Unfunded Overhead

June 6, 2013

It struck me today

thanks to the referenced comment from Jim Woodgett that we’ve never really had a discussion of unfunded overhead situations, despite several discussions of overhead rates in the ongoing effort to determine TheRealProblemTM with NIH budgets these days. It is worth bringing up, particularly for anyone who might be job seeking or negotiating in the near future. As we continue, you’ll see what you need to ask about, and what you need to get in writing along with your job offer.

As a brief introduction the overhead (or Indirect Costs; IDC) associated with a research grant award is the amount that disappears into the University, research institution (or what have you) instead of going into the PI’s account to spend.

When it comes to federal awards from the NIH (and some other agencies beloved of my Readership) the IDC rate varies across the Universities, research institutes and varied other applicant institutions. For discussion’s sake, I’ll throw out that the general rate for larger public Universities is about 56%. Smaller (private) Universities and not-for-profit research institutes tend to have higher ones with overhead rates of over 80% not uncommon. Rumors abound of 100% overhead rates but I’ve not directly seen one of those myself. To my recollection. This research crossroads site used to have a handy database of the federally-negotiated overhead rates but it has been down for some time now and I suspect it is defunct. I don’t know where they were scraping their data from but presumably these overhead rates are public info.

There are numerous non-federal sources of funding that a given PI might see as appropriate to pursue for her laboratory. Contracts with biotech or Big Pharma companies. Larger or smaller disease focused foundations (American Heart, Michael J Fox). Less-focused foundations (like Bill and Melinda Gates Foundation). Local philanthropic donors. State foundations or funds (like those diverted from tobacco or alcohol taxes). In many, if not most, cases these funding streams do not wish to pay your University the federally-negotiated overhead rate.

The differential can be large. Such as a foundation that will pay 10% maximum…and your federal rate sits at 70%. Perhaps a donor doesn’t want to pay any overhead at all and expects the full donation to go into the research lab’s coffers.

The ways that Universities and research institutions deal with this issue varies considerably. Across institutions, of course. But also within an institution depending on the money source, the amount of funding involved, the identity of the PI, etc.

The best case scenario for PIs is the institution that doesn’t care. Money is money and….they’ll take it. I’ve heard rumor of such things but it is fantasy as far as I am concerned.

What is more common is that the University has a way to cover the “unfunded overhead” situation to make it appear that the full federally negotiated rate is being applied to each and every grant of consequence*. Sometimes this is accomplished through the mumbo-jumbo of money being fungible and the University simply using their endowment proceeds or some other source of funds not easily connected to a grant to “cover” the overhead. This is good, if you can get it. That is, if your University has a default, no-questions-asked way to do this for a given source of grant support. That’s a supportive place to be.

Considerably less-good is the situation where the PI is supposed to “cover” this for herself. Now sometimes it is the case that the Chair of the Department covers it through a slush fund and, obviously, this would be a more limited pool of money. Consequently, the Chair has to balance who gets the slush. This leaves a lot of room for shenanigans having to do with departmental politics. A lot of room for problems based on how many faculty are trying to tap this pot of slush money in a given year. This is why you, as a prospective new hire, need to ask how these situations are covered and get as much in writing as you can.

There are two remaining horrible options which I hesitate to rank.

Some Universities will pull the overhead out of the new-hire’s startup funds. That’s a dicey game for a new faculty member to play. It might be worth it, it might not. Why would it be worth it? Well, that startup is a fixed, nonrenewable pool of money that is supposed to get you launched, right? This means, in essence, to help you secure a grant. Having grant funding awarded to your lab is a good thing and catapults you into the “funded investigator” category. Depending on the size of it, your use of startup to secure that award, instead of continuing the uncertain game of generating more preliminary data, may be advisable. You just have to look at the leverage that contributing startup to the unfunded overhead will give you.

Some places (and here I find the very high overhead, small not-for-profit research institutes to raise their heads) simply refuse to let faculty (even new hires) apply for anything that doesn’t come with full overhead.

Yes, this seems an unbelievably stupid policy and a way to cripple the prospects of your newly-hired faculty, but there you have it.

For anybody on the job market that is reading this, the conclusions are clear. If the unfunded overhead policies of your prospective institutions are not handed to you when you visit, ask. Determining what grants you will and will not be allowed to apply for in your first few years (or across your career) should not be left up to the (entirely logical) assumption that any grant available is attractive to your University.

ETA: A comment from Jim Woodgett

In essence, NIH subsidizes those agencies and philanthropists that don’t allow or who restrict overhead.

reminded me I forgot to address why the Universities are doing this. My assumption is that if the federal negotiators thought this statement sufficiently true, they would lower the IDC rate for that University. As I said, my assumption. I’ve never been able to get an institutional official to verify this directly though.

Additional reading: Cost principles, Proflike Substance on what overhead pays for.
*there can be blanket exceptions for trainee fellowships or exclusions based on an upper limit on the “award”.

