Pricing the services of scientific cores Part I: charging subsidized and unsubsidized users. (Feature).
Research institutions establish scientific cores to provide critical mass for efficient production and concentration for centers of research excellence. The processes carded out in these cores are becoming an important part of the intellectual and technical content of the research. A basic science department or school may operate a number of scientific cores. An example of a scientific core is a laboratory that helps investigators produce transgenic and knockout mice.
Institutions are experiencing an increase in external funding for scientific cores. Frequently, this support comes in the form of federal grants (i.e., center, core, investigator-initiated, and program project grants). Research institutions often use this federal support to subsidize the core activities. The institutions may also subsidize the core facilities from institutional funds. Foundations and commercial organizations may also support these scientific cores.
This increased funding warrants attention to the amounts charged by institutions for use of the scientific cores. Cases have arisen in which the institution often charges different rates to subsidized and unsubsidized users. However, federal auditors have viewed service center pricing as a source of large disallowances, and auditors of federal grants and contracts under OMB Circular A-133 have questioned whether using these charges is in compliance with the cost principles set forth in OMB Circular A-21 (1) Moreover, government sponsors may have divergent views of how these fees should be developed. Some agencies encourage research institutions to make these core services available to researchers outside the institution, giving rise to questions of program income.
In the past, research departments may have accounted for this federal support by budgeting and charging portions of salaries and other expenses of the core facility to the federal award. The remaining costs were charged to the core facility account, and recovered through charge-outs from the core. This practice creates at least two problems:
1. The assignment of a portion of core facility salaries to the subsidizing federal award, rather than to the cost center, creates an effort-reporting dilemma. The portions of salary charged to the multiple sources of funding do not represent effort. It merely stipulates how the total salary is funded. This could create an inconsistency of treatment (either as a direct charge to an award or to a charge-out center) under cost accounting standards.
2. The removal of the subsidized expenses from the cost center typically reduces the rate to be charged for each unit of service. Hence all users, whether they are eligible for the subsidy or not, benefit from the support from the center or core account. The sponsors of the federal grant understandably expect that the members, rather than all users, would receive a break in pricing these services.
Devising a method of charging for the services of core facilities and controlling and managing the rates and. charges in a way that is compliant with the institution's cost principles (2) is emerging as an administrative concern for research institutions.
In setting prices for core services, questions arise. First is the matter of federal support for the core. Scientific cores are intended to provide shared resources and facilities for research by a number of investigators. Often a federal sponsor will support particular costs of the core, such as the salary of the core director. This frequently occurs through program project grants and core awards in which the director is expected to act as an advisor to those who use the services of the core, in essence as an investigator rather than as an element of core production. How should the institution take into account the support provided by the federal projects and core awards? Should the support be credited to all core users, or only to those who are cited for support on the federal projects or core awards?
To illustrate the alternatives, a core facility has the following characteristics:
1. Annual cost of operating the specialized service facility is $600,000.
2. Annual rate of usage is 30,000 units.
3. Cost per unit usage is $20 ($600,000/30,000).
4. In keeping with the intent of OMB Circular A-21 (3), the cost per unit usage to all users, whether internal or external, is $20.
5. Portions of the $20 cost per unit usage for internal users may come from different sources; the grantee institution has established a system for tacking usage and for charging the appropriate user account(s).
Five examples are used to describe the alternatives.
Example 1: Baseline. In the baseline case, the grantee institution does not receive subsidized support for the facility from any source. The schedule of rates follows:
Internal Users $20 cost per unit usage External Users $20 cost per unit usage
Example 2: Core subsidy. In this case, the grantee institution receives a single federal grant award to support the facility. The award of $200,000 is from the National Cancer Institute (NCI) under a Cancer Center Core Support Grant (P30). Federally sponsored cancer center members who have investigator-initiated research grants (R01s) constitute 80% of the usage whereas 20% of the usage is by investigators who are not cancer center members (or they are cancer center members performing non-federally sponsored research). The $200,000 will be used to subsidize $8.33 ($200,000/($600,000x.8) x $20) of the $20 per-unit usage rate incurred by cancer center members for federally sponsored research projects.
