GIM 22
Attachment A
A Primer on Facilities and Administrative Costs
12. How does our overall F&A cost rate compare with other
universities?
Chart VII shows that F&A cost rates
vary greatly among major research institutions, and indeed a few institutions not
shown on the graph lie outside the 44% to 64% range. The average rate among all
research universities is around 50%; private universities have an average rate about
7 percentage points higher than that figure, whereas the average rate for public
universities is approximately 3 percentage points lower than the overall average.
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.
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