If the investigation at the Medical School uncovers millions of dollars in improper billing for indirect costs, then Harvard might well be forced to pay back the taxpayers.

In addition, unfavorable findings would greatly weaken the Medical School's negotiating stance for an increase it is seeking in its indirect cost rate. This scenario would be the most costly for the University, which now hopes to work a deal promising more than $1 in overhead for each dollar received in grant monies.

What Are Indirect Costs?

The term "indirect cost," once merely bureaucratic jargon, has become a common phrase among higher education watchers. These issues have taken on crucial importance, as congressional leaders seek to clamp down on excessive spending of federal research dollars.

Under the provisions of Office and Management Budget Circular A-21, indirect costs are research-related expenditures that are not specifically linked to a grant project. Indirect costs are reimbursed by the federal government over and above the money awarded directly under a federal research contract.

The Medical School currently has a provisional agreement with the Department of Health and Human Services (HHS) for an indirect cost rate of 88 percent. This means that for every dollar the government awards in federal grants to the Medical School, the University can charge an additional 88 cents for overhead on that research.

Overhead can include such-costs as depreciation on buildings and equipment, operation and maintenance, administration and libraries. Lighting, heating, janitorial services and portions of administrative salaries at every level in the University can be billed as indirect costs, as long as the costs can be justified as research-related.

Rates Too High?

Private universities that are heavily involved in government research, such as Harvard and Stanford, tend to be aggressive in seeking a high rate of indirect cost. The institutions do need money, professors and government officials agree, to support massive new laboratories and expensive library systems that aid research.

But Congressional investigators and some researchers question why the rates are so high--even as institutions are looking to make the rates higher.

During this time of economic recession, Congress is concerned that so much federal money is going to science, but not to actual research. In response, the body dispatched the subcommittee that is investigating Stanford and will soon investigate the Medical School.

The committee may also investigate other institutions, like the Massachusetts Institute of Technology and Columbia University.

The congressional action has spurred inquiries by three other federal bodies, including a criminal investigation by Naval Investigative Services. The result could be an across-the-board reevaluation, and perhaps reduction, of indirect cost rates at private universities.

The Defense Contract Audit Agency, which is currently auditing Stanford, has said in a report that it can only justify a rate of 62 percent for the school, according to one federal investigator, who spoke on condition of anonymity. That figure is 12 percent lower than Stanford's rate in the fiscal year of 1990.

In addition, the Office of Naval Research has lowered Stanford's rate by four points during the investigation. According to Robert L. Byer, dean of research at Stanford, each percentage point drop in the indirect cost rate translates into a $750,000 loss for the school each year.