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Report of the Faculty Senate
Committee on Administration

April 24, 2002

Charge for 2001-2002

This Committee was asked to (1) analyze and follow up on last year's survey of the school deans on the administrative relationship between the schools and the central administration, (2) report and make recommendations regarding the Provost's ongoing study of the cost of research at the University, (3) review the University policy on Postdoctoral Fellows, and (4) review a revised policy on misconduct in research when proposed.

Cost of Research

The majority of the work of the Committee related to the Provost's ongoing study on the cost of doing research at Penn. A presentation of the preliminary results of the study was made to the Committee. The Committee understands that this type of analysis is currently unique among the Ivy Plus group.

Before describing some of the preliminary results of this valuable study, it is useful to provide some perspective about indirect research charges and costs at the University. Indirect charges differ considerably across research grants. Grants such as NIH and NSF grants have an official overhead rate of 58.5%, which is negotiated by the University for all Penn schools. This rate has decreased in recent years. Other grants such as Pew or Sloan Foundation grants pay only a much smaller overhead rate while some foundations pay no overhead at all. Thus, overhead cost recovery differs substantially across types of grants. There is tremendous variation in the distribution of types of grants as well as the dollar value of the grants across the schools.

There exists a tension between administrators that need to recover indirect costs and researchers who view higher overhead recovery as decreasing the direct cost portion of their grant or reducing the competitiveness of their grant application. This tension is not as apparent in the case of NIH grants where researchers do not perceive the indirect "tax" rate as affecting the competitiveness or the direct cost of their grants.

In the University's "Responsibility Center Management" (RCM) approach, the schools (resource centers and auxiliaries) receive the bulk of the revenues received by the University. For example, 81% of the indirect costs that are generated by research grants in a school are returned to that school. Indirect cost recovery accounts for approximately 18% of the University's revenues and 8% is the percentage of the academic budget, excluding the health system.

The primary objective of the study on the cost of doing research at Penn was to determine the indirect cost of support per expended dollar on direct research. This analysis is input into another important question: Is Penn recovering its indirect costs in its research charges?

Using fiscal year 1999 data, indirect cost expenditures are calculated in four categories: central, school, department, and facility. The facility cost is the biggest driver of indirect costs accounting for about half of indirect costs. The facilities cost is calculated as the $ cost/square foot times the square feet assigned to research and is quite sensitive to how schools assign space to the research category. Treatment of facilities funded by donors is treated the same as those funded by the University. However, in recent years only the School of Engineering and the Wharton School have had buildings largely paid for with donor gifts.

Research activities across schools are quite different. Specific school-by-school breakdowns of indirect costs were not provided. However, schools with less than $5 million in research grants per year were estimated to have total incurred (as opposed to charged) indirect costs of about 33% compared to 61% for schools that had over $10 million of research per year.

The detailed analysis produced a shortfall in recovered versus actual indirect costs of about $37 million for FY99 on a recovered base of $103.6 million. Under RCM, the shortfall falls mainly on the schools.

The Committee understands that the study will be used as a management tool. An important aspect of this study is that it allows the University and the schools to make a more accurate calculation about the extent to which their indirect costs of research are covered. The study also puts pressure on the schools (and departments) to provide more accurate inputs into the cost calculation process, refine the calculation to account for special needs for various types of research, and better manage their research expenses. Faculty attention and input into this process is important and the Committee encourages the faculty in each school to ensure that their interests and input are fully represented at the school level.

Earlier it was mentioned that different grants have different allowable (or feasible) overhead rates. While any incremental contribution to overhead costs helps a school, faculty should be aware that the higher indirect cost recovery grants are making a greater contribution to the school's common overhead pool. It is therefore possible that on the margin such differences could generate some pressure on the faculty to apply for grants with greater allowable overhead rates. Also, greater recovery of expenditures characterized as overhead (indirect costs) on federal grants may sometimes be possible as "direct" costs on non-federal grants, so the faculty should expect some encouragement towards adopting "best practices" with respect to grant writing. Absent direct incentives to adopt such practices, however, faculty grantees are unlikely to prefer such reallocation of costs.

