The differences in F&A cost rates have often been cause for scrutiny and discussion. There are a number of factors that give rise to these differences. The first factor to consider is the Buildings and Improvements cost pool. An institution that has a large number of research facilities, with some built recently at higher cost, will have higher depreciation expenses than an institution that has a smaller and/or older physical plant. Additionally, private institutions generally try to recover as fully as possible the cost associated with research facilities, whereas public institutions have tended to be less aggressive, since their buildings are often funded in part by the state.
In some states, F&A cost rates have deliberately been kept low on the theory that aspiring research institutions would be more competitive for federal grants. Such decisions can result from a deliberate plan by the state and university to subsidize their research programs with nonfederal resources.
Significant differences, especially in the Buildings and Improvements and Equipment cost pools, also result when an institution decides to change from the use allowance method (simplified depreciation methodology) to a full depreciation calculation. This approach can be used to justify a significantly larger F&A cost return if the institution is willing to bear the cost of a much more extensive accounting effort. Many universities, both public and private, use full depreciation. The additional accounting costs can be added to the F&A cost pools for administration, assuming that sum does not exceed the 26% cap.
Costs may also differ because of internal institutional policies regarding direct versus F&A costs and how they are defined. For example, at some universities equipment maintenance costs may generally be considered as F&A costs, while at others, they may be a direct charge to the grant. As a result, a given university may show higher direct costs and lower F&A costs than comparable costs at another university, even though the actual cost of the particular function is exactly the same at the two institutions.
Simple variations in the cost of utilities or labor in different geographic areas may contribute to rate differences. A study in 1988 showed electricity costs in the New York area were ten cents per kilowatt hour compared to two cents per kilowatt hour in the Seattle area. Costs in Seattle have since gone up significantly, but they are still lower than most areas of the country. Similarly, heating and air conditioning costs vary widely across the country, as do labor and construction costs.
Thus, it is generally conceded that there are legitimate differences in costs among institutions across the country that should be recognized by the government in the award of F&A costs. However, it can be argued that institutions which arbitrarily limit themselves to F&A cost rates below their actual costs are simply allowing the granting agencies to underwrite disproportionately more services and newer facilities at competing institutions with relatively higher rates.