AAMC's Comments on Proposed Changes to OMB Circular A-21
[On September 10, 1997 the Office
of Management and Budget (OMB) published in the Federal
Register (62 FR 47721) proposed revisions to OMB
Circular A-21, "Cost Principles for Educational Institutions."
The Association of American Medical Colleges (AAMC) submitted
the following letter of comment on the proposal. A follow-up
letter was sent to the director of OMB on April 14, 1998.
The OMB issued its final revisions to A-21 in the Federal
Register (63 FR 29786) on June 1, 1998.]
October 28, 1997
Mr. Gilbert Tran
Financial Standards and Reporting Branch
Office of Federal Financial Management
Office of Management and Budget
725 17th Street N.W.
Room 6025
Washington, D.C. 20503
Re: 62 FR 47721 - September 10, 1997
Dear Mr. Tran:
The Association of American Medical Colleges represents all
125 U.S. medical schools, 86 academic and professional societies
representing 90,000 faculty, 400 major teaching hospitals,
and the nation's medical students and residents. AAMC members
are a major component of our nation's medical research efforts
and train a large fraction of its biomedical research workforce.
Each year nearly 60 percent of the funds awarded by the NIH
for research and research training go to medical schools and
their teaching hospital partners. We write to offer comments
on the Office of Management and Budget's proposed changes
to OMB Circular A-21, "Cost Principles for Educational
Institutions."
Review of Research Facilities Construction Costs
The OMB is proposing to establish a new and elaborate review
procedure to be followed by federal negotiators in assessing
the cost of research facilities utilized in the conduct of
federally sponsored research. We urge that the proposal be
withdrawn. Its underlying premise is faulty, and the proposed
benchmarking methodology is inappropriate.
The OMB notes that the guidance to cost negotiators is "to
assure the reasonableness of facilities costs." However,
nowhere in the notice does OMB offer any evidence that educational
institutions, whether public or private, have constructed
any facility that is unreasonably costed. We are not aware
of any data, even anecdotal in nature, that shows that American
educational institutions are building unreasonably costly
research facilities. Moreover, given the close scrutiny that
state legislatures give to proposed facilities projects in
public institutions, and the well-publicized difficulties
faced by private institutions in raising private funds for
"bricks and mortar," we do not believe that any
evidence can be found that university facilities projects
have in fact been wasteful. We believe the OMB is proposing
to create a burdensome benchmarking system to solve a non-existent
problem.
In addition, we are astonished, particularly given the lengthy
period that this proposal has been under consideration by
government officials, that the proposal is presented without
any credible, data-driven analysis modeling the impact of
the new proposals on universities and schools of medicine.
Such analyses would not appear to be a difficult undertaking,
and we are puzzled and troubled by OMB's failure to insist
on such to validate the specific methodology proposed, or
any other approach that might be conceived.
We believe there is a real danger that the benchmarking proposal
will be used formulaically by federal cost negotiators to
transfer costs to institutions and will come to be yet another
example of the federal government's progressive and unilateral
shifting of the terms of the government-university relationship,
using cost accounting as the weapon. The cumulative effect
of such cost shifting and rule changing is to make long term
investments by research institutions in research and training
capacity an increasingly risky gamble. The policies governing
the government-university relationship and the rules that
follow must be stabilized to allow the risks to universities
of such enormously expensive, long-term undertakings to be
estimated with greater precision, and to restore to the scientific
research enterprise a "business climate" that will
maintain America's world leadership in this critically important
area of human endeavor. Research capacity once degraded cannot
be rebuilt quickly, if at all.
Cutting edge science requires cutting edge, not "average,"
facilities and technologies. However, even if the adoption
of a benchmarking system were to be considered wise public
policy, it would be difficult to find a more flawed benchmark
with which to compare facilities construction costs than the
National
Science Foundation's "Survey of Scientific and Engineering
Research Facilities at Colleges and Universities."
The 1996 report itself states:
The study did not collect unit cost data for individual
construction or repair/renovation projects. It collected
only the aggregate research-related costs and the aggregate
research space involved in all projects begun during specified
periods. These aggregates can be combined into indices of
average cost per square foot, which are useful in tracking
broad cost trends over time. However, they are of little
practical value as guidelines for project planning.
By all accounts, unit costs for both construction and repair/renovation
projects are highly variable, depending on the specific
requirements of the particular project and on many other
factors as well (e.g., geographic region of the country).
