As the University of Michigan continues to monitor recent actions by the new presidential administration and their potential impact on the institution, attention in recent days has focused on what are known as “indirect costs” related to research.
The National Institutes of Health on Feb. 7 announced it would cap coverage of indirect costs at 15% for new and existing grants, replacing U-M’s previously negotiated facilities and administrative cost rates, which include a 56% rate for on-campus research.
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The move has generated widespread concern about its impact on university research — at U-M and across the United States — and prompted a federal judge to issue a nationwide pause on the spending cap, after first granting a temporary restraining order in a lawsuit by 22 state attorneys general, including Michigan’s Dana Nessel.
The orders by U.S. District Judge Angel Kelley of Massachusetts put the NIH’s policy change on hold pending further court action.
“This action, at least temporarily, will help ensure that life-saving research and critical drug discovery efforts continue as normal at university facilities, including Michigan Medicine and C.S. Mott Children’s Hospital,” according to a blog post on the Office of the Vice President for Research’s website.
While questions exist broadly about recent federal actions and their potential impact on U-M and its various sources of federal funding, this particular action and resulting lawsuit appear limited to grants awarded through NIH.
NIH-sponsored research expenditures at U-M totaled $762 million. Beyond NIH funding, the federal government consistently remains the largest sponsor of U-M research activity. In FY ‘24, the university reported $1.17 billion in federally sponsored research expenditures — 57% of the university’s total research volume.
What are “indirect costs”?
Indirect costs, also known as facilities and administrative costs, refer to necessary research infrastructure and operating expenses that the university provides to support research projects. U-M’s facilities and administrative costs are recovered through rates established with its cognizant agency in accordance with federal policies and requirements.
These differ from direct costs that can be specifically attributed to a particular sponsored project, university-funded research project, an instructional activity, or that can be directly assigned to such activities relatively easily and with a high degree of accuracy.
Nonetheless, indirect costs exist as real costs of university operations and are critical to the success of research projects. Some examples include:
- State-of-the art research laboratories.
- Computing infrastructure, including high-speed data processing.
- National security protections.
- Safety programs.
- Radiation safety and hazardous waste disposal.
- Salaries, wages and benefits for personnel supporting essential administrative and regulatory compliance work.
- Utilities, ventilation, HVAC and water resources.
- Maintenance staff.
- Other activities necessary for supporting research.
A more detailed breakdown of what are considered direct vs. indirect costs can be found on OVPR’s Office of Research and Sponsored Projects website.
Arthur Lupia, interim vice president for research and innovation, said the university’s facilities and administrative cost rate agreement covers critical aspects of research.
“Reducing that rate to 15% will eliminate approximately $181 million in funding and will leave gaping holes in budgets, immediately and needlessly constraining the university’s ability to save lives through medical breakthroughs and drug discoveries, support national security through research in areas like computer science, data science and engineering, and create thousands of jobs in technology areas that are key to the economic strength of the state and the nation,” he said.
OVPR, with support from the Office of Government Relations and the Office of General Counsel, is working to learn as much as it can about these developments. It also is working with federal agency contacts to learn about implications for specific grants.
The office is posting updates for the research community on its Tracking Federal Changes blog, and information about this topic and other federal orders, memos and agency guidance are available on U-M’s Key Issues website.
The federal government and university research
A summary prepared by U-M’s Federal Relations team explains the longstanding and successful partnership between U.S. universities and the federal government to conduct research in the national interest, including such areas as health and welfare, economic growth and national defense.
“Performing research on behalf of federal agencies incurs a variety of costs that would not otherwise exist for universities,” the statement says. “Universities — not the federal government — assume the risk of building the necessary infrastructure to support this research in anticipation that their research faculty will successfully compete for federal research grants and thus the university will be reimbursed for a part of the associated infrastructure costs.”
The share of institutional support that colleges and universities provide to support research conducted by their faculty has grown faster than any other sector over the past several years. This increase is due in part to the rising compliance costs associated with increased federal research regulations and reporting requirements, the statement says.
Despite these increases, the amount universities can receive from the government to cover these compliance costs has been capped at a flat rate since 1991. The cap only applies to higher education institutions. Unlike other sectors that conduct government research, universities must therefore subsidize these increases in compliance costs from their own financial resources.
— This article was compiled by James Iseler and Jeff Bleiler of The University Record from information provided by the Office of the Vice President for Research.
