While many institutions are pursuing more research funding from industry partners and foundations, most are not recovering all of their facilities and administrative (F&A) costs. This research report outlines how research leaders should approach F&A rates and policies for industry partners and foundations so they can maximize F&A recovery.
increase in business funding from FY12 to FY19
total F&A not recovered by all doctoral institutions in FY16
F&A rates for industry partners
Industry partners’ dislike for F&A stems from misunderstanding. When sponsoring research, industry expects a quick contract turnaround, customized output specific to their scope, and a market-sensitive project completion timeline, all at a minimum cost for maximum return. To resist paying F&A, industry uses three main arguments:
- “Double dip”: Corporate partners believe that, since F&A supports costs already incurred, universities are attempting to get reimbursed twice for the same expenses.
- “Everything is negotiable”: In the private sector, nearly any component of a contract can be negotiated. The same extensions do not always apply in higher education, especially with for-profit entities.
- “Better rate with your competitor”: Companies like to play universities against each other to get a better rate, especially around F&A and intellectual property.
What should universities do in response? It’s not always black and white—reasons to charge or not charge the full F&A rate vary by institution size and strategy.
On one hand, there is rationale for universities to always charge the full F&A rate. Officially, the university can’t offer a for-profit entity a better deal on research than the federal government. Also, companies can afford the overhead costs, and universities can use other negotiation levers besides F&A rate (see next section).
Alternatively, universities may choose to negotiate the F&A rate as needed. For example, they might use this approach if a company is too small or too important to risk “overcharging” them, or if the company can reimburse the university through other fees. So long as the university uses non-federal funds to make up for the lost F&A dollars, they can use this strategy without compliance concerns.
Points of leverage in industry negotiations besides F&A
For universities interested in charging industry partners the full F&A rate, leaders can leverage several other areas besides F&A when negotiating contracts:
Intellectual property (IP)
- Upfront terms: Universities can allow companies to reserve the IP resulting from sponsored work at the onset of the project
- Backend terms: Universities can also offer more favorable terms to sponsors at the end to cover F&A costs incurred during the process
- “Try and buy”: Universities can offer discounted trial periods of licenses and products
- Access to cores: Universities can offer access to facilities and equipment that companies might not have
- Shared working space: Universities can offer access to collaborative working spaces that connect industry scientists with academic researchers
- Meeting/retreat space: Universities can offer preferred access to meeting or retreat spaces on campus
- Executive time: Universities can offer company executives face time with their presidents
- Faculty consultations: Universities can propose specific faculty technical consultations or speaking arrangements
- Student recruitment: Universities can offer preferred placement at career fairs and recruiting events
F&A rates for foundations
For foundations, universities should move away from a “one-size-fits-all” approach to F&A and instead develop and enforce a tiered F&A policy.
For those with a published F&A rate and clear policy for direct charging, universities should use the foundation’s published rate and not require principal investigators (PIs) to submit waiver requests.
When it comes to foundations that universities have worked and established a rate with in the past, universities should use that institution’s established rate and should not require PIs to submit waiver requests.
Research offices should facilitate negotiations with foundations that don’t have a clear and published policy but are strategically important to the university. PIs should be required to inquire about the foundation’s F&A policy (rate and allowable charges) and submit waiver requests for rates below federally-negotiated amounts.
For foundations with no published rate or clear policy, research offices should assess whether the project warrants a waiver (depending on the nature of the work and the size of project). PIs should be required to inquire about the foundation’s F&A policy (rate and allowable direct charges) and submit waiver-requests for rates below federally-negotiated amounts.
Developing a tiered policy for foundations
Articulate appropriate circumstances for reduced or waived F&A
When it comes to waiving F&A, an overly liberal use of waivers leads to overutilization and underrecovery. Universities should articulate the appropriate circumstances for reduced or waived F&A to avoid a minor exception being treated as a loophole.
There are three circumstances every waiver policy needs to address.
1. When reduced/waived F&A is appropriate
Be specific and include examples about instances where reduced/waived F&A is acceptable. Although it adds length to the policy, concrete examples help PIs better understand when they should request a waiver.
Arizona State University’s F&A Wizard: Available publicly on their website, Arizona State’s tool allows PIs to plug in their specific project type and receive the exact rate they should be applying to their proposal.
2. When a reduced/waived F&A is not appropriate
Debunk common myths with examples of when reduced/waived F&A is not acceptable. Highlighting specific instances when PIs should include F&A but fail to do so promotes future inclusion of F&A.
University of Minnesota’s Acceptable/Unacceptable Waiver Rationales: The policy details scenarios when a waiver is appropriate as well as when a requested waiver is not approved.
3. Who pays when waiver policies are not followed
Detail who picks up the bill and downstream impacts when waver policies are disregarded. Policies should articulate which individuals pay for underrecovery and how it impacts all researchers.
Boston University’s Unrealized F&A Procedure: The policy explicitly states that the dean or department chair that approved a waiver without proper rationale can be required to pay the difference.