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Stanford paid 15 percent of indirect costs, report says

STANFORD -- About 15 percent of Stanford University's indirect costs of doing externally funded research and teaching in the past two years was paid for by the university rather than by sponsors, according to a new report on indirect cost waivers by Robert L. Byer, dean of research.

The university agreed not to charge project sponsors for an average of $16.4 million in indirect costs for each of fiscal years 1989 and 1990.

About a quarter of this university cost-sharing with sponsors went to projects funded by the federal government.

Projects funded by state and local governments, the federal government, U.S.-based non-profit organizations and international aid organizations received about 96 percent of the Stanford support.

About 3 percent of the cost-sharing was on projects sponsored by U.S.-based corporations and less than a percent on projects sponsored by foreign entities. (See attached table.)

In 95 percent of the cases, Stanford agreed to pay for part or all of the indirect costs itself because the sponsors set limits and the projects would not have proceeded if Stanford had not contributed, the report says.

"A significant number of those projects are for the purpose of training students; conducting conferences; supporting junior faculty, such as the 46 Presidential Young Investigators at Stanford under the National Science Foundation program; public service events; or other small projects in disciplines not usually funded by external sponsors," Byer wrote in a cover letter to the report.

The costs involved are referred to as "forgone" or "waived" costs, but "they are in fact real costs that are incurred by those projects and which Stanford must pay when the sponsor does not," the report says. "These 'forgone' costs never are passed on to any external sponsors, either during the year they are incurred or in future years. They are funded entirely by university funds acquired primarily through student tuition, gifts and endowment income."

All waivers listed

The report lists every project for which a waiver was issued in fiscal 1989 and 1990. It indicates that about 30 percent of the 3,000 annual externally funded projects are granted full or partial waivers from the normal Stanford policy of making sponsors pay the full cost of teaching and research projects they sponsor. (Indirect costs are the charges for goods and services, such as the cost of buildings and utilities, that are not easily allocated to a specific research project or grant.)

The percentage of projects receiving waivers is much higher than the percentage of costs waived. That's because Stanford cannot afford to share the costs of large projects even when it would like to, the report says, and tends to grant waivers for smaller, public service or education- oriented projects.

Report prompted by hearing

The report was requested by Stanford President Donald Kennedy after Congressman John Dingell, D-Mich., raised questions about Stanford's waivers to foreign governments and corporate sponsors. The questions came during a March 13 subcommittee hearing that Dingell chaired on Stanford's indirect cost reimbursement practices.

"The chair is driven to the regrettable conclusion that the federal government is charged the full [cost], Weight Watchers are not; the federal government is charged the full, Ciba-Geigy, Pfizer and others are not; and we have a -- this impoverished corporation, Exxon, which is not charged overhead, whereas the federal government is again charged the full tab," Dingell told Kennedy at the time.

However, the report disputes that impression. The Exxon project in question was a series of policy studies on energy, national resources and the environment that was funded not by the profit-making corporation but by the non-profit Exxon Educational Foundation. Similarly, the Weight Watchers project was a Medical School study of insulin regulation sponsored by the non-profit Weight Watchers Foundation.

"With respect to Ciba-Geigy and Pfizer, the projects funded were either charged at the clinical trial rate or were unrestricted donations," said Pat Devaney, associate dean of research.

While the report says that "U.S. based corporations and all foreign sponsors together accounted for only about 4 percent of the forgone indirect costs" at Stanford, U.S. government agencies accounted for 24 percent of the total forgone indirect cost reimbursements in 1989 and 27 percent in 1990. More than half of the forgone indirect costs (64 percent in 1989 and 61 percent in 1990) was for projects sponsored by U.S.-based non-profit organizations or international aid organizations with U.S. participation, such as the World Bank, World Health Organization and NATO.

Foreign sponsors

Projects sponsored by foreign entities were granted waivers worth a total of $71,890 on nine projects in 1989 and worth $48,288 on six projects in 1990. (There were actually only six different projects as several are listed for both years.)

The projects included a study of the interdependence of the United States, Canada and Mexico financed by the Canadian Consulate; a curriculum materials and teacher training project for U.S. schoolchildren on Japan, financed by the Japanese government; an international assistance project to help the government of Indonesia assess its food policy and rural income generation; an international conference on information technology and economic relations between North and South America, financed by a West German non-profit foundation; supplies and materials for five student fellowships awarded by an Israeli institute; and supplies and materials for a visiting professor of Swiss studies financed by a Swiss sponsor.

The University does not track requests for waivers that are turned down, but they are rarely granted to foreign entities, the report indicates. It mentions, for example, that Stanford turned down a desirable grant from the Japanese Science Foundation in 1990 because the foundation would not pay indirect costs.

"If we are to be competitive in the international research and development funding arena, we are going to have to help foreign agencies understand how research is funded in American universities and the critical importance, especially to private universities, of those agencies' funding the full costs of the research they sponsor," President Donald Kennedy wrote in Jan. 4, 1990, memo to the Medical School dean concerning the proposed Japanese Science Foundation grant. "Given that we insist on full overhead from our own government, it would be ironic for Stanford to subsidize foreign sponsored projects of this magnitude."

U.S. corporate sponsors

Stanford shared costs on 79 projects sponsored by U.S. corporations in 1989 and 81 in 1990. Stanford support was $622,718 for the 1989 projects and $537,212 for the 1990 projects. All but 12 of these projects were clinical trials of medications or treatments in teaching hospitals.

Stanford has a standard clinical trial rate, which is below the government-negotiated rate, but Stanford also gives the government the lower rate when it sponsors clinical trials, the report says.

Besides the clinical trials, Stanford gave full or partial waivers on three corporate-sponsored projects related to student fellowships or support of students, four related to scientific equipment or facilities improvements and three to social science projects on computer use in education. Two others, totaling $35,000 in forgone indirect costs, involved "misunderstanding" or "confusion" between unrestricted donations that do not carry indirect cost charges and restricted grants for sponsored research, the report says.

Largest waiver categories

Sponsored projects funded by non-profit agencies obtained waivers worth $10,193,527 on 469 projects in 1989 and worth $10,313,359 on 475 projects in 1990.

Projects funded by the U.S. government were granted waivers worth $3,787,312 on 304 projects in 1989 and worth $4,498,084 on 346 projects in 1990.

Stanford shared the costs with state and local government agencies on 40 of the 52 projects they funded in 1989 and on 31 of 48 projects in 1990. Those waivers were worth a total of $1,233,919 in 1989 and $1,456,147 in 1990.

Reasons cited for waivers

"Stanford's purpose in waiving indirect cost recovery on selected projects reflects the University's commitment to public service by cost sharing on those projects," the report says.

While many factors influence Stanford's decision to accept a project with less than full indirect cost funding, "the most important factor is the size of the requested waiver. Waivers are much more likely to be granted on small projects than on large ones.

"Additional factors include the importance of the project to the faculty member and to the school, the needs of junior faculty, the nature and subject matter of the project (areas where funding opportunities are rare), the consistency with which the funding agency applies limitations on indirect costs, and the nature of the funding agency (non-profit or government rather than corporate or foreign)."

Requests for waivers are generally initiated by individual faculty members when they apply for funding to foundations and agencies that have policies restricting their contributions. The report says that about 95 percent of the total forgone indirect cost recovery in any given year is due to the fact that particular sponsors refuse to pay the full overhead rate on all or certain types of projects.

For further information on indirect cost waivers, contact the Office of the Dean of Research.



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