The schedule of rates for example 2 is as follows:
Cancer Center Members Rate Federally sponsored research $20 cost per unit usage $8.33 charged to the NCI P30 $11.67 charged to the end user's R01 Non-federally sponsored research $20 charged to the user's non- federal award Other Internal Users $20 charged to the user's award (R01 or other) External Users $20 charged to the user's insti- tution
Example 3: Core subsidy plus specific investigator-initiated project support. In this case, the P30 center core grant provides not only $200,000 to support the core facility but also $20,000 to support specific research projects that use the core. Federally-sponsored cancer center members who have specific projects supported by the center core grant constitute 10% of usage, while investigator-initiated research grants (R01s) of these members constitute 70% of the usage. The remaining 20% of the usage is by investigators who are not cancer center members, or they are cancer center members performing non-federally sponsored research. Once again, the $200,000 will be used to subsidize $8.33 ($200,000/ ($600,000 x.8) x $20) of the $20 per unit usage rate incurred by cancer center members for federally sponsored research projects (10% P30 and 70% R01 usage). The schedule of rates for alternative 3 follows:
Cancer Center Members Rate Federally sponsored research $20 cost per unit usage Core-supported project $8.33 charged to the NCI P30 (core subaccount) $11.67 charged to NCI P30 (research project subaccount) R01-supported project $8.33 charged to the NCI P30 (core subaccount) $11.67 charged to the member's R01 Non-federally $20 charged to the sponsored research user's non-federal award Other Internal Users $20 charged to the user's award (R01 or other) External Users $20 charged to the user's institution
Example 4: Two core subsidies. The facility receives two subsidies: $200,000 to support the NCI-core facility and $50,000 to support the facility from the National Institute of Environmental Health Sciences (NIEHS) under an Environmental Center Core Support Grant (P30). Cancer center members constitute 55% of the usage, environmental center users 25%, and 20% non-cancer/non-environmental users (or cancer center/environmental users performing non-federal research). The NIEHS P30 supports no specific projects that use the core facility. The $200,000 from NCI will be used to subsidize $12.12 ($200,000/(600,000 x.55) x $20) of the $20 unit usage rate incurred by cancer center members for federally sponsored research projects. The $50,000 from the NIEHS will be used to subsidize $6.66 ($50,000/($600,000 x.25) x $20) of the $20 unit usage rate incurred by environmental center members for federally sponsored research projects. The schedule of rates for alternative 4 follows.
Cancer Center Members Rate Federally sponsored $20 cost per research unit usage $12.12 charged to the NCI P30 $7.88 charged to the member's R01 Non-federally $20 charged to the sponsored research user's non-federal award Environmental Center $20 cost per unit Members usage Federally sponsored research $6.66 charged to the NIEHS P30 $13.34 charged to the end user's R01 Non-federally $20 sponsored research charged to the user's non-federal award Other Internal Users $20 charged to the user's award (R01 or other) External Users $20 charged to the user's institution
Example 5: Multiple programs and sources of support. As noted above, scientific cores are increasingly used by multiple programs as well as by multidisciplinary projects. These programs may have many sources of support. Table 1 illustrates how the sources of funding for a single core (i.e., cellular morphology) might look for a translational research department at a large institution.
This situation introduces complexities in deciding how to price core services. In example 5, the program related to cystic fibrosis is funded in such a way that, within the cellular morphology core (CMC), work in the cystic fibrosis program may draw on the sources in any proportion. Funding assigned to this core within one P30 award may be spent for cystic fibrosis and other genetic diseases, but only within the CMC. With the sponsor's approval, one award for muscular dystrophy may be spent by any core, but only on work related to this disease. Money provided to the director by a corporate sponsor, however, may be spent for any program for specific investigators. This example illustrates how two steps are needed to establish accountability for charges from core facilities. One can first associate a charge for an assay with research on cystic fibrosis, but once this is done, how does one allocate the charge between sources of support for research on that disease?
The authors suggest that once the cost of a procedure is attributed to a particular program, the charge may be allocated to the sponsors of that program in accordance with a predetermined formula that generally reflects the amount of support from each source. This method has two advantages over typical laboratory charging. First, the department has established a cost center or charge-out center, and has attributed all cellular morphology expenses to this core. Second, instead of each source being tapped, one at a time, for the cost of each procedure performed by the core, the cost is spread for each procedure. This process is appropriate under the allocation and documentation standards set forth in the cost principles (4) for research institutions. There is no intent to attribute costs to awards that are not related to that particular program. While it may be possible to argue that the allocation of costs between funding sources is based on the proportional benefit to each, the authors are not certain that s uch a benefit can be determined in all cases. Hence, the costs are managed within a program instead of the interrelationship of the awards as in alternative example 3. In the more common case, in which commercial and foundation funds, as well as federal support are involved in a program, the concept of program-based management would be extended to cover sources of support that are funding similar work.
Whenever the allocation of costs involves federal research awards, federal regulations and policies are to be followed. The NIH Grants Policy Statement (revised 3/01) sets forth conditions for awards to qualify for treatment as closely related work. (5) These policies should be reviewed to assure that the allocation of costs is in compliance with the federal requirements.
In the second example, members account for 80% of the subsidized usage of a core facility. Assume that the non-core funding is half R01 and half commercial. In this case, the price would be:
Cancer Center Members Rate Federally sponsored $20 cost per research unit usage $8.33 charged to the NCI P30 $5.83 charged to the end user's R01 $5.84 charged to the end user's commercial support
In each of the examples above:
1. The institution's system for tracking usage of the core facility would identify the user, the program, and the account(s) to be charged for the usage.
2. The institution would charge the full expenses of the core facility--both salaries and other expenses--to the core facility account.
3. The rates would be reviewed periodically and designed to recover not more than the total cost of the facility over a long-term period as agreed to by the grantee institution and the cogent Federal agency.