25 Responses to “Unfunded Overhead”

  1. Proflike Substance Says:

    My lab has a state grant with no overhead and the university seems to be okay with it. Several have been award to my institution, so there is precedent.


  2. Beaker Says:

    Low/no overhead grants are ideally obtained during the start-up period, when they are often viewed as “matching funds” for the startup package itself. They also be valuable for pragmatic “cash is better than no cash” reasons when funds are sparse.

    Tenure committees view low-overehead grants as ‘nice,” because you competed successfully. However, don’t kid yourself into thinking that they count the same as full-overhead grants. How much was your startup? How much of your overhead ended up in university coffers at tenure time, and how much should we expect to see in the near future? These are the criteria that matter. Show me the money! Did you do some good science with that money? That’s nice too.


  3. drugmonkey Says:

    I don’t know if you are in a State University P-lS but if so, it would make sense if a special exception for State-derived research support were in place.


  4. Jim Woodgett Says:

    This is an increasing problem as charities (and other funders) face diminishing income as well as pressure from donors, etc to reduce or eliminate overhead. Yet, the full cost of research is not covered by direct funding. No one likes to fund heating and lights, and all of the other stuff that goes on in the back office but without most of it, nothing would work. There may well be exaggeration by administrations in setting and claiming overhead, but that’s not too surprising when some funders simply refuse to contribute anything. In essence, NIH subsidizes those agencies and philanthropists that don’t allow or who restrict overhead.

    I also find it incredibly short-sighted of an institution either to prevent an applicant from applying for a non-overhead grant or plundering their start-up funds to make up the difference. The department has earmarked a few hundred thousand bucks to provide a launch pad for the young investigator and it is in their interest that she/he succeeds. That’s the only way they get to fulfill their broader mission or to get any ROI for their investment. To dip into start-up is simply like putting them into the highest tax bracket on a starting salary.

    Caveat emptor for new investigators. That apparently generous start-up should be viewed as a maximum possible amount – but in reality those funds will not go as far as you think. Often the institution will have a clawback of start-up as grants are awarded. For example, a new PI’s startup might include two grad students and two postdoc salaries, initially for three years, but the recruiting institution will expect the investigator to put one or two of those people onto a grant if/when awarded. This should be spelled out in the job offer, of course. Start-up is therefore not so much a free tank of gas but an insurance policy. Deans and department heads expect not to have to spend it all.

    Small grants and no-overhead grants are often all that a young investigator can attract as they hone their grantsmanship and preliminary data for the bigger grants. These are often the difference between sinking and swimming and to undermine the ability to attract operating dollars from anywhere for the sake of some overhead is mind-bogglingly short-sighted.

    The ideal solution is to have across the board payment of a justifiable overhead amount – in other words, grants paying the full cost of research. Moreover, this rate should be competitive in order to avoid excess. In the meantime, institutions that are unwilling to show confidence in the success of their new recruits are unlikely to be supportive environments.


  5. Bam294 Says:

    I’m gonna four up you and say:

    – Ask these questions, then get it writing.
    – Realize having it in writing actually means nothing when push comes to shove.
    – Negotiate what happens to you direct donor money
    – Realize this Foundation/private money scenario also impacts students

    As a join Center/Department recruit both BSDs who brought me in said I could keep all philanthropy I brought in only to find 10% chopped off balance yearly. So if I got 25K, it became 22.5K on the spot then 20K if unspent by the start of the next fiscal year. And so on.

    Also, once my trainees get non-federal grants, they often are reclassified having to pay everything from extra insurance, rec center fees as ’employee’ vs ‘student’ etc. Getting a non federal training grant will cost our students up to 1K out of pocket. “Congratulations! Here’s your bill!”

    Which is good. Because they should learn this early.


  6. bam294 Says:


  7. “I don’t know where they were scraping their data from but presumably these overhead rates are public info.”

    Quit being a lazy fucken fuckebagge and get your fucken asse over to reporter and the fucken shitte is right there.


  8. sciencegirl Says:

    My (state, R1) university has never made a fuss about foundation grants I received. If they have any policy at all for getting overhead for these funds, I have never heard of them. It certainly isn’t coming out of my department, I know that for sure. We are encouraged to get any money from any source possible without penalty for doing so. In addition, at tenure time, my funding history was about 50/50 foundation/federal, and that was not an issue at all for me.

    My uni also does not require that we pay ourselves salary, although they do offer incentives in the form of percent return if we do. Although I am not generally a cheerleader type, I would have to say that compared to some of the things I have heard from colleagues elsewhere, they treat faculty pretty decent here. Which is a good thing for me I guess, as I would have never thought to get something like IDC from foundation grants in writing when I was negotiating.


  9. gerty-z Says:

    It sort of made my day that Bam had a poo-flinging-monkey gif. It’s like – sometimes – the universe makes sense.


  10. Grumble Says:

    If you’re an academic and your employer prevents you from applying for grants that come with no overhead, you need to find a new job. That degree of short-sightedness in the administration is really, really bad news.

