 

such as the study of serious and potentially lethal agents, advanced 

robotics, and critical vaccines. F&A costs also provide key oper-
52 

ations infrastructure such as utilities, high-speed data processing, 

human and animal research review boards, radiation and chemical 

safety, and other compliance activities required when accepting 

federal funds. It is as basic as turning on the lights and as complex 

as supporting the disposal of biohazardous materials like anthrax. 

F&A costs are tightly regulated and audited by the government 

to ensure that the government only funds that portion of F&A costs 

that are attributable to the federally funded research. F&A costs 

on federal awards have remained relatively constant for the past 

two decades. At NIH, approximately 28 percent of all expenditures 

are attributable to F&A. 

Universities are committed partners in our nation’s research enterprise, committing more than 24 percent of their own funds towards higher education research and development—$17.7 billion in 

fiscal year 2015. 

It is important to note that federal funding does not fully cover 

F&A costs apportioned to federal studies. That is due in part to a 

cap on administrative costs put in place for research universities 

in 1991 but also due to the significant increase in federal requirements that necessitate additional infrastructure and staff. A recent 

National Academies report noted that the federal government promulgated on average 5.8 new or changed regulations and policies 

per year over the past decade, a 400 percent increase over the 

1990s. As nearly all universities are over the administrative cap of 

26 percent, all new costs associated with complying with these regulations are borne by the university. That represents about $4.8 

billion related to unreimbursed F&A costs. 

With respect to research space, Duke’s experience is that a moderate-sized research building increases our institutional cost by approximately $10 million per year, even after the recovery of F&A. 

This is due to faculty start-up costs, ongoing faculty and research 

support, subsidized animal operations, and components of the 

building which are not designated as research. 

In closing, I would emphasize three points. The longstanding 

commitment to the partnership works, and it’s been time-tested for 

many decades but is being jeopardized by declines in state funding, 

increasing regulations, and reduced F&A reimbursements. Number 

two, the current system recognizes costs and infrastructure differences that some research is more expensive, and for good reason. 

Different geographic regions and types of research can cause significant differences in costs. The costs related to support policy research is vastly different than F&A costs related to biocontainment, translational cell therapy, and so forth. And finally and most 

importantly, it recognizes that F&A cost is a real cost and doing 

research without it, plain and simple, we could not turn on the 

lights. 

I would suggest that the effectiveness of this hearing would be 

reduced if we were sitting on the Capitol steps and didn’t have 

lights, didn’t have air conditioning, chairs, legislative aides, and AV 

equipment. That is analogous to the F&A support needed for university research. 

Any reduction in federal funding including funding for research 

infrastructure will result in less research, slower scientific 

progress, fewer medical treatments, fewer jobs, and likely fewer 
53 

universities conducting research, and undergraduates and graduate 

students educated in the research setting. 

Thank you. 

[The prepared statement of Mr. Luther follows:] 
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Chairwoman COMSTOCK. Thank you. 

I recognize Dr. Vedder for five minutes. 

TESTIMONY OF DR. RICHARD VEDDER, 

DISTINGUISHED PROFESSOR OF ECONOMICS EMERITUS, 

OHIO UNIVERSITY, 

DEPARTMENT OF ECONOMICS; 

DIRECTOR, CENTER FOR COLLEGE 

AFFORDABILITY AND PRODUCTIVITY 

Dr. VEDDER. Chairs Comstock and LaHood, Dr. Lipinski, Mr. 

Beyer, Members of the Committee, the policy of the federal government regarding overhead or indirect cost reimbursement to universities holding research grants is seriously flawed. 

Two highly regarded economists from Stanford and Northwestern 

Universities concluded talking about overhead costs, and I quote 

them, ‘‘The existing system for reimbursing those costs creates unnecessary distortions in the operations of universities and has very 

high transactions cost. Instead, both universities and the federal 

government would be better off if the existing indirect cost reimbursement system were replaced by a system of fixed reimbursement rates that were not related to a university’s actual indirect 

costs.’’ 

Suppose the NIH or NSF makes a million-dollar grant to a Harvard researcher. The immediate increase in indirect costs to Harvard for buildings, administration, electricity and the like as a consequence of that grant is probably at most a few thousand dollars. 

But however, Harvard will get several hundred thousand dollars in 

overhead funds, therefore, making a large short-term financial 

gain. At many schools including my own, researchers getting federal grants receive a kickback of some of the overhead money as 

an incentive to seek more grants. Schools would do not that unless 

they considered federal research grants to be at least somewhat financially lucrative. 

Now, to be sure, in the long run there are real legitimate longterm indirect costs yet I think the current system incentivizes universities to pad their bureaucracies and have excessively fancy 

buildings. As one academic put it, ‘‘The more you spend, the more 

you get.’’ Where’s the incentive to have linoleum floors instead of 

marble? 

A fairly considerable amount of resources is also devoted to justifying and verifying overhead costs. Non-governmental organizations making grants to universities typically allow far lower 

amounts of indirect costs. What are the policies regarding state 

government financial research? Again, today’s GAO testimony suggests that the overhead provision is smaller. I calculate from figure 

2 of the GAO report today that the average NSA university overhead provision in 2016 was about 37 percent of the amount granted 

for direct research costs, 27 percent of the total, 37 percent for research. 

There are two good approaches to replacing the current system. 

The first would be to adopt a uniform national reimbursement rate. 

This was unsuccessfully proposed in the Obama Administration. 

This approach could save resources by ending negotiations and 
62 

verifications and audits surrounding unique individual rates on 

various campuses. If a university—if a uniform federal rate of, say, 

20 percent were adopted, you would be able to maintain the 

amount of money going directly for research within a ten percent 

NSF funding reduction if that were to happen. I’m not advocating 

that, by the way, but I said you would be able to do so. 

Although over time—and I would predict universities would still 

vigorously apply for grants although over time they would reduce 

their bureaucracies, hold fewer grant-writing workshops and like— 

more bang for the buck. 