The proportion of the rate to be charged to the core account, and the amounts allocated to the various non-core sources of funding, would be reviewed at the same time and adjusted as necessary.
In the method described previously, the institution charges all users a single rate, but recovers a portion of that rate from the various federal award(s) available to each user, and the rest to the sponsors of the individual's research program. The individual research sponsor of users associated with the core grant is charged a discounted rate that recognizes the benefit from the core award, while the remainder of the price is charged to the core award. For this method to be in accordance with federal cost principles, institutions need to budget core facility usage, rather than particular expenses, on center and core awards; and federal reviewers, including members of study sections, need to accept this concept. To gain acceptance, an institution would need to apply this method consistently.
Frequently, departments provide core services to outside users. When this occurs, the institution must comply with the IRS regulations and with the government's recently-revised rules for giving the federal award credit for program income. Program income is gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award. Part II of this article discusses the program income and federal tax implications of charges for scientific cores.
Table 1 Cellular Morphology Core (CMC) Sources of Funding Disease NIH NIH NIH NIH NIH NIH Core 1 Core 2 SCOR P01 1 P01 2 R01's Cardio-vascular X X Infectious diseases X X Cystic fibrosis X X X X Other genetic diseases X X X X Muscular dystrophy X X X Cancer X X Disease Found'n Comm'l Support Support Cardio-vascular X Infectious diseases X Cystic fibrosis X X Other genetic diseases X Muscular dystrophy X X Cancer X
(1.) OMB Circular A-21, Section J44.c. states "The cost of such institutional services when material in amount wilt be charged directly to users, including sponsored agreements based on actual use of the services and a schedule of rates that does not discriminate between federally and non-federally supported activities of the institution, including use by the institution for internal purposes....
(2.) Office of Management and Budget (OMB) Circular A-21 for universities, Circular A-122 for non-profit research institutes, and 45 CFR 74 (HHS OASC 3) for hospitals.
(3.) Similar to single-price provisions in the Medicare regulations.
(4.) Section C.4 of OMB Circular A-21 states: A cost is allocable to a particular cost objective (i.e., a specific function, project, sponsored agreement, department, or the like) if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received or other equitable relationship...
d. - Allocation and documentation standard.
(1) Cost principles. The recipient institution is responsible far ensuring that costs charged to a sponsored agreement are allowable, allocable, and reasonable under these cost principles.
(2) Internal controls. The institution's financial management system shall ensure that no one person has complete control over all aspects of a financial transaction.
(3) Direct cost allocation principles. If a cost benefits two or more projects or activities in proportions that can be determined without undue effort or cost, the cost should be allocated to the projects based on the proportional benefit. If a cost benefits two or more projects or activities in proportions that cannot be determined because of the interrelationship of the work involved, then, notwithstanding subsection b, the costs may be allocated or transferred to benefited projects on any reasonable basis, consistent with subsections d. (1) and (2).
(5.) See closely related work. NIH Grants Policy Statement revised 3/01, -86-87 and -114.
Office of Management and Budget (OMB) Circular A-133. Retrieved at http://www.whitehouselgov/omb/circulars/a133/a133.html
OMB Circular A-21 Section J.44.c. Retrieved at http://www.whitehouse.gov/omb/circulars/a021/a021.html
OMB Circular A-122. Retrieved at http://www.whitehouselgov/omb/circulars/a122/a122.html 45 CFR 74 (HHS OASC 3) Retrieved at http://cfr.law.cornell.edu/cfr/cfr.php?title=45&type=part&value=74
OMB Circular A-21 Section C.4 Retrieved at http://www.whitehouselgov/omb/circulars/a021/a021.html
National Institutes of Health. (March 2001). 86-87 and 114. NIH Grants Policy Statement. Retrieved at http://grants/nih.gov/policy/nihgps-2001/index.htm
Jerry G. Fife, is Director, Contract and Grant Accounting, Student Accounts, Student Loans at Vanderbilt University, Tennessee. There, Mr. Fife is responsible for post-award financial matters, F&A and fringe benefit proposal development, negotiation and implementation, and sponsored project audit matters. Prior to moving to Vanderbilt, he was the Director of Contracts and Grants/Sponsored Programs at The University of North Carolina, Chapel Hill and Mississippi State University. Mr. Fife began his career at Purdue University holding various positions in the Office of Contract and Grant and Business Affairs after completing his bachelor of science degree in general management from Purdue University. Mr. Fife served as the treasurer for SRA and on the Board of Directors for the Council on Governmental Relations (COGR) in addition to work on various program committees and numerous presentations for SRA and NCURA. He previously published in the SRA and Grants Magazine. He currently serves as a contributing editor for Grants Administration News.
Author's Note: These papers were prepared to fill a need acknowledged through the authors' work. Please contact the corresponding author, Jerry G. Fife, at Vanderbilt University through Email: jerry.g.fife@Vanderbilt.Edu
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|Publication:||Journal of Research Administration|
|Date:||Jul 1, 2002|
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