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Stanford appeals imposed cut in indirect-cost reimbursement

STANFORD -- Saying that fundamental fairness is at issue, Stanford University on Thursday, Nov. 14, filed an appeal stating that it has been wrongly denied reimbursement for costs incurred in doing federal research last year.

The administrative appeal asks the Armed Services Board of Contract Appeals to award Stanford its actual, legitimate indirect costs of doing federal research in 1990-91, rather than the 55.5 percent rate the Office of Naval Research unilaterally imposed. The difference is at least $20 million, said Peter Van Etten, Stanford's chief financial officer.

"At issue are fundamental matters of fairness - the government's obligation to honor its agreements and to afford contractors just treatment in accordance with law and regulation," Van Etten said in a written statement.

"It is very important to note that Stanford's appeal does not include unallowable and inappropriate costs of the kind that received widespread press attention during the past year."

In a continuing process of scrubbing its books, Stanford has voluntarily withdrawn a total of $2.3 million for the last decade in inappropriate or unallowable charges for indirect-cost reimbursement.

Despite such scrubbing and Stanford's sweeping financial reform program, the university and the Navy remain in dispute over several issues, particularly MoUs - memoranda of understanding. Those are written agreements, negotiated and signed by the university and the government that spell out how both parties should interpret and implement business practices.

The Navy slashed Stanford's provisional rate from 70 percent to 55.5 percent in April and made that the fixed rate in August, largely by unilaterally terminating those agreements after rate negotiations deadlocked. Stanford objected to the termination, pointing out that the MoUs were open and signed written contracts for handling legitimate costs of research, not "cozy" deals as some have sought to portray them.

The university now seeks an unbiased ruling from the Armed Services Board of Contract Appeals. That federal administrative body hears pleas from individuals or organizations doing business with the Defense Department who believe they are the victims of unfair or illegal government action.

"Stanford has taken this step only as a last resort," Van Etten said. "We made exhaustive efforts to obtain a fair result through direct negotiations with officials in the Office of Naval Research, but did not succeed."

Efforts to normalize dealings with the federal government on other fronts will continue, Van Etten said.

"As this appeal proceeds, Stanford will continue to implement its internal reform program and will continue to work with the Office of Naval Research to resolve other outstanding issues," he said.

Those include attempting to reach agreement on an indirect-cost rate for 1991-92. The Navy has imposed the same provisional rate of 55.5 percent but the university has submitted calculations by it and by independent accounting firms that show much higher actual costs, even without the MoUs.

Indirect costs are those - such as for buildings, utilities and administration - that are necessary for research but not directly attributable to any one project.



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