Under a second approach, the decision as to who would receive 

research grants would be partly determined by project price—a 

novel notion. Suppose NSF or NIH grants are made on a point system, 100 points being the maximum? Have 75 points be determined 

as now by the scientific merit of the proposal. Have the remaining 

25 points be determined by the amount of overhead universities request. With the more points gained, the lower the overhead request. A school asking for 50 percent overhead for a grant might 

only get one point on the indirect cost portion of the grant application while one asking for only 20 percent might get 22 points. 

Greedy universities—a concept some don’t believe exist but I’ve 

been at them for 52 years, and I know. Greedy universities with 

extraordinary indirect cost requests would likely get fewer grants 

while frugal universities willing to accept modest overhead provision would gain some advantage. 

It is possible to get more actual research activity per dollar of 

total funding by paring our support for indirect cost provisions in 

funded grants. 

Thank you, Madam Chairman. 

[The prepared statement of Mr. Vedder follows:] 
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Chairwoman COMSTOCK. And I now recognize myself for five 

minutes for questions. 

Given the wide range that we have there, could you explain to 

us, like for example, Harvard University has—what, they’re up in 

the 60s or so for their rate of—is that correct? And so—and Harvard University probably has one of the largest endorsements in 

the country. Would that be correct? You all agree? Okay. 

So what I’m looking at some place like George Mason—and I understand a lot of the universities don’t want to have caps here. 

What I’m trying to look at is how when we have a university with 

a huge endorsement, probably one of the largest in the country, has 

one of the highest rates, how can we, you know, provide for fairness, particularly for the new and up-and-coming universities? Do 

we want to have more diversity in terms of ability to get the research out there? I think, Dr. Vedder, you provided some different 

ideas on that. 

And then also, and this is sort of for all of you to address maybe 

in a general idea, but when you look at—I’m thinking at George 

Mason, I know the Gates Foundation is funding some of the research that we have going on, I believe in Lyme disease. The state 

also funds it. I’m not sure what their rate is that they allow, and 

then we have some federal government money going in there. How 

does that work when the Gates Foundation does cap their administrative costs at ten percent. How does this all work out when you 

have those different rates, and how can we as the federal government maybe get a better bang for the buck and getting the money 

going directly to research among the different situations and different universities? 

Mr. LUTHER. Could I respond to that question? 

Chairwoman COMSTOCK. Yes, Mr. Luther. 

Mr. LUTHER. Thank you. So I think there were three questions, 

one about the endowment, one about why do rates vary, and one 

about foundations. So the endowment piece, I’m not an expert on 

endowment, but there’s certain restrictions about how you can use 

the funds for endowment. 

But if I could address the other two because I think they’re kind 

of at the heart of the issue as we look at this, and I would suggest 

that rates vary significantly as we all have discussed for two primary reasons. One, because of geography, what region they’re in. 

If you have the exact same research building in San Francisco or 

New York City or in the middle of America, that exact same research, the cost of that, the cost of construction, utilities and everything else are going to be vastly different. 

But the second point I think is more important there, and that 

is, it’s all about the type of research. Within Duke, if we looked at 

individual grants, we have research being done on public policy, 

and the F&A related to that individual grant is a computer, the 

lights and so forth. If we look at a school of medicine, they have 

biocontainment facilities, they have specialized HVAC, they have 

warm rooms and cool rooms, they have purified water, they have 

the ability to filter the water for the experiments in a certain way. 

They have IT infrastructure. I mean, it truly is all about the research, the type of research being done, and I would suggest— 

again, within Duke, we might see one grant where the effective 
68 

rate is low, we might see another grant where it’s really 100 percent or more. That averages out across the institution in this process. 

And then with regard to foundations, I think there’s a couple of 

things to look at. We have a fair amount of foundation money. A 

fair amount of that is from the Gates Foundation. But the way we 

cost is vastly different from a foundation to the federal government. 

First of all, foundations—and it’s on the Gates Foundation website, 

for example—they will routinely pay certain things that the federal 

government will not pay. They pay it directly—project management 

costs, facilities costs, lots of different things that the federal government would not pay. 

The second thing is that foundations generally apply their F&A 

rate to total direct costs. There was some discussion before about 

modified total direct costs. The federal government does not pay 

overhead to Duke University on capital equipment, patient care, 

sub awards, lots of different categories. Oftentimes a foundation 

does. 

And then continuing, many of the foundation funding relates to 

off-campus work so comparing the Gates Foundation to Harvard at 

60, it’s more appropriate to compare to the off-campus rate, which 

is normally around 25, 26, 27 percent. 

And then lastly, I would say, you know, foundations, at least our 

experience at Duke, are oftentimes incremental funding. We have 

again a fair amount of Gates Foundation funding that is providing 

funding related to development of an AIDS vaccine. NIAID is providing the bulk of that funding. The Gates Foundation is providing 

critical funding to support that. 

Chairwoman COMSTOCK. Dr. Vedder, did you want to—— 

Dr. VEDDER. As Mr. Luther mentioned, there were several components to your question. One point you made with regards to endorsements, and it is—I think you’re raising a fairly legitimate 

question, and also about the overall issue of sort of inequality in 

the funding. 

I did do a little statistical regression equation looking at the published NSF overhead rates as of two or three years ago for about 

100 different schools, and I compared that with other indicators of 

the eliteness of the school including their endorsement money per 

student, and it was interesting. The richer schools were getting the 

higher percentage rates. 

Now, it is true, as Mr. Luther says, that there are special circumstances in some situations that might lead to some legitimacy 

in the differences of cost, but my university, a little school in Appalachia with a modest endowment, has an overhead rate of about 50 

percent. In 2013, Harvard had 69 percent. And it is literally true 

if you walk into a building in Cambridge, Massachusetts, the floors 

are marble. I mean, they’re nicer buildings. I mean, what the hell? 

I’ve been teaching at universities 52 years, and I’ve taught at all 

the universities mentioned here. I have two degrees from Illinois. 

I have one degree—I get a lot of money from George Mason, from 

the University of Colorado. I’ve been at all these schools, and believe it or not, there are differences in the appearances. 

So I think it would be wise to ask the GAO to extend their studies further. What does Britain do? Take another country. What 
69 

does Canada do? Why are the—why would McGill University or the 

University of Toronto be much different than American University? 

