National Academy of Science Federal Demonstration Partnership, Phase IV Meeting

The work of the Federal Demonstration Partnership is very familiar to me from my days as the President of the State University of New York at Stony Brook. This is an important, and I am pleased to be able to say, an excellent undertaking by all the agencies that have significant university research grant programs. Consequently, I am delighted not only to speak at today's meeting, but to direct an office that has played such an important role in the development of the FDP initiative. As you know, under the previous administration formal ties were established between the FDP and the interagency Science Committee under the National Science and Technology Council, which is the umbrella authority for OSTP's interagency coordination activities. At the very end of the previous administration, an Executive Order was issued "To Strengthen the Federal Government-University Research Partnership," about which I will say more later in my remarks.

First, however, I cannot resist telling you that as a young principal investigator at the University of Southern California in the late 1960's and early 1970's, I served on a university committee on research overhead administration. This committee was formed to guide the university in the implementation of early forms of OMB circular A-21. It was my first brush with what seemed at the time a very complicated and expensive set of requirements, and I maintained an interest in these issues during the subsequent three decades. I became chairman of the USC physics department in 1972, Dean of the College of Letters, Arts, and Sciences in 1976, and President of Stony Brook in 1980. During the 1980's I served as a trustee of Princeton University, and a Director of the Board of the SUNY-wide Research Foundation. These experiences gave me an opportunity to see the administration of the partnership between government and higher education, from every (non-governmental) perspective. During the 1980's, I testified in Congressional hearings against modifications of circular A-21 that would place caps on some categories of indirect cost recovery. Later in that decade, I campaigned for more rational overhead reimbursement policies within the State University of New York system. I had better success with the state than with the federal policies.

The partnership between universities and the federal government is a complicated one, and sometimes subject to suspicion and bitter disagreements. But on the whole it has been a successful one because all parties have acknowledged the many contributions that universities make to the nation, and the essential role of federal support in maintaining national leadership in education and research. This administration also regards universities as major assets for the cultural, economic, and national security needs of America.

The administration of President George W. Bush also takes quite seriously its responsibility to the American people for the management of public funds. I believe the Federal Demonstration Project is fully consistent with the President's Management Agenda, which is the practical expression of that responsibility. As OSTP discharges its own responsibility to the FDP, we will endeavor to make the connection with the Management Agenda more explicit.

Because of this consistency between the goals of the FDP and the management goals of the Bush administration, I have no reservations regarding the provisions of the Executive Order of December 29, 2000. Let me remind you that this order reaffirms the guiding principles described in the April 1999 NSTC report "Renewing the Government -University Partnership," namely

1. Research is an investment in the future;

2. The integration of research and education is vital;

3. Excellence is promoted when investments are guided by merit review; and

4. Research must be conducted with integrity.

Associated with these are six "operating principles,"

1. Agency cost-sharing policies and practices must be transparent;

2. Partners should respect the merit review process;

3. Agencies and universities should manage research in a cost-efficient manner;

4. Accountability and accounting are not the same;

5. The benefits of simplicity in policies and practices should be weighed against the costs;

6. Change should be justified by need and the process made transparent.

I confess that to me the six operating principles are much less clear and straightforward than the four guiding principles. For example, I am not entirely sure what "transparent" means. If it means what I think it means, we are not there yet. And does "respect the merit process" mean that universities should not lobby for earmarks? Does cost-efficiency entail less than full reimbursement of indirect costs? does it imply uniformity of practices among agencies? among universities? Everyone knows accountability and accounting are not the same, but why not come right out and say that no amount of bookkeeping and auditing can replace good management systems. Audits add value to an organization only when they focus on process. And I do not know how to weigh simplicity against cost. It seems to me that simplicity should always cost less than complexity in policies and practices. Is the cost of simplicity the loss of data that can be used to justify or control expenditures? I don't understand this. But I do understand that change should be justified by need. It's just that I don't know whose need we're talking about.

I know that many of these things are clarified in the April 1999 report, but I want to make the point that even these apparently simple guidelines have deep consequences and are not at all easy to implement. In this context the OSTP review called for in the Executive Order appears to me to be very important. I remind you that Section 2 of the Order says

a) The OSTP, in conjunction with the National Science and Technology Council, shall conduct a regular review of the Government-University research partnership and prepare a report on the status of the partnership. The OSTP should receive input from all departments or agencies that have a major impact on the Government-University partnership through their support of research and education, policy making, regulatory activities, and research administration. In addition, OSTP may seek the input of the National Science Board and the President's Council of Advisors on Science and Technology, as well as other stakeholders such as State and local governments, industry, the National Academies of Science, and the Federal Demonstration Partnership.

b) The purpose of the review and the report is to determine the overall health of the Government-University partnership, being mindful of the guiding and operating principles stated above. The report should include recommendations on how to improve the Government-University partnership.

