Indirect Costs and Government Contracts ‘The president of a large university commented on the previous year’s operations as follows:

“I should point out that, if the Congress had not recently reduced the ceiling on indirect-cost recovery in connection with research grants by the Department of Defense and the independent agencies from 25 percent, as it now is for the National Science Foundation and the National Aeronautics and Space Administration, to 20 percent, income for the next academic year would have come close to cancelling the anticipated deficit. This is another way of saying that government research grants require some sharing of the cost from general university funds, for our calculated indirect costs are about 32 percent.

In other words, we recover only 63 percent of the true indirect costs.”

“How do we obtain these funds? The answer is, through careful planning and hard work on the part of many people, including trustees, officers, deans, chairmen, faculty, the Development office, the Alumni Fund, and friends of the university.”

For example, a research contract that formerly called for $100,000 direct costs plus $25,000, or $125,000, would now be $100,000 plus $20,000, or $120,000.
Evaluate the president’s comments. Do you agree with his analysis? Why, or why not? lop2