    I have a hard time believing that such policies even exist. Name names.


  11. Ola Says:

    This scenario led to some lovely doublespeak from our dean:

    – For every $1 of grant money that comes in, we recover full indirects on only 75c, so we have to subsidize the research endeavor to the tune of 25c per incoming grant dollar.

    – Everyone needs to bring in more grants.


  12. fjordmaster Says:

    Does anyone know how the federal indirect rates are set? Is it just the university or research institute submitting a financial statement (presumably audited) with F&A expenses and the government accepting it or is there substantial give and take?

    Also, is the indirect rate of the institution ever a point of discussion when a grant application is under review or when changes to the budget are proposed?


  13. This scenario led to some lovely doublespeak from our dean:

    – For every $1 of grant money that comes in, we recover full indirects on only 75c, so we have to subsidize the research endeavor to the tune of 25c per incoming grant dollar.

    – Everyone needs to bring in more grants.

    This is not “double-speak”. Yes, institutions have to subsidize federally funded research, as direct+indirect costs do not fully support the real costs of doing research. But it costs them even more if investigators are not bringing in as many grants as possible. It is only “double-speak” if you think deans are motivated solely to turn a profit, and makes perfect sense if you think deans are motivated to enable as much research as possible.

    And BTW, the $0.25 subsidy per $1.00 of grant funding sounds way high. Our dean claims that the subsidy here is about $0.06 per $1.00.


  14. DrugMonkey Says:

    According to administrations, every single aspect of a University is a loss leader, PP. These so-called analyses are just made up BS that at best merely depend on what is “charged” to a given activity. At worst, complete lies.


  15. According to administrations, every single aspect of a University is a loss leader, PP.

    WRONGO! Universities claim to make money on endowment, gifts, and clinical medical practice (and governmental appropriations if they are state universities). They claim to lose money on teaching and research and athletics (with an exceedingly small subset of universities making money on athletics).


  16. kcess Says:

    My institution (large, private) has a 58% indirect rate. Foundations not paying anything get charged 10% and it comes out of either my unrestricted funds or the chair’s discretionary funds. I can’t maintain this, last foundation grant I submitted last week is 125K per year for two years equals $25K to be found somewhere. My PI perspective (that I suspect is shared here) is “these administrative fools are taking all this money due to my hard work and the indirect funds they take are way out of proportion to actual needs”. However the administration maintains (without showing the accounting data or methods to calculate) that “they” spend >$1.50 for every $1 of grants (direct and indirect total) we bring in, implying we are fortunate they are not taking more. Anyone else get this argument? Any data to support either way?


  17. Grumble Says:

    Yeah, they spend >$1.50 per grant $1 because there are always 27 vice-deans and 50 assistant vice-deans, and these people are expensive bureaucrats.

    Any institution that does these sorts of shenanigans (charging other funds for the overhead on grants that don’t allow overhead) is an embarrassment to universities everywhere. Their choice is between cutting their own bloated administration in order to allow the real work of research to get done, or to tax the real work to pay for expensive and often unnecessary administration that accomplishes nothing.

    I’m glad that, for all their faults, my own administrators have chosen the former path. If they ever switch to the latter, I’d find it soul-deadening to the point where I’d wonder why I’m playing the academia game at all.


  18. ariadne Says:

    Our institution requires special approval to apply for no- or low-indirect grants, and this is always granted to assistant professors. Administration told us that because these grants are factored in to the direct cost base for OMB indirect cost rate negotiations, they hurt us and leave us with a lower federally-negotiated indirect cost rate.


  19. Ola Says:

    An interesting addition to this debate…. HHMI does not pay indirects. Would any university administrator really sink to such depths of dumbfuckery as denying a PI HHMI investigator status? I’d like to see that conversation!


  20. Anon Says:

    Grumble and Ola, the Salk Institute doesn’t allow researchers to accept no- or low-overhead grants, AFAIK. Except HHMI of course, because prestige. So yeah, DM is not making it up.


  21. Jonathan Says:

    @fjordmaster – this might shed some light on it for you: http://www.aabri.com/OC09manuscripts/OC09049.pdf

    Overheads and negotiated between the institutions and the .gov every three years, and no, I don’t believe that NIH can decide to pick and choose what it funds based on the indirect costs.


  22. fjordmaster Says:

    Thanks Jonathan!


  23. HHMI pays rent to host institutions, and they also pay the salaries of their own on-site (and off-site) administrators who handle purchasing, HR, etc, for HHMI PIs. As far as I am aware, host institutions end up subsidizing HHMI-funded research less than they do NIH-funded research.


  24. Grumble Says:

    I wonder what Dr. Salk would have thought of that policy?


  25. Eli Rabett Says:

    in the ancient history category, until somewhere in the (late?) 80s NIH grant applications that were seen by reviewers did not include overhead and overhead was paid out of a separate pot of money. This, of course, was abused, with rates well into the 100s, so that went bye-bye, and rates came down to about where they are todya 40-60% MDC.


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