Costs of Conducting Research

Q&A: Stanford University Facilities and Administrative Costs

The Issue: Federal government cutbacks are looming and Stanford faculty must understand and be able to communicate how sponsored research is paid for.  

  Facts: Although 6000 externally sponsored projects directed by Stanford faculty provide $1 billion in funding for 2016-17, sponsors do not cover the full costs of conducting research that they support. Direct costs are largely paid by the research sponsors, including federal funding agencies, private industry, state and local governments, and nonprofit foundations. Partial costs are recovered based on Stanford’s Facilities and Administrative (F&A) cost rate (i.e., the Indirect Cost rate) negotiated with the Office of Naval Research, Stanford’s cognizant federal agency. Specific federal regulations dictate allowable costs that can be allocated and those that are not allowable to sponsored research. Federal (OMB) regulations prohibit subsidizing industry and foundation sponsored research. 

The unavoidable consequence of a reduction in the federal Facilities and Administrative cost rate would be less research conducted at Stanford.

The following questions and answers provide more detail on the costs of research at Stanford.

1. How is sponsored research supported at Stanford University?

As at most other US research universities, Stanford faculty receive support primarily from contracts and grants funded by federal agencies such as the National Institute of Health, National Science Foundation, Department of Energy, and Department of Defense, with other support from companies, foundations and to a limited extent from state and local agencies. About 6000 externally sponsored projects directed by Stanford faculty are expected to have approximately $1 billion in funding for 2016-17. 

2. Does Stanford “make money” on these sponsored research projects?

No. Sponsors do not cover the full costs of conducting the research that they support. The unfunded costs are subsidized through university, school, department and faculty contributions. Stanford subsidies may include equipment purchases, start up funds for faculty, seed funding for new research ideas, service center subsidies, tuition allowance for Research Assistants, and other methods of financial assistance.

3. What is considered in the total cost of conducting research? 

Direct research costs include:

  • salaries and fringe benefits for faculty, laboratory staff, students and postdoctoral candidates working on specific research projects, and a portion of graduate student tuition
  • laboratory supplies, small research equipment (< $5,000), publication charges, and economy travel for conducting research or disseminating research results 

Full research costs include those often referred to as “facilities and administrative costs” or “indirect costs,” such as portions of:

  • research facilities
  • health and safety compliance and management
  • utilities such as electricity, heat, lighting
  • information technology infrastructure and services, libraries and library collections
  • operating and maintaining the physical plant, e.g., building upkeep, campus security, ground care and custodial services
  • departmental administration of grant / contract preparation and expenditure tracking
  • central administrative granting / contracting costs (Stanford’s sponsored research administrative units that endorse sponsored project proposals, negotiate and accept awards, issue subawards, and establish financial accounts to meet sponsors’ reporting requirements)
  • allowance for technical obsolescence of research facilities and equipment (>$5,000)
  • disposal of hazardous waste

University contributions include:

  • research buildings and laboratories
  • costs incurred above the 26% cap mandated by the federal government  for the Administrative component of the Facilities and Administrative Cost. (Stanford contributes approximately $38 million/yr for federal and non-federal research).
  • start-up funds for faculty that support early career research labs and activities
  • research administration staff
  • administrative and financial management tracking systems
  • investment in physical and digital library collections and digital repository of research data and results
  • university subsidies (mandatory cost sharing) required by some federal sponsors plus voluntary university contributions

4. What are Facilities & Administrative (F&A) costs in sponsored projects grant and contracts?

F&A costs are those that cannot be readily connected to the work of a particular sponsored research project. F&A costs include infrastructure and operational costs. Because these are general costs associated with research, the federal government implemented a process to negotiate an F&A rate with the university.  This rate is renegotiated about every two years.

5. What is Stanford’s F&A rate and how does it compare to typical rates at private research universities?

Stanford’s negotiated F&A rate for FY17 is 57%. Negotiated rates at several other private research universities range from 52.5% to 69%. See the Table below labeled Appendix A.

6. How does Stanford calculate allowable costs as the basis for the negotiated F&A rate? 

Stanford’s costs associated with conducting research are calculated by the university based on methods determined by the federal Office of Management and Budget (OMB). OMB has specific regulations about which costs are allowable and unallowable, and how they are to be allocated to sponsored research and other university activities. Prior to negotiation with federal representatives, Stanford identifies those university costs allowable to grants and contracts. As shown in the figure below, Stanford’s proposed F&A calculated rate is calculated as the ratio of these allowable costs and Stanford’s Research Expenditure Base, which is the total of: sponsored project direct costs, university (internally) funded research, and university mandatory and voluntary contributions to sponsored research, referred to as cost sharing. The result is the basis for Stanford’s negotiation of the F&A rate with the federal government.

