New Zealand’s Approach
to Supporting Research Overheads
(and fully funding research)
Stuart McCutcheon
The University of Auckland
Background
• New Zealand universities are “bulk grant”
funded by Government, primarily through
student numbers
• No direct funding of overheads
• Programmes that do not bring overheads must
be supported from other sources
• Key issue is grant “sustainability” – capital,
capacity for future investment and operating
surplus as well as overheads
University of Auckland Budget
(29,000 EFTS)
Revenue
Student component (Government)
Domestic tuition fees
International tuition fees
Performance Based Research Fund
Externally funded research
Other (service, donations, interest)
Total revenue
$m
227
115
57
68
163
110
740
Expenditure
People costs
Operating (including leases)
Depreciation
Total expenditure
409
201
108*
5-6
2.5
2.5
718
4.2
Operating surplus
* Available for reinvestment (capital expenditure)
22*
% increase p.a.
2.5
2.5
5.0
0
0
2.5
1.9
A Brief History of Overheads
• Pre 1990, Government research agencies were
bulk funded (overheads embedded)
• 1990, Crown Research Institutes formed
• Foundation for Research, Science &
Technology :competitive funding with
overheads included (~$600m fund)
• Universities permitted to compete
• External research income increasing generally
• Overheads suddenly of interest!
NZ Government:
Principles of Full Cost Funding
• Full cost funding is necessary to ensure:
– real costs of research are measured
– long term viability of research providers
– cross-subsidies between Vote:RS&T and
Vote:Education are avoided
• “RS&T purchase agents will pay fully for the
direct and indirect costs of research projects”
Hon. Pete Hodgson, Minister of RS&T, 2003
Assessing Overhead Costs
• Overheads (indirects) may include:
– Support staff (e.g. secretarial)
– Premises, depreciation
– Libraries
– Other infrastructure (e.g. Research Office)
• Assessed using the USA OMB A21 method
Multiplier =Σ(overhead costs)/Σ(salaries)
= 110-127% of salaries
• In some cases, application of the method is
audited by the funding agency
A Typical Research Budget
Direct costs
Academic, technical staff (itemised)
Research working expenses (itemised)
Total direct costs
Indirect costs
Academic and related salaries
x overhead multiplier (1.21)
Total cost of project
$k
700
200
900
847
1747
Disposition of Research Budget
Components
Direct costs
$k
Disposition
Research staff
700
Teaching relief
Direct employment
Working expenses
200
Researchers draw
down as required
Indirect costs
847
Department
contribution to
central costs
Some Challenges to the NZ Overhead/Full
Cost Funding System
The coalition of the unwilling:
1. Government agencies in transition
2. Government agencies post-transition
3. Private industry
4. Charitable trusts
5. (Some) academic staff
This applies to some, but not all, such groups
1. Government agencies in transition
• Previously marginal funders can fund fewer
full-cost projects
• They take the view that “their” overheads are
embedded in the universities
• Government unwilling to increase investment
to purchase same research, or to get less
research for the same funding
• Transition arrangements involve “smoke and
mirrors” input of university funds
2. Government agencies post-transition
• Continuous challenges to overhead
calculations
• Attempts to confuse overheads and directs –
e.g. strikeout of animal costs because they
were not specifically excluded from overheads
• Battles over other budget components (e.g.
buying out of academics time)
3. Private industry
• Claim that as taxpayers they have already
paid the overheads and cost of staff time
4. Charitable trusts
• Typically refuse to pay all (or any) overheads
• Pay for technicians, post-docs but not
academic staff time
5. (Some)academics
• Often fail to understand the true overhead
costs
• Believe overheads are already paid for
• Fail to understand that “other” sources of
funding for overheads are declining in real
terms
• Want to preferentially reduce overhead
component (e.g. when grant not fully funded)
• Want deals to reduce overheads or use them
for other purposes (“my overheads”)
On the Bright Side…
• The NZ system is simple, clear and can be
audited
• Costs and revenues are allocated properly
• The main challenge is to educate those who
want to reduce overheads to understand that
the outcome can only be a running down of
the science system….
• ….and then to get agencies to fund operating
surplus and further investment!