What to the Canadians do? I don’t know. It’d be interesting to 

know. 

To me, a large part of the costs are this back-and-forth negotiations. Why not just set a flat rate and say be done with it? 

Chairwoman COMSTOCK. And save the money on the audits. 

Dr. VEDDER. Yeah, yeah, yeah. And by the way, I don’t know 

want my remarks to be construed as saying I am against scientific 

funding. It’s a question of how do we divide the pie between the 

researchers and between the administrative costs. 

Chairwoman COMSTOCK. Thank you, and I’ve gone over my time, 

so I now recognize Mr. Lipinski for five minutes. 

Mr. LIPINSKI. Thank you. 

In my previous life, I was an assistant professor and I did get 

my Ph.D. from Duke. I have been to Ohio University though I have 

visited there. 

But my background, and what I hear from my colleagues, what 

I hear in this Committee has—the reason why I was so active in 

working to reduce the regulatory burden and worked to get the 

Interagency Working Group on research and regulation established 

in the American Innovation and Competitiveness Act last year. 

I want to ask Mr. Bell, what are some of the—what role do you 

see this interagency working group having in helping to reduce the 

regulatory burden? 

Mr. BELL. What I’d like to do is talk a little bit about the Uniform Guidance, which is a policy document that oversees the indirect cost rate negotiation, and that was born of interagency working groups looking at administrative burden and trying to strike 

that fine balance between oversight and stewardship with, as we’ve 

talked about, freeing up funding to focus more on direct costs. So 

I believe that there is great opportunity. Administrative burden 

and interagency collaboration, I think, really need to be viewed 

within the context of where did the burden come from, where did 

the cost of compliance come from. So you could come up with a lot 

of great ideas, which is what I believe that the current reform efforts are associated around. The question is how do you then undo 

those from a government-wide level. So I believe that they will be 

great sources of information for administrative burden. 

And then the real effort will be, how do you then unpack that? 

Is it coming from legislation, is it coming from individual regulation? The Uniform Guidance I believe did an admirable effort in 

trying to strike that balance between stewardship and between 

owning the partnership in the sense that our awardees are responsible to make sure that they’re doing the best that they can with 

the funds that they receive. 

Mr. LIPINSKI. Thank you. 

I want to move on to ask Mr. Luther, Dr. Vedder claims that universities make a profit on indirect cost reimbursements from the 

federal government. It’s my understanding that due to eroding support from state appropriations, public universities are contributing 

an increasing amount of their own institutional funds to cover the 

costs of conducting research. What is your response to the assertion 
70 

that universities are making a profit on indirect cost reimbursements? 

Mr. LUTHER. That’s a great question. At Duke, we contribute 

about $30 to $35 million of administrative costs. We’re about six 

points over the cap. Now, one might argue that that’s administrative bloat. I can assure you that’s absolutely not. That is directly 

related to two things: adding administrative infrastructure to support the faculty. Right now there’s multiple studies that suggest 

that faculty spend about 42 percent of their funded time doing administrative and compliance activities. Our job as administrators is 

to do the types of things that let them do the research and we do 

the administration. 

The other thing we’ve been doing as we’ve discussed in September, eight months ago, from the perspective of new compliance 

requirements, new compliance requirements are coming out at the 

rate of about six or so a year, new regulations. When that happens, 

we spend money on technology, on business processes and people 

to manage it. But there is absolutely no incentive for us to hire additional administrators because we pay for every penny of it. 

From the building perspective, we lose money. We don’t get anywhere close to recovering the cost of a building regardless of the 

type of research, and in support of this testimony today, when we 

submitted our indirect cost proposal to Health and Human Services 

for negotiation, I looked in a handful of buildings, and the example 

I’m about to explain is representative. A 10-year-old building, the 

costs for depreciation and O&M operations and maintenance—is in 

the range of $9 million. We recover somewhere in the neighborhood 

of $2–1/2 million. We subsidize the research mission in that building $7 million. 

So I do agree that some of our buildings have marble floors, but 

that’s not what drives up the cost. What drives up the cost is that 

to support that research, you have to purchase a $2 million DNA 

sequencer in the lab to support that. A piece of that is in the indirect cost rate. You have to put in special HVAC and all the other 

things that we’ve talked about to manage that research. It is not— 

I would suggest it’s not the marble when you walk in the lobby. 

It is everything else that goes to conducting that top-notch research. 

Mr. LIPINSKI. Well, I have to say I didn’t—none of political 

science buildings had marble floors, so that’s all I know. 

My time is up. I yield back. 

Chairwoman COMSTOCK. I now recognize Mr. LaHood. 

Chairman LAHOOD. Thank you, Chairwoman Comstock. 

Mr. Bell, I was going to ask you a question here. I referenced 

earlier in my statement about National Science Foundation Office 

of Inspector General had released several, I guess, routine audits 

regarding several universities and research institutions and their 

use of indirect costs to cover travel expenses. As a result of one of 

those audit reports, the OIG is pursuing an ongoing investigation 

into the misuse of federal grant dollars for travel unrelated to the 

purpose of the grant, which was awarded to cover the development 

of a research institute. The OIG has questioned over $36,000 in 

travel expenses including over $12,000 covered by indirect costs. 
71 

Mr. Bell, because this case was egregious enough to warrant an 

ongoing investigation by the OIG, what measures does NSF take 

to track indirect costs and ensure that federal funds go toward direct research expenses and not other things? 

Mr. BELL. Thank you for the question. So in terms of tracking 

costs both direct and indirect, there are a number of activities that 

NSF uses. One of them is one that you have pointed out, which is 

the oversight and analysis done by our Office of Inspector General. 

That is one way in which we ensure that the policies and procedures are in place—OIG audits. 

Another mechanism that we use is something called single audit. 

Any organization that expends over $750,000 of federal funds is required to conduct an audit, and that audit looks at internal controls, looks at financial statements, and that information is then 

summarized in the audit and then uploaded to a federal audit 

clearinghouse, and the idea here is that we don’t want just any one 

agency getting access to this information. Cognizant agencies for 

audits are responsible for taking those single audits and reviewing 

them and resolving those audits to ensure these organizations are 

meeting the expectations outlined in the Uniform Guidance. 