7. How is the Facilities & Administrative rate determined?

The F&A rate is negotiated with the Office of Naval Research (ONR), Stanford’s cognizant federal agency. Stanford’s F&A proposal is subject to a detailed audit and review by the Defense Contract Audit Agency (DCAA) federal auditors. Any costs that are questioned by the federal auditors are discussed in the negotiation process.  The federal auditors and negotiators also examine the projected Research Expenditure Base as this is one of the most significant drivers in the rate calculation.

8. Why are Facilities & Administrative rates typically lower at state universities?

State institutions typically receive state appropriations to fund a portion of their infrastructure costs, resulting in negotiated F&A rates typically ranging from 44% to 62%. Therefore, state institution F&A rates are often lower than those at private institutions.

9. Is the federal government subsidizing the research being sponsored by industry and foundations? 

No. Subsidizing industry and foundation sponsored research is prohibited by the federal Office of Management and Budget’s Uniform Guidance regulation. Federal auditors at Stanford and other institutions review the accounting methodologies that are in place to ensure that the federal government is not subsidizing non-federal research or any other university activities.

In fact, all research funding received from non-federal sponsors as well as federal sponsors is part of our Research Expenditure Base, from which the F&A rate is calculated. Therefore, funding from foundations or industry has the effect of lowering the university’s calculated and federally negotiated F&A rate, which reduces the reimbursement for research costs from the federal government.

10. Is tuition used to subsidize sponsored research at Stanford?

No. Undergraduate tuition supports Stanford’s educational mission and does not support sponsored research. A portion of graduate research assistant tuition is explicitly charged to grants and contracts, and is exempt from F&A charges.

11. If the government were to cut back on the amount paid for Facilities & Administrative costs, how would Stanford cover these costs?

The unavoidable consequence of a reduction in the federal F&A rate would be that less research could be done at Stanford and research universities and institutions across the country.  Stanford’s philanthropy and endowment income cannot make up the difference of millions of dollars that would be needed annually to sustain federally sponsored research projects. F&A costs have been recognized as an integral component of the cost of performing this research since the U.S. model of the government-university research partnership was established in the 1950s. If these audited costs are not covered at the negotiated rate, Stanford and other institutions would have to limit the number of research awards they could accept.   University resources could not support the F&A costs necessary to carry out all awards that might be recommended for funding by the federal agencies. To the limited extent that endowment and unrestricted gift funds might be available, research funded by departments, schools and the university would be reduced.

Appendix A: FY17 Facilities and Administrative Rates at Selected Private Universities adapted from Association of American Universities and the Association of Public and Land-grant Universities – FAQs about the Indirect Costs of Federally Sponsored Research - Update March 2017

California Institute of Technology


Columbia University


Cornell University


Emory University


Harvard- Medical School


Harvard - School of Public Health


Harvard - University


Johns Hopkins University


Massachusetts Institute of Technology


Northwestern University


University of Pennsylvania


Princeton University


Stanford University


Washington University in St. Louis


Yale University



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FAQs: by the Council on Government Relations, Association of American Universities and Association of Public and Land-Grant Universities

1. What are “facilities and administrative” (F&A) costs?

F&A costs – also referred to as “indirect costs” – are essential costs of conducting research. The federal government’s longstanding recognition and payment of these costs has helped U.S colleges and universities build and support the required research infrastructure that has made the American research enterprise the best in the world.

When the government provides a grant to a university for a research project, a portion (typically 67-75 percent) of the funds are distributed directly to the research team. This “direct costs” portion supports researcher salaries, graduate students, equipment, and supplies. Another portion (typically 25-33 percent) covers necessary research infrastructure and operating expenses that the university provides to support the research. These research expenses – officially called facilities and administrative (F&A) costs – include: state-of-the art research laboratories; high-speed data processing; national security protections (e.g., export controls); patient safety (e.g., human subjects protections); radiation safety and hazardous waste disposal; personnel required to support essential administrative and regulatory compliance work, maintenance staff, and other activities necessary for supporting research.

