Overheads, the Good and the Bad

It seems arguments about overheads–the additional fees that grant recipients add to the direct costs of a grant–have flared up again, with the usual dichotomy between ‘overheads are mostly profit’ and ‘overheads are absolutely reasonable.’ Proflikesubstance writes (boldface mine):

But. That money for science doesn’t all go to science, does it? In any discussion of declining science budgets, the issue of university overhead is always a topic that comes up. Each institution negotiates its own overhead rate with the Feds, mine happens to be just north of 50%. This means that for ever dollar I bring in, a little more than 50 cents is deposited into the university.

….overhead money ALWAYS comes up in conversations about federal research budgets. “Reduce the overhead rate and we’ll all get funded!” While that all sounds well and good, the conjured images of overhead-funded Dean’s Maseratis is so ridiculous that it’s hard to engage anyone spouting that view with a straight face. So what does overhead really do?

Among many things, overhead has two major functions: 1) pay for the research enterprise, 2) fund start-up packages. Point 2 is pretty straight forward – a research career isn’t going to get off the ground without funds to create data prior to the first grants rolling in. The first point, however, is where many people seem to have a blind spot. It’s a blind spot often created by not having to worry about the costs that this evil overhead covers.

It’s a blind spot often created by not having to worry about the costs that this evil overhead covers. Also, it is often unclear how much it actually costs to keep the lights on and the research supported. If we ignore support staff who are funded off overhead money (a major cost) and just focus on the lab space, what does that cost?

I agree that there are significant hidden costs associated with science (happens with price estimates of sequencing too). But (heh).

The realized overhead rate is about the same regardless of institution. Grants at Harvard cost about the same at Ohio University despite different indirect rates, largely because some universities are better at hiding overhead costs in the fringe rate. I actually looked at some grant proposal budgets I recently reviewed (while I reviewed them) and plugged in other proposals’ (from different institutions) indirect and fringe rates, and the differences in total cost were miniscule.

Nobody is leaving money on the table.

Yet if we consider the actual costs that different institutions face, there is no way a private research institute, Harvard, and the Ohio University should have the same total overhead (fringe and indirect costs). The cost of living in Cambridge, MA is different than Athens, Ohio. Different states have different healthcare costs. Different institutions have different sunk costs (e.g., is the applicant renting a building or working in one which has already been paid for?). Yet, mysteriously, all the ‘realized overheads’ are pretty similar.

I don’t think there’s any sort of official collusion happening. But since these rates are publicly available information, everyone can see what other institutions charge.

So are some places charging more than they need to support science? Absolutely, though if these millions of dollars were to vanish, that funding has to come from somewhere–and that somewhere is probably students’ pockets. It’s also worth noting that similarity of realized overhead rates implies that the institutions that are ‘profiting’ the most are not the usual suspects, but are institutions that receive a lot of grants in relatively low-cost geographic locations.

At the risk of engaging in Compulsive Centrist Disorder, the truth is probably in the middle–a substantial portion of overheads do go to science-related expenses, but there’s a lot of ‘profit’ too (whether or not that’s a bad thing is a separate question).

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1 Response to Overheads, the Good and the Bad

  1. Pingback: Adding to the Indirect Cost Chatter | Blue Lab Coats

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