Academic journal article Journal of Research Administration

Pricing the Services of Scientific Cores: Part II: Charging outside Users

Academic journal article Journal of Research Administration

Pricing the Services of Scientific Cores: Part II: Charging outside Users

Article excerpt

Abstract

Many research institutions have established scientific cores that support research studies by concentrating technical expertise and combining financial resources. Support for these cores is increasingly important as a source of funding for research institutions. Part II of this article considers those issues that relate to pricing of services to users from outside the institution. A method of allocating charges from the cores to projects with multiple funding sources through a concept of program-based management is proposed, using as an example a translational research institute (TRI) that provides services to universities and others outside the host institution. Four aspects from this program are considered: (a) price of outside sales, (b) overhead included in the price charged to outsiders, (c) program income, and (d) unrelated business income tax (UBIT).

Background

Core Services Provided

Scientific research cores provide a means of supporting shared resources and facilities by a number of investigators from different disciplines who are engaged in research. Each core is an independent facility in dedicated space. As an example, a translational research institute (TRI) is proposed. The TRI is an operation within the university setting. TRI has two core operations that support the research activities of the scientific investigators. First, it produces specialized vectors for clinical applications. Second, it manages and conducts toxicology studies to test the application of these vectors.

It is possible for these two services to be linked. For example, another research university might contract with TRI for clinical-grade vector production. The FDA might then recommend that the investigator at that institution also use the institute for testing the toxicology of this experimental treatment.

Funding For These Services

These operations are funded in part by departmental, institutional, and federal sources. Core funding comes from a federally-sponsored cooperative agreement. The primary users of these services are the institute's principal investigators who have research grants and whose studies are funded also by the cooperative agreement. According to the description in the cooperative agreement:

The objectives of the Core Centers are to bring together investigators from relevant disciplines in a manner which will enhance and extend the effectiveness of their research. In addition to collaborations between scientists within an institution, core centers can foster interaction and collaborations between investigators at multiple institutions to promote a multifaceted approach to a common goal.

Pricing of Services to Outside Entities

Direct Costs

In pursuing its objectives, TRI has many requests from other institutions and pharmaceutical companies to use its two core facilities. The sale of the institute services to those outside the university raises three basic pricing questions.

1. Must TRI charge external users the direct cost rates or can the institute charge less?

2. Must TRI load all external sales with university overhead?

3. If federal awards support the scientific core, how should the government receive its appropriate share of program income generated by these sales?

In this example, the institute developed per-unit direct-cost-based prices for vector development and toxicology services. In dealing with the core prices, the cost principles for research institutions specify that prices to federal awards in the aggregate not exceed cost, and that they not discriminate between federal and other users.1 Federal rules do not specify whether the same or a greater or lesser price must or may be charged to external users. Could a lower price be justified under these rules? Consider the case discussed in Part I of the article (annual cost of operating the facility is $600,000 [without institutional facilities and administrative (F&A) costs] with an annual rate of usage at 30,000 units, giving a cost per unit usage of $20). …

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