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04/25/91

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Stanford's provisional indirect cost recovery rate set at 55.5%

STANFORD -- The Chief of Naval Research has canceled the Memoranda of Understanding between Stanford University and the Navy, and set the University's provisional indirect cost rate for the current year at 55.5 percent.

Stanford's provisional rate had been 70 percent. Involved in that rate were Memoranda of Understanding, written agreements between the University and the Navy that clearly spell out how a particular cost or issue will be handled.

Each percentage point of Stanford's university-wide indirect cost rate is estimated to equal about $1.25 million. However, in a statement, Stanford President Donald Kennedy said: "It is impossible to estimate the actual dollar impact on the University at this time because this is only a drop in a provisional or temporary rate, which will be revised when actual data become available. The year's final indirect cost rate will not be determined for at least a year."

The Navy's decision came after several weeks of negotiations between teams from the University and the Office of the Chief of Naval Research.

"We regret this action," Kennedy said, "but we are determined to work with the Navy and the Defense Contract Audit Agency over the next several months to develop new methods of indirect cost allocation to replace those contained in the Memoranda of Understanding....

"Knowledgeable observers inside and outside the University believe that the 55.5 percent provisional rate is far below that needed to recover Stanford's real costs of conducting federally sponsored research. Stanford will proceed promptly with new studies to document its indirect costs. Final costs for the year will be determined after audit, and differences between the provisional and the audited rates will be carried forward as an adjustment to the rate in future years.

"The University will certainly weather the one- or two-year transition that we predict. It is prepared to make the necessary financial commitments to ensure that the University's programs of instruction and research do not sustain serious damage in this period."

-ts-

Text of Kennedy's statement enclosed

Statement on Indirect Cost Recovery

President Donald Kennedy

Stanford University

April 25, 1991

The Chief of Naval Research has decided to cancel Stanford's Memoranda of Understanding with the Navy and set the University's provisional indirect cost rate for FY 1991 at 55.5 percent. We regret this action, but we are determined to work with the Navy and the Defense Contract Audit Agency over the next several months to develop new methods of indirect cost allocation to replace those contained in the Memoranda of Understanding.

It is impossible to estimate the actual dollar impact on the University at this time because this is only a drop in a provisional or temporary rate, which will be revised when actual data become available. The year's final indirect cost rate will not be determined for at least a year.

Meanwhile, the Office of Management and Budget announced on April 22 that the Bush administration is engaged in a broad effort to develop reforms in the indirect cost recovery rules. This review will encompass reimbursement policies for administration, facilities, and equipment. OMB has also generated a list of proposed "unallowable cost" categories. We applaud this effort to accomplish a central government policy for the support of university research, and we note that the list of unallowable costs conforms to many of the practices we have already adopted at Stanford during the current audit.

Knowledgeable observers inside and outside the university believe that the 55.5 percent provisional rate is far below that needed to recover Stanford's real costs of conducting federally sponsored research. Stanford will proceed promptly with new studies to document its indirect costs. Final costs for the year will be determined after audit, and differences between the provisional and the audited rates will be carried forward as an adjustment to the rate in future years.

The University will certainly weather the one- or two-year transition that we predict. It is prepared to make the necessary financial commitments to ensure that the University's programs of instruction and research do not sustain serious damage in this period. For the longer term, the prospect is for a new system that will include far more costly accounting requirements and provide more uniform standards for indirect cost recovery at research universities nationwide.

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