2. Why does the federal government provide support for F&A costs of research?

F&A costs are research costs. Universities and the federal government have a long-standing and successful partnership that grew out of World War II. The federal government relies on universities to conduct research in the national interest. This includes research aimed at meeting specific national goals such 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. 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.

3. Do universities contribute any of their own funds towards research?

Yes. Universities are the second leading sponsor of academic research and development (R&D). Federal data show that colleges and universities pay for more than 24 percent of total academic R&D funding from their own funds. This university contribution amounted to $16.7 billion in FY15, including $4.9 billion in unreimbursed F&A costs. These institutional commitments to academic R&D significantly exceed the combined total of all other non-federal sources of support for academic R&D: state and local government, industry, and foundation, support was at 6 percent each in FY15 and other non-federal sources provided 3 percent in FY15. Federal spending on higher education R&D has continued to decline and was just under $37.9 billion in FY15, or 55 percent of all funding for academic R&D (See figures 1-2).1 While universities contribute significantly to the costs of research, these institutions continue to be stretched thin. State support for public universities has declined greatly over the past 20 years and, in many cases, universities are educating more students. The notion that universities should cover even more of the costs of conducting research for the federal government is not realistic.

4. Do universities ‘profit’ from the F&A costs they receive associated with federal research grants?

No, universities absolutely do not make gains from their F&A recoveries. Universities are not even fully paid for the expenses they incur to provide the necessary infrastructure and support to conduct federal research. As stated above, in FY15 universities contributed approximately $4.9 billion in facilities and administrative expenditures not reimbursed by the government, many of which were not covered because of existing Office of Management and Budget (OMB) limitations on the amount the government can support universities for administrative and compliance related expenses, including federal mandates.

5. Has the university contribution to research been increasing or decreasing?

Increasing. Over the past several years, the share of institutional support that colleges and universities provide to support research conducted by their faculty has grown faster than any other sector. This growth in institutional spending on R&D has come at the same time that federal support has been declining (see figure 3).3 The increase in institutions’ support for the R&D they conduct is due in part to the rising compliance costs associated with increased federal research regulations and reporting requirements. Despite the increasing administrative costs required for compliance, the amount universities can receive from the government for these costs has been capped at a flat rate by OMB since 1991. This cap only applies to higher education institutions. Unlike other sectors that conduct government research, universities must therefore subsidize compliance costs from their own financial resources.

6. Has the percentage of federal funding for F&A costs changed over time?

No. F&A costs recovered by research institutions have remained flat for over 15 years. For example, the National Institutes of Health’s percent of total funding going towards F&A costs has remained unchanged, at approximately 27-28 percent of total funding, for more than a decade (see figure 4).4

7. How much does the federal government pay for university F&A expenses compared to what it pays other government research performers such as the national laboratories and industrial contractors?

Generally, past studies suggest that total F&A costs for university research are slightly less than those costs for other research performers. A study in 2000 by the RAND Corporation found universities had the lowest percentage classified as F&A (31 percent). Federal laboratories were somewhat higher at 33 percent and industrial laboratories were higher still at 36 percent. This demonstrates that universities are efficient performers of research.5 Unfortunately, a comparable study to the RAND study has not been undertaken in recent years. Such a study would be welcomed by the university community.

Additionally, as indicated under the previous question, the federal payment to universities for their F&A costs does not cover the full costs to their institution. This is unlike other sectors that receive full compensation for all their costs. The federal government has smartly invested in university-based research: F&A costs at universities are lower than other sectors, the government does not pay a profit to universities like it must for industry research performers, there is a university-specific cap on the amount the government will cover for administrative expenses, and the system of agency oversight ensures universities continue to be excellent stewards of federal taxpayers’ dollars.

8. Why do foundations pay less for F&A costs than the federal government does? Is the federal government subsidizing the infrastructure required to do foundation-sponsored research?

Comparing what can and cannot be charged to a federal grant versus a foundation grant is an “apples to oranges” comparison since foundations categorize and pay grant-related expenses very differently than the federal government does. For example, foundations often categorize some items as direct expenses that federal rules require to be counted as F&A expenses. This further underscores that direct and F&A costs are all part of total research costs and are inseparable when it comes to the actual conduct of research.3 To the extent that a foundation does not pay for certain F&A expenses, these costs must be covered by the institution. OMB rules (2 CFR Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards) specifically require universities to ensure the federal government does not subsidize non-federally sponsored research activity – including research and associated infrastructure costs performed by universities for private foundations – in their support for F&A expenses. Additionally, as previously noted, after World War II the federal government consciously chose to encourage universities to conduct research on its behalf to help achieve national goals. A core tenet of the partnership between the federal government and universities is that the government shares in the costs of research by providing universities with competitively awarded grants to support the people, tools, and infrastructure necessary to conduct high-quality research for the nation. Historically, most foundations view their grants as supplementing research that scientists are already conducting. To this day, most foundation research funding is viewed as supplementing existing federal and non-federal research.

