By SHANNON O. WELLS
Researchers worried about Trump administration attempts to cap indirect-costs recovery at major agencies, including the National Institutes of Health (NIH), National Science Foundation (NSF) and Department of Energy (DOE), are hanging their hopes on a counterproposal for funding “indirects” called the Financial Accountability in Research, or FAIR, model.
In a presentation at the Jan. 21 Faculty Assembly meeting in Posvar Hall, Rob Rutenbar, senior vice chancellor of research, introduced Mike Holland, vice chancellor for science policy and research, and summarized the potential shift to FAIR.
Rutenbar described FAIR as “the national research community’s response to recent unilateral attempts to change the indirect rates to 15% from the middle of calendar year 2025,” he said.
Holland, who formerly worked in the federal Office of Management and Budget (OMB), said FAIR — developed by Kelvin Droegemeier, former director of the White House Office of Science and Technology Policy — is “intended to replace the old indirect-cost model.”
Providing some background, Holland explained that each institution of higher education negotiates its indirect-cost rate with one of two “cognizant” agencies. “If the University receives most of its funding from the Department of Defense (DOD), the institution negotiates its rate with the Office of Naval Research. Otherwise, the University negotiates with the Department of Health & Human Services’ Cost Allocation Service.”
Indirect costs under existing rules fall under two broad components: facilities and administrative (F&A). In 1991, the Office of Management and Budget’s Circular A-21 document, “Cost Principles for Educational Institutions,” capped the administrative cost component at 26%.
“We already knew we were under-recovering, (with) administrative costs capped in 1991,” he said. “And almost everybody under recovers (indirects), to some extent, on the facility side as well.”
Trump administration efforts to cap indirect cost recovery at 15% started with the NIH, followed by the DOE, NSF and DOD.
All have been litigated, and so far, “the research community has gone four-for-zero on this,” Holland said. None of the 15% rates have been implemented, and in the case of the National Science Foundation, the government decided not to appeal. “So that issue is off the table, resolved in our favor,” he said.
With the NIH, the government appealed and lost in the First Circuit Court of Appeals, “and are still deciding whether they will appeal that to the Supreme Court.”
Holland said the appellate court decision was written in a way that does not bode well for the government’s other litigation in cases involving DOE or DOD. “The appeals court was pretty damning on the merits of that case, largely because the (OMB) did not go through the regulatory process that they, in fact, control.”
He noted that they didn’t follow any of their own rules.
Drawn from experience
Kelvin Droegemeier, while director of the White House Office of Science and Technology Policy, subsequently testified in Congress on issues related to indirect costs. Holland said Droegemeier leveraged his association with Tom Cole (R-Okla.), then chair of the House Appropriations Committee, to promote the FAIR concept.
“Kelvin said, ‘Hey, let me put something together as an alternative, and kind of hold off the administration so that we have a chance to get our act together and offer up a counterproposal,’” Holland said of the exchange. “The FAIR model, through this Joint Associations Group (JAG), is that counter proposal.”
JAG entities affiliated with Pitt include the Association of American Universities (AAU), the American Council on Education (ACE), and the Association of Public and Land-grant Universities (APLU). Rob Rutenbar serves as chair of the APLU’s Council on Research.
“That’s our sort of main interface through all this,” Holland said. “But we’re working across the board with all of those (JAG) groups.”
Droegemeier, who served also as Oklahoma’s Secretary of Science and Technology and vice president for research at the University of Oklahoma, used his unique perspective on indirect costs to conceive a plan designed to “fully recover all costs,” Holland noted. “That is his intent.”
As proposed, FAIR would cover any costs that currently are unrecovered.
“Obviously, you push as far as you can, then knowing that you’re gonna have to negotiate back from that,” Holland explained. “That’s his most aggressive starting point, and that’s what’s embodied in the FAIR model.”
FAIR also aims to increase transparency and accuracy of indirect costs as allocated to projects. Currently, all indirect costs based on sponsored research “get spread over everything,” he said.
Droegemeier, Holland noted, accounts for differences in research approaches.
For example, “Kelvin was thinking, if you’re doing dry science — you’re sitting in an office and using nothing other than paper and a whiteboard — you should have a lower indirect cost than, say, someone in clinical space or the big science fields with lots of … expensive instrumentation,” Holland said. “That is something that would unroll over time … but Kelvin designed it with that in mind.”
‘Three bucket’ approach
To develop and refine the concept, Droegemeier held FAIR-oriented town halls last spring, rolling out two case models that institutions were asked to test and then provide feedback.
Working with a post-award team and Mike Moran, Pitt’s director of cost accounting in the office of the chief financial officer, Holland pulled together a “sort of strict but very high-level amount of detail” that they “fed in” based on both models. No fewer than 176 colleges, universities, independent research institutions and hospitals also took part.
After JAG processed the information on the two models, the current FAIR model was announced on July 15.
“The FAIR model basically says there are still direct costs and indirect costs, but we’re going to create these three buckets,” beyond just direct and indirect costs, Holland explained. These include:
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Research Performance Costs: reflecting what current “direct costs” will be relabeled.
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Essential Research Performance Support: FAIR pulls four elements from the current indirect costs and makes them transparent.
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General Research Operations: These are “residual” of the current indirect costs after breaking out the essential research performance elements.
Droegemeier proposes to “sort of broadly allocate those indirect costs into things like regulatory compliance,” Holland said.
For those working in areas involving, say, human subjects, animals or radiation, where costs are clearly attributable to a researcher, FAIR provides a way to tightly allocate those costs. “Because you’re the type of researcher that uses that kind of regulatory service … there would be a piece on your pre- and post-award activity.
“Your grants — team, office, sponsored programs, all that kind of stuff — would be broken out and more directly allocable in that sense,” he added.
Droegemeier designed FAIR to effectively encompass various types of allocations: Clinical, wet lab, dry lab, and “you’re not doing anything in the lab,” Holland said, adding that “this is very notional. Because there is an enormous amount of work to get from this — which is like our opening bargaining position — to that level of detail, and … no one’s even been working on that level of detail.”
Long rebuild ahead
Looking at the “big picture,” Holland said the FAIR model would be a “replacement for the current system that’s in the uniform guidance. It was absolutely designed for full cost recovery by a former (vice president of research) who had to deal with this as his day job, so he knows it inside out and backwards.
“And it’s a very different approach than the existing system that we are still operating under.”
Should FAIR be adopted, however, “there is a huge amount of work to be done” that Holland said will take a transition time of “probably two-ish years.”
Droegemeier asked institutions and research departments to estimate how long they think it would take to get there.
“Because you literally have to start rebuilding everything within the universities, in many ways, but also on the research agency side,” Holland explained. “There’s a lot of rebuilding that has to be done, of all their mechanisms and their procedures and their policies.
“Both sides of this would have a lot of work to do, from moving from where we are now to where we would have to be to make this functional.”
Shannon Wells is a University Times reporter. Reach him at shannonw@pitt.edu.
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