F&A costs and why they matter

So on Friday afternoon this new policy dropped, to take effect Monday morning. Like many things in the new world, the lack of any delay before implementation creates an immediate sense of crisis. It seems almost naive to think back to the days where the Administrative Procedures Act was applied to major new changes. 

Now what this new policy means is a little complex. When the US government funds research, they attach the costs for facilities and administration as a negotiated percentage of every dollar of direct costs. This is a strange way to pay for enforcing federal regulations and building electricity, but it has the advantage of being both simple and easy to administer. It causes some oddness -- grants focusing on data analysis don't require animal research ethics infrastructure and so averaging these expenses across all grants can lead to some hard to explain corner cases (in both directions as the F&A costs on a primate center may seem shockingly low). 

So the real impact of this measure is a large and profound cut to the universities that host research activities. So some of this might return in increased numbers of awards. I might not be surprised if there was a spike on off-campus research given the odd decision to make the level uniform and international institutions will be quite happy with the doubling of the current 8% F&A rate for international awards. The comparison to the much smaller foundation grants is also challenging, as very small amounts of funding can have less generous F&A terms so long as the funding is a small piece of a greater whole and there is no comparison of allowable expenses and/or regulations to be followed (which can make a large difference). 

There is a lot of confusion as to whether this is a change that can be done via executive order. But the bottom line is that it is a large and immediate cut to institutes of higher education intended to maximize pain by eliminating the money with flexibility. Is it possible that the current F&A is excessive for at least one institution of higher education, somewhere in the United States? Sure, in some case or at some margins it is likely as the NIH is a big place. Is an immediate cut from ~60% to 15% (all at once without warning) a good policy? No. No it is not.