GOVERN MENT
R&D Contracts Preferred to Grants Universities see big plus in contracts because indirect costs are completely reimbursable "There is no valid reason whatsoever for the great discrepancy in the treatment of overhead costs under grants as compared to contracts. I strongly urge that we either abolish the grant as an instrument for supporting research or else abolish the discrepancy between contracts and grants and go over to a valid method of reimbursing institutions for the actual number of dollars of indirect costs which they necessarily incur in carrying out research programs." So said Dr. Lee A. DuBridge, president of Caltech, at the latest round of hearings before the House Subcommittee on Science, Research, and Development. The subcommittee, headed by Rep. Emilio Daddario (D.-Conn.), is probing a number of national science problems, including the effect of the current 20% limit on reimbursable indirect costs in federal research grants made to universities. Contract No Bar. Many people believe that a grant is superior to a contract for supporting research at universities. Grants, they say, are easier to administer than contracts, require fewer reports, and involve much less red tape. Dr. DuBridge challenges this belief. At first some universities and some government agencies thought that a
Caltech's DuBridge Reimburse institutions for indirect costs
research grant where allocation of indirect costs was abandoned in favor of a flat rate would be more desirable than a research contract, Dr. DuBridge says. It seemed that the grant would be a simpler mechanism, would avoid some tedious bookkeeping, and, if the rate were properly set, would also cover the costs. This has proved to be an illusion, he says. Bookkeeping costs have not been reduced, he says, because most universities must audit their costs for their contracts anyway. And, under the
present system where indirect costs are set by Congress at no more than 20% of total direct costs, the net result is a gross underpayment of the indirect costs at nearly all colleges and universities. Dr. DuBridge sees no difference between a research grant and a research contract. A research contract is easily administered and is just as effective in supporting basic research as is a grant. If Caltech were to switch completely to research contracts from the present mixture of grants and contracts, it would make no difference in administrative activities, he says. The big plus in contracts is that indirect costs are completely reimbursed in accordance with standard cost allocation principles (see table). Caltech is now making a strong effort to get research contracts instead of grants from government agencies. The reason for this campaign is that the university is spending too much of its own money paying for indirect costs that are not reimbursable under federal research grants. Last year Caltech's unreimbursed indirect costs of research amounted to $360,000, Dr. DuBridge points out. The solution to this problem, he believes, is to pay the full cost of research or to abandon the grant as a
Payment for Indirect Costs Varies with Type of Agreement Costs in $60,000 hypothetical university research project: direct labor $30,000; equipment $10,000; other direct charges $5000; indirect costs $15,000 Contract Direct labor Indirect costs (50% of direct labor) Equipment Other direct charges TOTAL PAYMENT Indirect cost deficit Source:
34
DOD Grant $30,000 15,000
JUNE
Other direct charges
5,000
5,000
Indirect costs (20% of total direct costs) TOTAL PAYMENT Indirect cost deficit
9,000
$60,000 None
1,
$30,000 10,000
10,000
Office of Science and Technology
C&EN
Direct labor Equipment
1964
$54,000 6,000
NIH Grant Direct labor Other direct charges
$30,000 5,000
Indirect costs (20% of labor and other direct costs) Equipment
10,000
TOTAL PAYMENT Indirect cost deficit
$52,000 8,000
7,000
way of supporting basic research at universities. Administration View. "The Administration has consistently supported the full payment of overhead costs and does so today," Dr. Donald F. Hornig, director of the Office of Science and Technology, told the committee. Payment of less than full overhead is sometimes justified on the basis that cost sharing between the Government and the other sources of support of a university is desirable. When cost sharing is desirable, as it often is in the case of equipment grants, it should be explicitly stated and made part of the original negotiations for the grant. These shared costs should cover all costs, both direct and indirect, he says. Universities often contribute to research costs in many ways—for example, by contributing facilities or faculty time—so. that it is unreasonable to enforce cost sharing of overhead to the exclusion of other items, he adds. When overhead costs are not covered by allowances in federal research grants, these costs must be met with money from other sources. To Dr. Hornig this problem poses the question "If acceptance of research grants causes intolerable overhead expenses, why do the universities ask for more each year?" He believes that universities take on grants, despite the cost problems, both as a public service and as a way of strengthening the school. As he sees it, a university is a public service institution which uses several sources of funds to carry out a group of public objectives. If federal grants do not cover all costs, then the extra money must be taken from other needs, such as undergraduate education or support of nonscientific research. In deciding how it can render maximum service to the nation, a university often concludes that it is advantageous to take a small amount of money from its English literature program, for example, to support a large amount of research in chemistry or physics. Repetition of such actions could upset the balance and structure of a university. A university has many scholarly functions to perform, while federal funds usually support science. Thus a policy which diverts private funds from the education of students or the performance of scholarly research in nonscientific areas is not in the national interest, Dr. Hornig says.