The third thing that we do is, we have advanced monitoring programs, both where we do some transaction testing on site to ensure 

that internal controls are in place, and we do transaction testing 

at a baseline level where we randomly check various transactions, 

track them back to how those costs were reimbursed, how they 

were spent, both from a direct and an indirect basis. 

Chairman. LAHOOD. And I guess following up on that, Mr. Bell, 

have you found that those mechanisms that are currently in place 

have had a deterrent effect on any other type of egregious allegations and that it has worked well or is in need of review? 

Mr. BELL. So to begin with, we are in full compliance with the 

Uniform Guidance on oversight monitoring and indirect cost rate 

management, so that’s our starting point. In terms of how we’re 

doing, we believe that our advanced monitoring program and the 

other points with which we interact with awardees in fact does protect and serve the taxpayer. An example is we’ll often during our 

advanced monitoring uncover things that don’t seem right to us 

that could border on fraud. We forward those to the Office of Inspector General for investigation. We also work very closely with 

our Office of Inspector General during audit resolution. Resolution 

is the point at which the management takes that information and 

figures how best to move forward including things like the returning of funds or corrective action to support internal controls. 

Chairman. LAHOOD. And you’re confident with the system that’s 

in place now? 

Mr. BELL. I am. I am, and there is always room to get better. 

With over 2,000 awardees and 45,000 active awards, there’s always 

an opportunity for us to improve, which is why we appreciate the 

oversight from this organization and from my colleague to the left 

at GAO. 

Chairman. LAHOOD. Thank you. Those are all my questions. 

Chairwoman COMSTOCK. I now recognize Mr. Beyer. 

Mr. BEYER. Thank you, Chairman Comstock. 
72 

Mr. Bell, in Dr. Vedder’s presentation, he made an argument for 

uniform national reimbursement rate, and among other things, he 

said that the current system of negotiated rates favors the wealthier schools over other institutions, you know, HBCU schools or 

smaller state schools and the like. How do you respond to that, and 

why is that insight not correct? 

Mr. BELL. So my first response is that we are the cognizant 

agency for about five percent of the organizations that receive NSF 

funding, and 91 percent of those organizations are colleges and universities, for which the cognizant agency for them is HHS and 

ONR. 

Mr. BEYER. Let me jump beyond that. I realize that you aren’t 

determining the rates because you’re not the cognizant agency but 

you still have to administer those 22,000 grants, the $7 billion. So 

whoever makes the rate, they’re negotiated now across all 100 percent. 

Mr. BELL. That’s correct. 

Mr. BEYER. Does the negotiated rate actually help the Harvards 

and the Princetons and disadvantage the Virginia States and the 

Norfolk States? 

Mr. BELL. I wouldn’t be able to give you specific information but 

perhaps I’ll give you a general statement. A cap means that some 

organizations would have to—would under-recover indirect costs, 

and as we’ve described, indirect costs are real costs in support of 

executing research. So a cap could mean that organizations would 

not be able to recover. Some organizations are in a better position 

to absorb under-recovery. Those would be organizations who have 

access to other types of funds, which could include endowments, 

could include raising tuition, or other sources of funding. So organizations that are unable to absorb that under-recovery would not be 

able from an economic standpoint to actually participate in the research enterprise. 

Mr. BEYER. Okay. Thank you. 

Mr. Neumann, again, referring to Dr. Vedder’s comments, number one, he pointed out that the research grants are so good for colleges and universities that they actually give kickbacks to the professors who get them and that they’re incentivized to get more. He 

also suggested later that in arguing for uniform national reimbursement rate that if 30 percent were adopted, universities would 

complain bitterly but still apply for grants as vigorously as ever. 

From a Duke perspective, is that how you guys feel about the 

grants, kickbacks, and would you compete as vigorously as ever 

with a 30 percent cap? 

Mr. LUTHER. So two questions. With regard to the kickback, we 

do return some of the recovery back to the department and to the 

school but we do that because that’s where the cost is, so 20 years 

ago we didn’t do that. We kept much of the indirect centrally and 

we paid rent centrally, we paid facilities centrally, and there was 

no incentive for the schools to manage their space effectively. When 

the revenue follows the cost, the incentive is completely different. 

So if they have vacant space, that space that they don’t pay for, 

they don’t get any indirects related to that, and it’s managed centrally so that it can be used more effectively. 
73 

So the kickbacks, I would say the first point on that is, the indirect costs are reimbursement for costs that we already incurred. 

The fact that the revenue comes in and we do something else with 

it I would suggest is completely irrelevant. But secondly, as I just 

stated, the reason we return that back to the faculty member, back 

to the department is to incent responsible behavior and because, as 

I mentioned, Duke contributes somewhere in the neighborhood of 

$125 million a year to the research mission sending that back to 

the department so that they can buy computers, which are difficult 

to purchase on grants, so that they can fund post-docs and graduate students, which aren’t always funded on grants. That’s why 

we do that type of thing. And I’m sorry, I forgot the second question. 

Mr. BEYER. If there were a 30 percent cap, would you pursue the 

grants as vigorously as before? 

Mr. LUTHER. What troubles me about that is, I don’t know what 

the long-term impact on that is, but you wouldn’t have the breadth 

of the research institutions you do now. We fund that $125 million 

a year of the research mission that the federal government doesn’t 

fund with philanthropy and with clinical margins and other things. 

I don’t know how other institutions would do that with pressures 

on tuition, with smaller endowments and so forth. Right now the 

way the research works now is the research is solely focused on the 

institution that submits the best proposal from a scientific standpoint, from a peer-review standpoint gets the award, and sometimes we absorb more indirect costs than others but that’s how the 

system works. It’s not about funding. It’s not about the indirect 

costs. 

Mr. BEYER. Thank you. Mr. Chair, I yield back. 

Chairman. LAHOOD. [Presiding] Thank you. I now yield five minutes to Mr. Palmer. 

Mr. PALMER. Thank you, Mr. Chairman. 

Mr. Neumann, why do university awardees receive the highest 

averaged budgeted indirect costs? I think it’s 27 percent in 2016 

compared to other awardees? 