Such differences, which are of crucial importance in
project planning, are obscured in the kinds of multiproject
averages that can be constructed from this study's data.
(Appendix A, page A-15) (emphasis added)
We agree with the September 29 comments from our colleagues
at the Council on Governmental Relations that recent changes in the survey's
methodology proposed by the National Science Foundation (62 FR 41094) will not correct its fundamental flaws as a benchmark.
Indeed, some of the proposed changes will skew the data, making
it even less useful as a benchmark. For example, the inclusion
of additional institutions that are not major research performers,
and requesting data by gross rather than net square footage,
will only serve to mask the true costs of research facilities
at the most research-intensive institutions.
The survey does not (and cannot reasonably be expected to)
consider all of the factors that come into play when universities
and schools of medicine engage in the design of new research
space. Differences in costs of land; special construction
needs driven either by the environment, e.g., in earthquake
zones, or by the science; regional aesthetic concerns; and
local and state construction codes and environmental protection
regulations are but a few of the site-specific and program-specific
variables university administrators must consider. To document
and justify each of these decisions will both increase administrative
costs and result in paperwork headaches of monumental proportions.
We find it curious that OMB, which is charged with restraining
the growth of paperwork burdens by other agencies, did not
complete a paperwork assessment of this proposal.
We urge that the current benchmarking proposal be scrapped.
However, should the OMB desire to continue on this ill-advised
course, we urge that detailed studies be conducted, first,
to determine convincingly whether there really is a facilities
costs problem that needs to be addressed; second, to demonstrate
in a scientifically rigorous fashion that the benchmarking
methodology chosen accurately reflects the different variables
that are known to affect the construction costs of any given
research facility; and third, to evaluate the administrative
burdens and costs of the proposed new regulations on universities
and schools of medicine.
Elimination of Utility Special Studies
We believe that the elimination of special studies for the
allocation of utility costs poorly serves the interests of
both the federal government and the research institutions.
Given the fundamentally illogical and unfair provisions of
the OMB's current default methodology, special studies have
proved to be a useful mechanism to insure that utility costs
are fairly allocated. The alternative methodology now proposed
by the OMB for the allocation of utility costs is not entirely
satisfactory. By using a fixed increment above the prescribed
cost method, some institutions will be overcompensated for
their utility costs while others will be undercompensated.
In our view, the use of special studies, subject to audit
and verification, allows the documentation and reimbursement
of actual costs and is preferable to the proposed system.
Specialized Service Facilities
The September 10 notice states that the OMB will not consider
a change in the current provisions for charging specialized
service facilities costs and parenthetically includes animal
care facilities as an example of a specialized service facility.
Although we understand the technical argument that underlies
this decision, we are deeply troubled by it and believe that
it should be reconsidered.
Contemporary biomedical research, and especially the extraordinary
advancements of the Human Genome Project, has dramatically
increased the need for and the costs of animal research. With
the unraveling of the human genetic sequence, it now becomes
imperative to elucidate the functions of the newly deciphered
genes and gene clusters in appropriate physiological environs;
and that means the construction and maintenance of large colonies
of recombinant rodents, and eventually higher animals. The
costs of maintaining the requisite colonies can be staggering
and for some investigators, can amount to several hundreds
of thousands of dollars a year.
Given these considerations, we argue that for the most part,
animal facilities should be considered as research facilities,
and their costs should be treated like any other research
costs. This position has been forcefully articulated by many
of the nation's leading biomedical investigators, and by a
special committee set up by the NIH to review this issue.
We believe that OMB should revisit and clarify this issue
with federal cost negotiators. The current regulatory interpretation
has produced extreme cost differentials at similar institutions,
has resulted in wide discrepancies in the cost of animals
submitted as direct charges on NIH research grants, and serves
as a severe deterrent to precisely the kind of cutting-edge
research that the follow-on to the Human Genome Project will
demand. The current animal facility costing policy, although
perhaps technically correct, is dissonant with overarching
national biomedical science policy, which has identified the
elucidation and subsequent scientific exploitation of the
human genome sequence as a top priority to advance our understanding
of human diseases.
We appreciate the opportunity to comment on the proposed
modifications to OMB Circular A-21. Please feel free to call
Tony Mazzaschi [tmazzaschi@aamc.org], AAMC
Division of Biomedical Research (202-828-0059) if we may be
of further assistance.
Sincerely,
Jordan J. Cohen, M.D.
President,
Association of American Medical Colleges
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