Saturday, January 13, 2018

About grants: What is cost sharing?

In addition to science, I occasionally use this forum as a way to try to explain to students and the public how sponsored research works in academia.  Previously I wrote about the somewhat mysterious indirect costs.  This time I'd like to discuss cost sharing.

Cost sharing is what it sounds like - when researchers at a university propose a research project, and the funding agency or foundation wants to see the university kick in funding as well (beyond obvious things like the lab space where the investigators work).  Many grants, such as NSF single-investigator awards, expressly forbid explicit cost sharing.  That has certain virtues:  To some extent, it levels the playing field, so that particularly wealthy universities don't have an even larger advantage.  Agencies would all like to see their money leveraged as far as possible, and if cost sharing were unrestricted on grants, you could imagine a situation where wealthy institutions would effectively have an incentive to try to buy their way to grant success by offering big matching funds.   

In other programs, such as the NSF's major research instrumentation program, cost sharing is mandated, but the level is set at a fixed percentage of the total budget.  Similarly, some foundations make it known that they expect university matching at a certain percentage level.  While that might be a reach for some smaller, less-well-off universities when the budget is large, at least it's well-defined.    

Sometimes agencies try to finesse things, forbidding explicit cost sharing but still trying to get universities to invest "skin in the game".  For the NSF materials research science and engineering center program, for example, cost sharing is forbidden (in the sense that explicit promises of $N matching or institutional funding is not allowed), but proposals are required to include a discussion of "organizational commitment":  "Provide a description of the resources that the organization will provide to the project, should it be funded. Resources such as space, faculty release time, faculty and staff positions, capital equipment, access to existing facilities, collaborations, and support of outreach programs should be discussed, but not given as dollar equivalents.

"  First and foremost the science and broader impacts drive the merit review, but there's no question that an institution that happens to be investing synergistically with the topic of such a proposal would look good.

The big challenge for universities are grants where cost sharing is not forbidden, and no guidance is given about expectations.  There is a game theory dilemma at work, where institutions try to guess what level of cost sharing is really needed to be competitive.   

So where does the money for cost sharing come from on the university side?  Good question.  The details depend on the university.  Departments, deans, and the central administration typically have some financial resources that they can use to support cost sharing, but how these responsibilities get arranged and distributed varies.  

For the open-ended cost sharing situations, one question that comes up is, how much is too much?  As I'd discussed before, university administrations often argue that research is already a money-losing proposition, in the sense that the amount of indirect costs that they bring in does not actually come close to covering the true expenses of supporting the research enterprise.  That would argue in favor of minimizing cost sharing offers, except that schools really do want to land some of these awards.  (Clearly there are non-financial or indirect benefits to doing research, such as scholarly reputation, or universities would stop supporting that kind of work.)  It would be very interesting if someone would set up a rumor-mill-style site, so that institutions could share with peers roughly what they are offering up for certain programs - it would be revealing to see what it takes to be competitive.  


Anonymous said...

A couple of perhaps naive questions: "...does not actually come close to covering the true expenses of supporting the research enterprise." I was wondering if that claim has ever been substantiated with numbers. Also, is it possible to track precisely what the overhead stream is spent on?

Douglas Natelson said...

Anon, one example of a useful link:
As for tracking overhead, that's a trickier question, in part because money is fungible. When a university "gives back some overhead" to the department or PI, what they really do is use the overhead/indirect to pay for true indirect cost expenses (e.g., air conditioning and electricity costs; salaries of research accounting staff), but at the same time use that dollar figure as a guide for how to allocate other money (say endowment income) back to a department or PI. There must be ways to track how overhead is really spent, because when universities negotiate their indirect cost rates with the feds, they have to document this stuff. However, it must not be easy, even for public universities. For example:

Anonymous said...

Thank you Doug, we have some reading to do. Still, a >50% overhead rate from universities with endowments in the billion range is a darn big camel to swallow.

JasonD said...

Dear Anonymous #2,

Most university financial officers would love life more if those endowments were completely unrestricted as to their use. I think that I a more than safe in saying that a significant majority of endowment funds are tied up with very specific restrictions as to their use and that very few of them could be applied to administrative costs or general operating expenses i.e. most are tied to educational programs, scholarships, etc. Am I saying that there aren't expenses that most universities could cut back on to curtail costs? No, certainly not. There is certainly administrative bloat, bad long-term purchasing contracts, coaches making more than the collective salary of the entire faculty, etc, that could be cut...

To Doug et. al,
One thing that I have started to encounter recently is issues with institutional memory associated with cost-share that was committed at grant submission and then the university, despite documentation, having a fuzzy memory about what they promised in cost-share. I think that research offices can sometimes overextend themselves with such promises. For example, they make cost-share promises for 3 grants betting that only 1 gets funded and then there cash issues if 2-3 get funded.

Douglas Natelson said...

Anon, your point is definitely one that has come up recently. See here:
Yes, it's hard to make a reasonable argument to the average citizen that taxpayer dollars should pay for the air conditioning costs at Harvard when they have a $40B endowment, or Princeton when they have $22B. Still, the ultra-wealthy institutions are exceptions, not the norm.

HD said...

Working in the private sector is not much different when it comes to indirect costs, so this is not just limited to university money.

The small business I work for as a DoD contractor is heavily involved in the SBIR funding world. (For more:
The fees and overhead here can be outrageous and current we are having to fund more overhead because of the economy.
A good look at how we calculate indirect costs is here:

If you think >50% overhead is bad...currently we have a 7% fee, 43.05% General Administrative Expense, and 139.2% Labor Overhead.

For example (from one of my current budgets), the project award is ~$100k (for a 6-mo project). We get $34079.60 for actual labor and materials and subcons, and the rest (everything for actually doing the work). All the overhead and fees get $65873.23. That's 65.9% of project funds to pay for all the other stuff (administrators, contracts, accountants, lab space, electricity, etc.).
Of course us scientists complain that this is high, but there's a lot this does pay for that otherwise the company couldn't function without. A necessary evil if you will.

Anonymous said...

HD, a small business, with presumably restricted revenue streams, must be an entirely different universe compared to even a midsize university. Can't see how a meaningful comparison can be formed.

One would (and probably should) not, in principle, have a problem with subsidizing public universities via indirect cost recovery funds. It's just hard to see the argument for the private ones at the rates they charge, and, especially, in the absence of detailed accounting of what indirect cost recovery funds are actually spent on.

Doug, your links were illuminating, despite the former piece being rather confused and whiny, commingling points of view aligned with university and sponsor interests. The latter link, the audit report, is amazing. Is there an understanding of what percentage of indirect cost recovery funds is kept by VPs of research compared to those spent on administrative costs and compared to funds that eventually flow back to departments that were awarded the grants in the first place? What does the distribution look like for different universities? For different departments? I suspect that if the proposed detailed budget tracking were to be mandated, quite a few eyebrows would be raised, as a result. Zero chance for that happening, surely. Can't help but comment that the universities' formal response to the audit findings is just priceless.