Mr. NEUMANN. Well, we’re still evaluating the reasons for that 

but NSF has told us, you know, some of the things that they believe goes into that, and a lot of it is just the nature of the research 

being done, the facilities that are needed for that research, and I 

think the important thing is, we’re looking at the data at a high 

level, and to really understand what that data means, you need to 

go down to almost an award-by-award level so you’re comparing apples to apples, you know, university to university to see what 

you’re paying for the same type of research, and so I think that’s 

the level of analysis you would need to understand some of the reasons for the universities being higher. 

Mr. PALMER. We’re talking about an average so that means it’s 

pretty uniform, routine that it is higher. I think it raises some concerns about the budgeted indirect costs. 

Let me ask you this. For an organization to be reimbursed for 

indirect costs, it must have a negotiated indirect cost rate agreement with the federal agency. How can this process be improved 

at NSF? 
74 

Mr. NEUMANN. Sure. I think what we’re seeing is that there 

should—we’d like to see consistency in applying the guidance for 

the rate-setting process, make sure that there is supervisory review, and that the guidance is clear. I think that’s going to be really important to ensuring that you have, you know, effective processes for managing indirect cost rates, having, you know, the data 

being helpful in identifying where the indirect costs might be growing if they are having that guidance and ensuring that staff are implementing it correctly. 

Mr. PALMER. Your agency, the GAO, released two reports on NIH 

and indirect costs. Were you findings for NSF similar to those previous findings or were there any significant differences? 

Mr. NEUMANN. On the rate-setting process, we had similar findings in the NIH report where we saw some—there could be some 

improvements in the internal control for the rate-setting process including supervisory review and having clear guidance, particularly 

for changes that came out of the Uniform Guidance in 2014. 

Mr. PALMER. Well, GAO cited some deficiencies in oversight of 

grants, indirect cost claims by agency watchdogs. Are we seeing 

adequate amount of scrutiny on these grants, on the indirect cost 

claims? 

Mr. NEUMANN. Well, the NSF IG has continued to monitor that 

and has done a number of audits over the years and continues to 

do that, and we understand NSF has some things in place that 

they do to monitor the expenditures, but we did note in our statement that NSF doesn’t have complete data on expenditures of indirect costs. It’s more done at the planned award budget level. So 

NIH, for example, does have that data on indirect cost expenditures that may be useful if you were trying to monitor any improper use of indirect costs. 

Mr. PALMER. Well, Mr. Dodero and I have had several conversations about the problem of improper payments and how do we stop 

that. Let me ask you this. What are the penalties for organizations 

that have found to have charged inappropriate indirect costs? Are 

they penalties sufficient to ward off bad actors? And by the way, 

just for the rest of the Committee’s information, the improper payments last year were $133.7 billion. That’s money we had to borrow 

since we’re in a deficit, so I’d like to know if there’s anything that 

we can do at any level of the federal government, and particularly 

right here, since that’s the topic of this hearing, to ward that off? 

Mr. NEUMANN. I think there’s some similar themes in terms of 

this case as well, and that would be just having the data, analyzing 

that data to know where there might be anomalies and then being 

consistent in implementing the guidance for the indirect cost rate 

process and having the ability to review that information when expenditures come in. 

Mr. PALMER. I appreciate your answers. I thank the witnesses for 

being here today. Mr. Chairman, I yield back. 

Chairman. LAHOOD. Thank you. I yield five minutes to Mr. 

McNerney. 

Mr. MCNERNEY. Well, I thank the Chairman and I thank the 

Committee for having this hearing. My daughter’s a research scientist, and this is an area that’s very dear to her. 
75 

Mr. Neumann, Chairman Smith in his opening statement 

claimed that indirect costs are increasing over time. Do you agree 

with that assessment? 

Mr. NEUMANN. We noted variation in the indirect costs over the 

17-year period we looked at from 16 to 24 percent, and there was 

increase from 2010 to 2016 if you look at just those years. What 

we haven’t looked at yet is what is the reason for that, what’s behind that data. Are we looking at increases in the amounts of cost 

for the same types of awards or is it just the mix of research that 

goes into each year that’s different from year to year and so there 

would be different types of indirect costs included in there. 

Mr. MCNERNEY. Thank you. 

Mr. Luther, you indicated that federal funding does not cover the 

indirect costs at the universities. What is your understanding of 

why universities are unable to recover their costs? 

Mr. LUTHER. Could I address the previous question just for one 

moment? 

Mr. MCNERNEY. Sure. Absolutely. 

Mr. LUTHER. What we’ve seen and I think it’s actually federal 

data is that at least as far as NIH, one funder, that the rate of 27, 

28 percent has been consistent for decades. So the funding has 

gone up, F&A has gone up, regulations have gone up, but as a percentage of the direct funding, it’s been relatively stable. 

Mr. MCNERNEY. Okay. Thank you. 

Mr. LUTHER. With regard to why we can’t recover, I think there’s 

a number of things. One is the administrative cap that was put 

into place in 1991 caps all administrative costs at 26 percent. That 

number has not been indexed up. It’s been 26 percent for 27 years. 

And as I’ve mentioned, the regulatory requirements have changed 

significantly, and so the compliance requirements have changed 

significantly. And again, we absorb every incremental dollar of administrative or compliance activities from the A part of the F&A. 

With regard to the facilities, again, I would suggest that the cost 

of research is increasing significantly based on the type of research 

we’re doing. So again, as the federal budget tightens sometimes, 

Duke University, many universities, public, private, big and small 

make decisions to purchase equipment to do things different—to 

build buildings, to renovate existing space to meet the new type of 

research that’s coming down the pike. It’s expensive, and we don’t 

recover all those costs. That’s known going in, but from the standpoint of what does it mean to have a state-of-the-art building that 

supports, whether it’s a Nobel prize winner or a researcher, there’s 

undergraduate students, graduate students that interact through 

those labs, the ecosystem, the value of that across the entire ecosystem is significant, and so we know going into those decisions 

that we build buildings for that broader base. 

Mr. MCNERNEY. Well, Mr. Vedder described a vicious cycle in 

which indirect costs go to justifying indirect costs. Could you respond to that? 

