This document from the Council on Governmental Relations offers a detailed overview of Facilities and Administrative (F&A) costs, also known as indirect costs, and their significance in supporting university-based research. F&A costs encompass essential infrastructure and administrative expenses—such as utilities, maintenance, security, and administrative support—that cannot readily be assigned to individual projects but are vital to the functioning of research activities. The report traces the evolution of indirect cost reimbursement policy from World War II to the present, describing the complexities of calculation, categorization (into "facilities" and "administrative" cost pools), and negotiation of F&A rates, which are determined through rigorous processes stipulated by federal guidelines, notably OMB Circular A-21. The negotiation process, involving federal agencies and universities, can be variable and often results in universities not recovering the full share of their eligible costs due to statutory caps, agency policies, and differing interpretations of federal guidelines.
The document further examines the reasons for variability in F&A rates among universities, attributing differences to factors such as size, location, research intensity, cost of facilities, and the extent of new construction or renovations. It points out that, contrary to occasional public or policymaker skepticism, F&A cost rates at universities are generally comparable to those seen in industry or government laboratories, as confirmed by external studies such as those from RAND and COGR. Despite this parity, universities frequently recover only 70-90% of their true F&A costs, largely because of agency-imposed limitations and a degree of institutional cost-sharing. The report emphasizes that F&A reimbursements usually form part of an institution's general operating budget and play a crucial role in sustaining research capacity. Nevertheless, persistent under-reimbursement and increasing regulatory mandates have put strain on the longstanding partnership between universities and the federal government, suggesting a need to reassess current cost recovery models to ensure continued support for the nation's research infrastructure.