I have an aversion to comprehensive reviews that "determine the overall health" of something as abstract as the Government-University partnership, but I think a review is a good idea, and I think this language has enough "may's" as opposed to "shall's" to permit a practical product to emerge in a reasonable time.

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Turning from these abstract ideas to concrete issues, I believe the concept of partnership has greater currency today than ten years ago. The end of the Cold War in the early 1990's created an uneasiness about the rationale for funding research in certain areas of science and engineering that has been somewhat resolved during the intervening decade. National defense arguments have been replaced to some extent by economic competitiveness arguments in support of physical science funding. There is a growing sense of urgency regarding the erosion of industrially supported basic research that has been feeding concern about a mounting imbalance between funding for physical versus life sciences. A forthcoming PCAST report, already discussed in the press, draws attention to the fact that the balance issue is not as simple as it looks, and likely originates, at least in part, from the fragmented way in which funds are delivered to the physical science enterprise. Similar points can be made for most other areas of science and engineering, including large parts of the life sciences that are not funded through NIH.

These funding issues have long histories, and have created strains in the Government-University partnership. With budgets inadequate to sustain research in areas in which universities made heavy investments, universities have engaged in a number of practices that are not sustainable in the long run. One such practice is direct approach to Congress for support for facilities and programs outside the established grant process -- earmarking. Another practice is deferral of maintenance on research facilities. Another is a shift of funding from equipment to personnel support. Another is increased reliance on special categories of employees that reduce fringe benefit and salary costs, such as post-docs and adjunct faculty. These practices are certainly exacerbated by the under-recovery of the actual cost of federally sponsored research, well documented by a report prepared two years ago for OSTP by the RAND Corporation. The reported under-recovery at that time was in the range of 10% to 30%. The concept of partnership is well-accepted, but money issues like these get in the way.

Resolving money issues is contentious because of uneven knowledge among stakeholders about the costs of doing research. Ignorance of research economics begins on the campuses, where most faculty and staff do not understand indirect costs. You might ask, "Does anyone understand indirect costs?" My sister, who teaches music at home, once took a course in accounting at a local community college. She brought home the eighth edition of a popular accounting textbook which I perused to see what is covered in such a course. One chapter was devoted to "departmental accounting." It contained a crystal-clear exposition of the principles on which OMB Circular A-21 is based. I think my sister understands indirect costs. These costs are real, and the methods for determining and keeping track of them are well-known. There is nothing arcane about them at all. Yet many people act as if they either did not exist, or were so controversial that it is better to replace them with arbitrary formulas.

I have a horror of arbitrary formulas. In the case of indirect costs, there is no reason for arbitrariness. It is possible to define a satisfactory total cost of any organizational product and account for it with reasonable accuracy. This cost has to be covered somehow.

The real controversy, of course, comes in the judgment of what costs should be, not what they actually are. You could argue that bad management drives up indirect costs. Faculty principal investigators always claim that university administrators are raiding their grant budgets to hire incompetent and superfluous bureaucrats who add no value. Administrators claim that more bureaucrats are needed to comply with federal regulations. OMB has sliced through the Gordian knot of arguments by arbitrarily limiting reimbursement on the most controversial categories of expense. I think we should look for a better resolution that is not so arbitrary. The administrative categories are precisely those most heavily impacted by increased regulation and by increased complexity of the operating environment.

This, of course, is where the Federal Demonstration Partnership comes in. From this program have emerged a multitude of good ideas about how to improve the business climate for sponsored programs. The payoffs have been real, and they have been important to universities. I hope they have also led to cost reductions within the funding agencies as well as in the institutions. Some agencies, notably NSF, have been steadily improving their administrative processes while maintaining steady or declining staff numbers. I hope these efforts can be rewarded by increased recognition in the budget process. The Office of Management and Budget is trying hard to make that happen through its famous agency "score-cards."

The Federal Demonstration Project is one of a very small number of effective programs to improve government processes. It has produced the defining models for "e-government," and saved countless hours of time for us bureaucrats as well as for principal investigators. Each consecutive phase has brought a new set of initiatives and accomplishments that merit much wider recognition.

On behalf of the administration, I thank you for the time and effort you have invested in the Federal Demonstration Partnership, and I look forward to working with you in the future to achieve even more.

John Marburger

September 19, 2002