House Approves NSF Budget 1965 budget rides smoothly through House with only $67 million cut House treatment of the National Science Foundation's fiscal 1965 budget has pleasantly surprised some Washington scientists. After a drastic budget cut last year, NSF officials were anything but optimistic before their appearance this year before the House Appropriations Subcommittee. However, after hearing testimony on NSF's proposed 1965 budget, the committee approved the budget with only a $67 million cut. NSF had been asking for $487 million, $134 million (or 38%) more than it received in fiscal 1964. Also without any debate, the full House went along with the committee's action. The budget is now scheduled for the Senate, where judging from past actions, the $420 million approved by the House may be increased a little. This selective carving of the budget is in sharp contrast to last year's axwielding methods of the House committee. NSF had asked for $589 million for fiscal 1964; the committee approved only $323; $30 million more was finally added to the mutilated budget. While chopping the budget last year, the committee voiced disenchantment with the growing government support of research. Judging from the treatment of NSF's fiscal 1965 budget, the committee's view apparently has changed. The extent of this change is shown by the committee's specific approval of $25 million for developing centers of excellence in science and engineering (C&EN, April 6, page 3 5 ) . The committee called this program " . . . one of the best methods to truly broaden the development of scientific and engineering knowledge in every part of the Nation More than 25% of the money approved by the House—$125 millionis earmarked for support of basic research projects by NSF in 1965. Of this amount, $70.7 million will be used to support research in the physical sciences; $10.7 million will be channeled to support research in chemistry. The amount of money spent by NSF to support basic research in chemistry has been growing at an average rate of 14% per year from 1961
to 1965 (using NSF's projected 1964 and 1965 figures). However, during this same period the dollar value of proposals received for support of research in chemistry has averaged a growth rate of 36% per year. This fiscal year NSF expects some $75.5 million worth of chemical proposals. The foundation estimates it will hand out $9.7 million in grants for basic research in chemistry. Thus 12.7% of the dollar value of chemical proposals received will be supported. Physics, on the other hand, will turn in an estimated $67.8 million worth of proposals to NSF in fiscal 1964. The foundation will support about $12.9 million worth of these proposals. Thus 19.0% of the dollar value of the proposals received will be supported. While some may not be entirely satisfied with NSF's support of chemistry in relation to other physical sciences, the foundation has recognized one important need of chemical research people and plans to fill this need in its 1965 budget. Included in the budget is $1.7 million for support of specialized research facilities for chemistry. In the past, NSF has provided funds for specialized research facilities under a program of this name. This year some $19.2 million is budgeted for the program. The physical sciences and engineering research facilities will receive $8.4 million. Funds for chemical research facilities have come out of the basic research grants program. Thus of the $9.7 million NSF plans to spend to support chemical research this year, about $1.5 million will go for specialized research facilities (mass spectrometers, flame photometers, and the like). In 1965 this will no longer be true. The $10.7 million budgeted for basic research grants in chemistry will go for basic research. And $1.7 million will go for research facilities. However, this is far below what NSF estimates to be the need for such facilities. In questioning universities, NSF found that about $14 million is needed for research instruments. In NSF's words ". . .only a small portion of the most urgent requirements can be provided." JUNE
1, 1964
C&EN
35