The study will allow the University and the schools to get a better idea of what overhead rate is appropriate to recover research costs on a school by school basis. The preliminary analysis of the Provost's study did indicate considerable variation in this regard across (research) sizes of schools. If the gap between actual and recovered costs is mostly attributable to one or two schools and particularly if these schools have a disproportionate percentage of the University's total research income, it is possible that some pressure may develop over time for a two-tiered rate system for some federal grants to replace the current single-rate system. Such a two-tiered system would have, of course, positive effects on the higher rate school(s), but probably also a corresponding negative effect on rates for the other category of schools.

Knowledge about the sources of costs also provides a basis for beginning an exploration of how incurred costs vary across types of research (e.g. wet labs versus pure office projects) and what types of research projects incur incremental research costs or are likely to have no effect on research costs on the margin. Schools may use cost recovery information to develop policies that have higher expectations for indirect cost recovery for established investigators and those with large or expensive laboratories. The Committee also recognizes that many faculty at the University incur very low indirect research costs and in some cases recover more indirect costs than their research incurs.

The presentation to the Committee came late in the academic year. Important missions of the Committee in this area are to develop a greater understanding of research costs at Penn, educate the faculty about these costs, and provide useful input into the process. Greater appreciation of these issues may increase the willingness of faculty to help shoulder and take additional responsibility for the general indirect cost burden of the University or their school. Greater faculty cooperation on research overhead recovery will likely depend on educating the faculty about the links between recovered overhead monies and how those monies are used to support immediate research costs.

The Committee understands that many faculty have questions about the approach toward calculating indirect costs and efforts to control them and these questions need to be addressed. Finally, the Committee notes that decisions about appropriate cost recovery should take into account that research done in one school benefits other schools by strengthening the overall research environment at Penn.

Other Items Reviewed

After reviewing the survey of school deans conducted last year, the Committee decided that the information provided did not provide a strong basis for independent follow-up action. Many of the relevant issues flagged by the survey related to issues raised by the "Cost of Doing Research at Penn" study and therefore, the Committee decided to focus its efforts in that area.

The Committee reviewed a modification of the existing policy on postdoctoral fellows, which was proposed by the Provost's Council on Research. The PCR adopted changes suggested by the Committee. Subsequently, the Committee recommended that SEC approve the revised policy.

The revised policy on misconduct in research was referred to the Committee on the Faculty.

Recommendations for Next Year's Committee

Based on the Committee's examination of the cost of research at Penn, the Committee recommends the following areas be pursued next year: (1) indirect costs, allocated costs, and subvention and their relationship to the overall budget, (2) differences in the policies of various schools with respect to the type of grants that are encouraged, how the monies received to support the indirect cost of research at each school are used, and how startup research projects or changes in strategic direction are dealt with, (3) how the special needs and demands of the School of Medicine affect its cost recovery, (4) how the schools determine teaching versus research space, and (5) how facilities and administrative costs are determined and managed.

Dennis A. Yao, Business and Public Policy, Chair
Dorothy Cheney, Biology
S. Walter Englander, Biochemistry & Biophysics
Peter McCleary, Architecture
Charles W. Mooney, Law
David P. Pope, Materials Science

Ex officio:
Senate Chair, David B. Hackney, Neuroradiology
Senate Chair-elect, Mitchell Marcus, Computer & Information Science

Almanac, Vol. 48, No. 33, May 7, 2002


May 7, 2002
Volume 48 Number 33

A memorial gathering will be held at noon today, in remembrance of Shannon Shieber who was killed four years ago today.

This year's Perkins Award goes to a long-time member of the GSFA faculty.
The School of Veterinary Medicine awards to seven members of its faculty.
The Penn's Way 2002 campaign raised over $400,000.
Speaking Out on Bicyclists vs Pedestrians, and Convenience vs. Confidentiality.
Death of Dr. Frederic Roll, emeritus professor of civil engineering.
Reports from the Senate Committee on the Faculty as well as the Senate Committee on Administration, along with Procedures Regarding Misconduct in Research and Policy for Postdoctoral Fellows.
Two faculty are named to the National Academy of Sciences and one to AAAS.
The expanded PENNCard Policy covers emergency events.
The Three-Year Academic Calendar covers through 2004-2005.