Unfunded Overhead

It struck me today

.@jwoodgett @bakermind @Bashir_Course9 @doc_becca this can be startup, Chair's slush or a functional prohibition of applying some places

— Drug Monkey (@drugmonkeyblog) June 6, 2013

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 TheRealProblem^TM 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.
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*there can be blanket exceptions for trainee fellowships or exclusions based on an upper limit on the “award”.