[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://science.house.gov
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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HON. LAMAR S. SMITH, Texas, Chair
FRANK D. LUCAS, Oklahoma EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California ZOE LOFGREN, California
MO BROOKS, Alabama DANIEL LIPINSKI, Illinois
RANDY HULTGREN, Illinois SUZANNE BONAMICI, Oregon
BILL POSEY, Florida ALAN GRAYSON, Florida
THOMAS MASSIE, Kentucky AMI BERA, California
JIM BRIDENSTINE, Oklahoma ELIZABETH H. ESTY, Connecticut
RANDY K. WEBER, Texas MARC A. VEASEY, Texas
STEPHEN KNIGHT, California DONALD S. BEYER, JR., Virginia
BRIAN BABIN, Texas JACKY ROSEN, Nevada
BARBARA COMSTOCK, Virginia JERRY MCNERNEY, California
GARY PALMER, Alabama ED PERLMUTTER, Colorado
BARRY LOUDERMILK, Georgia PAUL TONKO, New York
RALPH LEE ABRAHAM, Louisiana BILL FOSTER, Illinois
DRAIN LaHOOD, Illinois MARK TAKANO, California
DANIEL WEBSTER, Florida COLLEEN HANABUSA, Hawaii
JIM BANKS, Indiana CHARLIE CRIST, Florida
ANDY BIGGS, Arizona
ROGER W. MARSHALL, Kansas
NEAL P. DUNN, Florida
CLAY HIGGINS, Louisiana
------
Subcommittee on Research and Technology
HON. BARBARA COMSTOCK, Virginia, Chair
FRANK D. LUCAS, Oklahoma DANIEL LIPINSKI, Illinois
RANDY HULTGREN, Illinois ELIZABETH H. ESTY, Connecticut
STEPHEN KNIGHT, California JACKY ROSEN, Nevada
DARIN LaHOOD, Illinois SUZANNE BONAMICI, Oregon
RALPH LEE ABRAHAM, Louisiana AMI BERA, California
DANIEL WEBSTER, Florida DONALD S. BEYER, JR., Virginia
JIM BANKS, Indiana EDDIE BERNICE JOHNSON, Texas
ROGER W. MARSHALL, Kansas
LAMAR S. SMITH, Texas
------
Subcommittee on Oversight
HON. DRAIN LaHOOD, Illinois, Chair
BILL POSEY, Florida DONALD S. BEYER, Jr., Virginia,
THOMAS MASSIE, Kentucky Ranking Member
GARY PALMER, Alabama JERRY MCNERNEY, California
ROGER W. MARSHALL, Kansas ED PERLMUTTER, Colorado
CLAY HIGGINS, Louisiana EDDIE BERNICE JOHNSON, Texas
LAMAR S. SMITH, Texas
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
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
EXAMINING THE OVERHEAD COST OF RESEARCH
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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 institutions 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 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.
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 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 high-profile 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 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 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.
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 ensure 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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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 operations 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 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
long-term 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 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:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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 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 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 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.
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.
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.
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?
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.
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 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 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.
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 current 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 primary 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.
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 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.]
Appendix I
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Answers to Post-Hearing Questions
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Appendix II
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Additional Material for the Record
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