Mr. LUTHER. Well, so I would suggest the competitive cycle’s 

really critical. The hit rate on grants has dropped significantly so 

there are a lot of proposals that are being submitted. But as far 

as institutions that there’s incentive to spend administrative dollars or F dollars, the facility costs, we pay every incremental dollar 
76 

for administration, and again, for every research dollar that comes 

in the door, we pay 30 to 40 cents on the dollar. So we’re not making money on the research endeavor whatsoever. 

Mr. MCNERNEY. The National Laboratories don’t seem to be represented here this morning. Can anyone speak to the—or can anyone quantify any difference in overhead at the national labs as opposed to the universities? I guess that you would be you, Mr. Neumann. You’re shuffling through papers. 

Mr. NEUMANN. So we did have a category in figure 2 of our statement for federal and that included the National Laboratories. It 

was eight percent. But again, we’re still evaluating, you know, 

what the differences mean. This is just high-level data that lays 

out what the actual percentages were for the one fiscal year, so 

we’d want to do a little more evaluation to understand what’s behind that number. 

Mr. MCNERNEY. So you wouldn’t have an explanation for that 

difference? 

Mr. NEUMANN. No, but we can get back to you with a response 

for the record. 

Mr. MCNERNEY. I would appreciate that. 

Mr. Luther, what—well, I’m out of time so I’ll just yield back. 

Chairwoman COMSTOCK. I now recognize Mr. Hultgren for five 

minutes. 

Mr. HULTGREN. Thank you, Chairwoman Comstock. Thank you 

all for being here. This is an important conversation for us to continue to have and I’m really grateful. It’s so important for us as we 

go back talking with our constituents to make sure that we are getting the best bang for taxpayer dollars in research and committed 

to making sure that the resources continue to be there. 

I’ve been a staunch advocate in our role as federal government 

in basic scientific research funding and the research that really 

can’t be done by the private sector, the stuff that we have to be 

doing, and recognizing often unintended results decades after initial results that again the private sector just can’t put a plan together to do that, but that’s the kind of work we see every day in 

our great research and in our labs. 

I’m also looking for ways in which we can do this in the most 

efficient manner as I know all of us are. The compliance costs and 

regulatory burdens for universities I believe is too high, and with 

the passage of the American Innovation and Competitiveness Act, 

I hope these processes we’ll put in place will be able to tackle that 

problem. 

At the end of the day, I’d rather have more taxpayer money 

going to research than new lawyers or compliance officers. Many of 

us would share that. 

This hearing has been focused on facilities and administrative 

costs, or F&A, where we could have greater transparency and potential savings. I’ve heard from a number of my universities that 

they actually spend more on F&A than are reimbursed by the government, most showing a reimbursement rate of about 75 percent. 

I am wondering, and I’d kind of throw this out to all of you, regulatory compliance contributes to the cost of F&A. What actions 

could the federal government take to reduce this regulatory burden 

and help ensure that researchers’ time is spent productively? I’ll 
77 

throw it out to any of you if you have a thought or two. Mr. Neumann? 

Mr. NEUMANN. Yes. Last year, we issued a report regarding the 

federal research requirements for universities in particular, and we 

identified a number of opportunities for streamlining some of the 

requirements. Even though we have the Uniform Guidance that 

OMB put out, agencies still have some flexibility in implementing 

those guidance, and—that guidance, and we found agencies did do 

so differently and so that created some additional workload for the 

universities that we met with. 

Mr. HULTGREN. Mr. Luther? 

Mr. LUTHER. The only thing that I would add to that is, you 

know, as we collectively look at this, whether it’s COGR or AAU 

or the Federal Demonstration Partnership, which is a combination 

of universities and federal representatives that work together on 

these things, you know, I think our greatest concern is that much 

of this burden falls on the individual faculty members, so they’re 

the individuals that should be in the lab getting the work done and 

instead they’re doing compliance and administrative responsibilities. So we take that very seriously. 

The other part is just the sheer cost of that, and I think over the 

past six months and certainly longer than that, there is a growing 

list of recommendations. Again, from my COGR role, we have a 

number of lists that we would suggest opportunities for reducing 

burden, and this isn’t suggesting that the regulations all in all are 

bad around human subject management but it’s suggesting that 

there’s betters ways to do it with less burden. And so I think 

there’s lots of opportunity to address those types of things, and 

again, I think in the GAO report and the National Academies report from a year or so ago, there were great recommendations 

along those lines. 

Mr. HULTGREN. Mr. Luther, maybe you can drive in a little bit 

deeper on that. In your testimony, you talked about the regulatory 

burdens for carrying out federal research. As we cut to those regulatory burdens on academic research, isn’t there an opportunity to 

also bring down administrative costs as well? 

Mr. LUTHER. Yes, I think there is, absolutely. You know, but 

again, to state that, reducing the regulatory burden is a great idea. 

That’s not necessarily going to have any impact on the F&A costs 

because, again, we’re many points over the administrative cap, 

right? So reducing that burden reduces the ability to direct those 

funds towards programmatic missions, academic, research and 

other missions so absolutely, that’s what we should be focusing on. 

Mr. HULTGREN. Mr. Neumann, with the seconds I have left, for 

an organization to be reimbursed for indirect costs, it must have 

negotiated an indirect cost rate agreement with its cognizant federal agency. How can this process be improved by NSF? 

Mr. NEUMANN. As I noted previously in my statement, we are 

seeing some opportunities for the NSF guidance to be implemented 

consistently as well as opportunity to provide more details to the 

NSF staff so they can be consistently implementing the guidance 

particular when it comes to supervisory review and then applying 

the uniform guidance changes that came up in 2014. 
78 

Mr. HULTGREN. Thank you. My time is expired so I yield back 

the balance of my time. Thank you, Chairwoman. 

Chairwoman COMSTOCK. I now recognize Dr. Marshall. 

Mr. MARSHALL. Thank you, Chairwoman. 

My first question, I think Mr. Bell or Mr. Neumann can answer 

it. Let’s suppose the top biosecurity research center in the country, 

Kansas State University, has ten different studies they’re doing. 

