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Stanford projects indirect costs, foresees lower recovery

STANFORD -- Acknowledging that a lower rate is likely to emerge from changing federal policy, Stanford University officials calculate that the cost of supporting sponsored research for 1991-92, based on current government regulations, will be about 76 percent.

"While this is a rate that reflects the true cost of supporting research, Stanford is prepared to pay a greater share of that," said Dean of Research Robert L. Byer.

"We have gotten the message, loud and clear. We know that changing standards and upcoming negotiations are unlikely to produce a rate that fully reimburses our costs.

"Nonetheless, federal regulations require us to submit our best projection of our indirect costs, and, under today's conditions, this is it. We rigorously followed current government guidelines in our calculations and attempted to be conservative in all our assumptions and judgments."

The calculation, made with the assistance of outside accounting firm Arthur Andersen & Co., was included in a proposal the university submitted to the Office of Naval Research negotiation team Monday, July 1. It includes a base rate of 72 percent, plus a projected 6 percentage point "carryforward" - that is, reimbursement delayed from previous years - minus a 2 percentage point "decrement" - a safety margin for audit and negotiation.

"Everyone should remember that this submission is just the first step in the process," Byer said. "We begin negotiations in August to arrive at a fair indirect-cost rate for the current year and the next fiscal year.

"Government guidelines and policy are evolving rapidly; for example, the Office of Management and Budget has proposed substantial changes in the cost recovery rules. Such changes may affect this number significantly."

A university's indirect-cost rate determines how much the government will pay for costs - such as libraries, buildings and utilities - that are necessary for research but cannot be directly attributed to an individual project. In April, the government imposed on Stanford a provisional rate for this year of 55.5 percent, after previously having cut the university's original submission of 78 percent to 74 and then 70 percent. Each percentage point equals about $1.25 million in the university's budget.

Every such rate - including the current provisional 55.5 percent - is only a temporary figure based on projections. The actual amount of reimbursement is determined when an audit of actual costs is completed. Thus the current 55.5 percent rate could end up higher.

An indirect cost rate of 76 percent would mean that about 34 cents of each federal research dollar would go to indirect costs. That is about the same amount as in recent years and only slightly more than the 32 cents of each dollar that went to indirect costs at Stanford 10 years ago. Such costs as equipment and major subcontracts are excluded from the base before the indirect-cost rate is applied, so government reimbursement is not as high as the rate might imply.

Byer said that the university was announcing the rate it had calculated to forestall rumors and to facilitate faculty consultation on the issue.

"We are keenly aware of past dissatisfaction on the faculty about the indirect costs," he said. "We want to do everything possible to work with our faculty to resolve this issue, and are grateful that a group of senior faculty members have agreed to form a task force to advise the university on the cost analysis studies that undergird our rate requests. Over the summer, they will review and make recommendations on the reasonableness of costs and the methods used in allocating them."

The Stanford faculty members who agreed to serve on the task force are:

Indirect costs became a visible issue last year when Stanford was accused of making improper charges. Since then, the university has withdrawn $1.4 million in costs from the past 10 years that it said were mistakenly included or may have been inappropriate for federal reimbursement. Numerous other research institutions, including the Massachusetts Institute of Technology and Harvard Medical School, also have withdrawn costs. -ts-


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