Government
From FY00 to FY16, indirect costs represented 16%–24% of the total amount of annual NSF awards, with the number increasing from 2010 onwards. The NSF defines direct costs as employee salaries and the purchase of equipment that can be attributed to a particular project that won an NSF award. Indirect costs are defined as expenditures that are less relevant to a particular project and are more related to general operations for an award program, including infrastructure and maintenance costs. Generally, agencies such as the NSF calculate the proposed rate of the award by dividing its total indirect costs by total direct costs, which is applicable to all of the agency’s federal awards. The resulting figure is the proposed rate. As a percentage of total NSF awards, indirect costs steadily increased from a decade low in 2010, reaching 24% in 2015 and falling back to approximately 22% in 2016. In 2016, indirect costs at the NSF totaled approximately $1.3 billion of the total $5.8 billion the agency awarded.
This is not the first time a federal agency has been found to be overspending on indirect costs. In September 2013, reimbursements for indirect costs were found to be increasing faster than direct cost reimbursements at the NIH from FY02 to FY12. In the resulting analysis of the situation, it was found that there were “deficiencies” in NIH agencies’ systems for setting rates for their awards, which meant that the NIH was including “inappropriate” indirect costs, causing federal agencies to overpay their shares for reimbursement.
The NSF analysis also uncovered that universities account for the vast majority of NSF award funding, representing, for example, 91% of the $1.3 billion in indirect costs in 2016. According to the analysis, NSF staff did not follow proper guidance for setting up appropriate proposal rates. The analysis will provide recommendations to the NSF on how to better budget award costs in a report to be released this fall.