When you negotiate an indirect expense rate with them, cost, do 

you do it per study or does the university just get one negotiated 

for the year? 

Mr. BELL. So because it’s a college or university, it is negotiated 

either by HHS or ONR. It is done at an organizational level, not 

an award-by-award level. 

Mr. MARSHALL. And at the end of each year you go through the 

finances and you reconcile that, so to speak? 

Mr. BELL. It depends on the type of rate that is negotiated. I believe HHS and ONR typically use four-year predetermined rates, 

that is, they look at the stability of the organization and whether 

or not the ratio fluctuates over time and then they establish a predetermined rate. Now, that predetermined rate means that you 

only negotiate it once so you’re reducing administrative cost. However, you can potentially under-recover with no recourse or you 

could potentially over-recover. And you’re exactly right that the 

basis of these negotiations are audited financial statements or 

other financial information. 

The other thing is that cognizant agencies have the flexibility for 

creating a rate structure to most equitably distribute costs. So one 

study may have a different indirect cost rate if it in fact is using 

a totally separate set of infrastructure, and this is why I think this 

topic is ‘‘sexy’’ because there is a lot of complexity. It’s an easy concept: how do we share these indirect costs appropriately? The hard 

part is, well, what’s the best way to do it, and currently, Uniform 

Guidance really provides the way that at least we’re doing it all the 

same way across the government. 

Mr. MARSHALL. Okay. Mr. Luther, this one’s for you. As I understand it, foundations and philanthropic organizations account differently for research expenditures, allowing some costs to be included as direct research expenditures at the federal government 

does not allow. Can you talk a little bit about apples and oranges 

in the way we’re comparing foundations will pay for F&A costs 

versus the other entities? 

Mr. LUTHER. Certainly. So you’re exactly right. The foundations 

will often pay for the things the federal government won’t, number 

one, and number two, when they apply that rate, it generally applies to all costs. There’s no modified total direct cost. And so the 

recovery mechanisms and the costing mechanisms are truly different. And as I mentioned briefly, many times foundations fund 

research that’s considered off campus so truly the rate that is compared to many foundations should be to like a Duke University’s 

off-campus rate, which is 26 percent, as opposed to our full rate because of the type of research that’s being conducted. 

Mr. MARSHALL. Okay. I’m going to stick with you, Mr. Luther. 

My universities obviously are very concerned about this and are 

helping to educate me. Is it also your understanding that the cur-
79 

rent OMB rules strictly prohibit federal reimbursements that will 

subsidize research sponsored by foundations when they don’t pay 

for full cost for research including the required F&A costs? 

Mr. LUTHER. That’s correct. So we just submitted our indirect 

cost proposal to Health and Human Services three months ago, and 

in that proposal, the way we developed the cost allocation, the sexy 

aspect of the cost allocation is to make sure that the federal government does not subsidize one penny of foundations, industry or 

anything else. It’s just the structure defined by the Uniform Guidance doesn’t allow that to happen. 

Mr. MARSHALL. My last question. Why is there a difference in the 

rate non-federal research sponsors pay for these facilities’ administrative costs? 

Mr. LUTHER. So again, many of these foundations have a different mission and a different relationship to universities. As we 

talked about in the very beginning, this partnership was about the 

federal government going back 50 years sharing in the development of the infrastructure. The Gates Foundation is paying for incredibly important research at Duke University, and it’s partnering 

with Duke and NIAID around creating an AIDS vaccine, but it’s 

funding some of the incremental and critical costs that allow that 

research to continue, especially when there’s been federal funding 

gaps. 

Mr. MARSHALL. I’m going to squeeze in one question. I think it’s 

back to Mr. Neumann and Mr. Bell. 

Mr. Luther says there’s geographical differences. Why would that 

matter? If electricity is cheaper at Fort Hayes State University or 

Kansas University than it is at North Carolina, why can’t we use 

that to our advantage in saying that we can actually do more with 

less as long as our outcomes are good? 

Mr. BELL. So really, the issue there is that whether or not an 

idea, or the location of an idea, or whether a researcher comes up 

with an idea; it’s the value of the idea and the potentially transformative nature of that idea, and that should not be a component 

of evaluating whether or not we should fund it. So if you have a 

full portfolio that you’re reviewing based on the merit review criteria—that’s intellectual merit and broader impact—those are the 

drivers on whether or not you try to fund something, not whether 

or not their indirect cost rate is high or low. 

Chairwoman COMSTOCK. And actually I’d like to follow up. 

Dr. Vedder, you had talked about maybe taking in competitive 

factors and other things into account. So can you expound upon 

that a little bit on evaluating research proposals how if there 

weren’t going to be a cap because that could have other issues with 

it, what kind of factors and how would they be utilized? And I’m 

thinking in the context of having a more diverse research pool but 

also sort of getting more bang for our buck and then maybe providing an incentive for some of the others that have high overhead 

cost to maybe finding their way to balancing it if that were a competitive factor? 

Dr. VEDDER. Yeah. As I understand research grants now, when 

a group of scientists evaluates an NSF proposal, they view it strictly on its scientific merit—is this the best proposal—and they rank 

a series of proposals from best to worst, and they’re putting pri-
80 

mary emphasis on the quality of the research. But in the real 

world, we have resource constraints and dollars matter. You ought 

to know that here in Congress with all the budget talks and so 

forth. 

So what is wrong with the idea that after we’ve done the consideration of scientific merit on a proposal and that we make that the 

prime determinate of whether the award will be made that we 

couldn’t give some secondary weight to how little money the university asks for the non-purely scientific dimensions of their research? Why shouldn’t a university be able to bid as we bid in everything else in life, and if we are willing to do the work at a low 

cost in terms of the administrative side of things, why shouldn’t 

that be given some favorable consideration in the evaluation of the 

grant? That was one of my research ideas. 

The other thing I pointed out, Chairman Comstock, was we 

spend an awful lot of time talking to researchers and auditing, investigating, checking, did you do this, did you do this, is this over 

the cap, is this under the cap. There’s a lot of people, and I talk 

to researchers all the time and says there’s too much of that, why 

don’t you just put a—this is another approach. It’s a different idea. 

