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Guest editorial:
Underrating the overhead

By SAMUEL C. SILVERSTEIN, M.D.

THE EXPENSES THAT universities incur in supporting research are legitimate and necessary. Recognizing this, the government reimburses each university in proportion to the fraction of all research at the university that is government-sponsored. In government grant jargon, these expenses are known as indirect costs. In plain English, they are known as overhead.

Webster's Dictionary defines overhead as "expenses not chargeable to a particular part of the work." Since Webster's eschews jargon, there is no listing for "indirect costs," but it defines "indirect" as "not straightforward and open: deceitful." No wonder indirect costs are misunderstood. This pejorative term should be replaced with one everyone understands, such as overhead.

Whatever it's called, no other subject elicits discord between university scientists and administrators as readily. Many scientists complain that their institution is not providing services commensurate with the indirect cost monies it receives from their grants. However, most scientists do not know how indirect costs are calculated, what services and expenses they are meant to cover, or how they are spent. There are two principal reasons for this.

First, grant instructions­­which go into detail about items of such cosmic importance as the maximum number of characters permitted in an application's title­­provide no information on the services institutions are expected to provide for the indirect cost monies they receive. The Public Health Service's grant application booklet mentions the subject exactly once, on page 32: "3. Indirect Costs­­see Checklist. Self explanatory." Federal granting agencies should include indirect cost information in their grant instructions, with a general description of the services universities are expected to provide.

Second, universities give the faculty little information on uses of indirect cost monies. No wonder many scientists feel taken for a ride and are publicly unsupportive of indirect costs.

Universities and scientists have a vested interest in demystifying these costs. It will be impossible to convince either the public or Congress that indirect costs are justified while scientists are telling them otherwise. Enlightened self-interest suggests that education of university scientists is the most effective method for achieving this goal. And if self-interest is not sufficient, professional pride should be. After all, education is what we in universities claim as our special expertise. At a minimum, universities should provide faculty with descriptions of the services that indirect costs cover, from the mundane (the frequency of janitorial services in the lavatory and the laboratory) to the sophisticated (e.g., e-mail, libraries, the animal facility). These materials should describe yearly costs incurred by the university for light, heat, water, chemical waste disposal, radiation safety, the Institutional Review Board, the animal care committee, the mail room, purchasing, personnel, grants management and administration, debt service, depreciation, etc., in support of a "typical" grant with direct costs of $100,000 per year. Students and faculty might be more mindful of turning the lights off if they knew the cost of leaving them on.

Scientists in each institution should form a committee of users of these services. This committee should monitor whether services are provided in a cost-effective, user-friendly manner. Dissatisfied users should complain to their department chairmen, deans, provost, president, and trustees­­not to Congress, which can't fix these problems. Their solution requires tradeoffs and a willingness to seek fresh answers. Blaming university administrators will accomplish nothing. Working with them to reallocate resources is more likely to improve the situation and surely will lead to a better understanding of it.

Some scientists, and a few Congressmen, point to the marked variations in indirect costs between different institutions as evidence of inefficient management. Yet a substantial portion of these variations is due to regional differences in costs. Electric power is four times more expensive per kWh in New York City than in Seattle, which receives federally subsidized power from Columbia River dams. If the real cost to the taxpayer of these dams were included, I have no doubt that Washington State power would be at least as expensive as Con Edison power.

Indirect costs pay for a portion of all research support services. Not every investigator uses every service every month, but unless all grants contribute to their support, these services will be prohibitively expensive. Who among us would refuse to support the library because he or she did not use it for a month? Who wouldn't contribute to the costs of radiation safety, whether or not our own labs use radioisotopes? If we are to have full-service research institutions, we must pool our resources to support a full range of research services.

Indirect costs constitute approximately 33 percent of all monies provided by federal research grants. Universities have strong incentives to keep these costs down. Indirect costs pay only for the portion of research that is federally funded. Most private foundation and voluntary health agency grants provide little or no indirect cost support. Thus, it costs Columbia substantially more than the $67,000 it recovers in indirect costs to provide support services for a federal grant with direct costs of $100,000. When the overhead for all sponsored research­­public and private­­is considered, universities share a considerable portion of the costs.

Indirect costs on federal grants are closely audited by both university and government accountants. Whistle blowers and auditors who identify intentional overcharging are rewarded with a substantial percentage of the monies the government recovers. In 1995, payments to universities will be more than $3 billion from the NIH alone. If overcharging were widespread, as some critics claim, why haven't more university and government accountants blown the whistle and retired on their share of the savings?

Corrected for regional differences, with all expenses included, overhead costs at university, government, and industrial research institutions are roughly comparable. There is no way to eliminate them; the best we can expect is to make strenuous efforts to control them. Educating all members of the university community about overhead is a necessary first step in this process.


SAMUEL C. SILVERSTEIN is John C. Dalton Professor and chairman of the Department of Physiology and Cellular Biophysics. He has served as president of the Federation of American Societies for Experimental Biology.

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