Finally, foundation funding for university-based research remains a small proportion of total academic R&D funding (only 6 percent) compared to federal funding (55 percent) and the funding provided to support academic R&D by the colleges and universities themselves (24 percent).

9. Are federal F&A cost payments used to subsidize other campus accounts, such as athletics or construction?

No. OMB rules (2 CFR Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards) require that F&A cost reimbursements can only be based on federally funded research space and related research activities, not education or other university facilities or activities.

10. Is it true that universities with F&A rates over 50 percent spend more than half the grant funds they receive from the federal government to pay for F&A costs?

A university’s F&A cost rate is not a percent of the total grant, but rather a percentage only of the research project’s direct costs. Currently, the average amount paid to universities for F&A costs is approximately 25-33 percent of the total amount of a grant. (Campuses with medical centers tend to be closer to 33 percent because of the increased costs and expenses involved in providing for medical research facilities.)

11. How does the F&A rate determine how much a university receives for F&A costs on a grant?

Here’s how it works: To determine the level of F&A expenses the federal government will cover, every 3-4 years, the agency responsible for setting a university’s F&A rate (either the Department of Defense Office of Naval Research or the Department of Health and Human Services) will comprehensively audit and assess these shared costs to determine the appropriate federal share based upon specific costs that have been deemed allowable expenses by the OMB. The overall figure is ultimately calculated as a percentage of the amount the federal government awards for direct research costs (not a percentage of the overall funds, the figure most people see). For example, after reviewing all the expected costs and considering past research projects, a university and the federal government may determine that an amount equal to 50 percent of direct research 4 costs is appropriate for the federal government to contribute toward F&A costs. In that case, if the federal government awards a university $300,000 for the direct research portion of a grant, then it also awards $150,000 for F&A costs, for a total of $450,000. These overall institutional F&A cost rates are then applied uniformly to each grant at the university to avoid the very tedious, expensive and inefficient process of computing the F&A expenses for individual awards – which would add additional costs for both the government and the university.

12. Why do F&A cost rates vary between institutions?

Federal agency officials and university administrators predetermine an overall percentage of allowed F&A costs to be paid, based on documented historical costs and cost analysis studies. The final rates allowed for F&A expenses are established based on a rigorous review and audit of the actual funds previously spent for such costs. F&A cost rates vary from institution to institution because construction, maintenance, utilities, and administration costs vary by institution and by region. Additionally, F&A rates depend upon other factors such as the age and condition of facilities and buildings and the amount of renovation and construction needed to house certain types of research projects. For example, the F&A costs for a biomedical research facility built in an urban area that experiences earthquakes is different than an engineering research facility built in a rural area.

13. How would universities cover F&A costs if the government cut back on the amount it would reimburse?

Universities have a limited number of funding sources. The primary funding sources for research universities to fulfill their educational missions of teaching, research, and service are: tuition, research grants, cooperative agreements and contracts, philanthropy, endowment income, and state appropriations.

A reduction of federal F&A payments would result in one or more of the following:

  • The inability of universities to accept research awards from, and conduct research on behalf of, federal agencies;
  • The deterioration of research facilities as the financial risk to build new facilities or maintain existing ones becomes too great to invest institutional funds;
  • The inability to sustain required support staff and infrastructure required to comply with government regulations; this could threaten the health and safety of patients, researchers and students;
  • A reduction in the pipeline of trained scientists and engineers in the workforce due to reduced research training opportunities at universities.
  • An increase in tuition rates, an action which universities would not want to take.
  • Bottom Line: Cuts to F&A research costs are cuts to research. If such cuts are made, they will reduce the amount of research universities and their scientists can conduct on behalf of the federal government to achieve key national goals to improve the health and

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References: by the Council on Government Relations, Association of American Universities and Association of Public and Land-Grant Universities

Infographic: by the Council on Government Relations, Association of American Universities and Association of Public and Land-Grant Universities