And it’s been introduced before. The Obama—it’s a nonpartisan 

thing the Obama people—it was pushed in the Obama Administration. Why don’t we just put a flat rate? We can argue whether the 

rate ought to be 20 percent or 30 percent or what. Everyone will 

get that. The basic research grant will be approved, whatever, and 

then we’ll add that on, and we won’t spend as much time and resources as we do going through all this other stuff. 

So those are two alternatives approaches that I think at least 

ought to get some discussion. I’m not talking about the amount of 

money on scientific research here. I’m talking about the allocation 

of that money between alternative uses, and that’s an altogether 

different issue, and so that’s—I don’t know if—that probably didn’t 

answer your question. 

Chairwoman COMSTOCK. No, that was—— 

Dr. VEDDER. But I’m a college professor with tenure and I answer any question I want. 

Chairwoman COMSTOCK. Thank you. I appreciate it. Did anyone 

else have a comment on that? Mr. Bell? 

Mr. BELL. So Dr. Vedder does point out that merit review is a 

primary component of the NSF approach. We have panelists of experts that evaluate against the two criteria, intellect merit and 

broader impact. Our program officers then use merit review as a 

component of trying to decide what is the correct, or the best portfolio, so that may mean that it’s not just merit review, it could be 

that there are two ideas that are both equally good but you may 

just need to fund one of them. So it’s not whatever scored highest 

gets funded. There are experts, program officers who are responsible for managing that portfolio. 

Chairwoman COMSTOCK. So you’re suggesting that some of that’s 

already being incorporated? So it would be like if a college got two 

exceptional students that are equal otherwise, they might look and 

say but this person has had a tougher time or, you know—— 

Mr. BELL. That’s exactly right. 
81 

Chairwoman COMSTOCK. —or fewer opportunities and so already 

factor some of that in now? 

Mr. BELL. Right. We have program officers bring their expert 

judgment to the table. It’s not rack and stack, draw a line, you’re 

done. It’s do we have enough geographic diversity, do we have 

enough new awardees and established awardees. So there are other 

factors that play into the merit review process. 

Chairwoman COMSTOCK. Thank you. And Mr. Lipinski, I’ll recognize him for second round. 

Mr. LIPINSKI. Yes. Thank you, Chairwoman. 

I want to follow up. I understand—I appreciate the fact that Dr. 

Vedder has tenure and can say whatever he wants to say. I want 

to follow up on the proposal that Dr. Vedder had for scoring research proposals in part based on what they would cost. I understand sort of on the face of it it makes some sense. Now, NSF never 

did exactly that but in the past they did favor research proposals 

that came with higher cost-sharing commitments. In 2004, NSF 

ended voluntary cost-sharing except for unique programs such as 

the Industry-University Cooperative Research Centers. 

Program officers are always under pressure to stretch their budgets as far as possible, and when cost-sharing was used as leverage 

in negotiations, scientific merit and impact was too often downgraded as a factor in award decisions. That was the concern that 

NSF had and why they ended that. So I want to ask Mr. Luther 

what your thoughts are on the effect Dr. Vedder’s proposal to score 

research proposals based on cost would have on research and researchers ta university? 

Mr. LUTHER. Thank you. A couple thoughts. My first thought is, 

I mean, I completely get the idea of factoring in cost. My concern 

is that would significantly reduce diversity. It’s going to be universities that can cost-share the most that are going to win those 

awards, and that’s—as a large private, that certainly benefits a 

university like Duke. I don’t know that it benefits the broad research mission. And that would be my greatest concern, number 

one. 

Number two, you know, we often make decisions on cost, and I 

was talking to a faculty member several days ago about a grant 

that was trying to maximize how many genomic array tests it could 

do, and the individual had X amount of money. We went out to the 

lowest bidder, and when it was all said and done, the quality that 

came back wasn’t sufficient, and we had to rerun all of those tests 

internally at Duke’s expense to make sure that the data was valuable. 

That’s my only concern about factoring in the cost too much is 

that would reduce diversity across institutions, and sometimes— 

and as economist you would probably agree, sometimes you get 

what you pay for, and my concern is that diversity and the best 

science should always be number one. 

Mr. LIPINSKI. The concern that I have is that you start a race 

to the bottom in some ways and that some universities will just 

start cutting that because they’re looking—they don’t have enough 

of a view of the long run and the long term. We certainly see, especially—I’d asked earlier about public universities. I know public 

universities are under a lot of pressure right now. Certainly the 
82 

University of Illinois is. And I would sort of hate to see it be a situation where we need the money in the door right now so let’s say 

our indirect costs are going to be lower, and in the long run then 

you’re really—again, you’re giving up. Your facilities are just going 

to suffer. Everything for the long term, in the long run is going to 

suffer for the immediate impact of maybe getting more research 

dollars in the door today. So that’s also a concern that I have. 

I thank everyone very much for their testimony on this. It’s certainly an important issue. We all want to stretch research dollars 

as much as we can, and I think we should continue this discussion, 

and as Chairwoman Comstock said, we’ve worked on reducing regulatory burden. I think on this Committee we have that role of 

helping with that, and I want to continue to make sure that we do 

that. 

So I yield back. 

Chairwoman COMSTOCK. Thank you, and I thank the witnesses 

for their testimony and their insight today and the members for 

their questions. The record will remain open for two weeks for additional written comments and written questions from Members. 

And the hearing is now adjourned. Thank you. 

[Whereupon, at 11:45 a.m., the Subcommittees were adjourned.] 
(83) 

Appendix I 

ANSWERS TO POST-HEARING QUESTIONS
84 

ANSWERS TO POST-HEARING QUESTIONS

Responses by Mr. Dale Bell 
85 
86 
87 

Responses by Mr. James Luther 
88 
89 
90 
91 
92 
93 

(95) 

Appendix II 

ADDITIONAL MATERIAL FOR THE RECORD
96 

LETTERS SUBMITTED BY SUBCOMMITTEE CHAIRWOMAN BARBARA COMSTOCK
97 
98 
99 
100 
101 
102 

STATEMENT SUBMITTED BY FULL COMMITTEE RANKING MEMBER

EDDIE BERNICE JOHNSON
103 

Æ