Assessment of Alternative Sources and Mechanisms of Nonfederal Support
Chapter 3 presented a two-by-two typology of alternative funding mechanisms and provided examples of nonfederal support for federal research projects for each typology category, with additional examples presented in Appendix A. Most of the examples were clustered in two of the typology cells: (1) mandatory cost sharing or matching by recipients of awards and (2) voluntary collaborations, or partnerships, between federal agencies and other funders, nonfederal and federal. Currently the Congressionally Directed Medical Research Program (CDMRP) requires grantees to share costs by providing the facilities and equipment to conduct the proposed research or training project, representing a small percentage of the costs, and the committee discussed the possible effects on CDMRP and grantees of raising the amount of mandated cost sharing and matching. The committee then discussed the impact of the second approach—the development of collaborations, or partnerships, with nonfederal funders such as companies, foundations, and states—on CDMRP and those who might participate in these partnerships with the program.
POTENTIAL ADVANTAGES AND DISADVANTAGES OF COST SHARING AND MATCHING REQUIREMENTS
Mandatory cost-sharing or matching requirements have a number of potential advantages and disadvantages for funders and grantees. The primary potential advantage for both parties is that cost-sharing provisions may stretch or conserve limited program funds, allowing more projects to be supported and more support to be dedicated to particular efforts. Scarcity of funds is, in fact, often thought to
be a motivation for imposing this requirement even though some federal agencies have issued policies that prohibit the use of cost sharing or matching only to stretch program budgets. According to a Department of Health and Human Services Grants Policy Directive, “Matching or cost sharing may not be required through administrative action solely as a means of offsetting budget reductions” (DHHS, 1999).
Cost-sharing and matching requirements also can serve to leverage new sources of funding. Indeed, some organizations may specifically orient their giving to take advantage of such arrangements. According to a report on trends in U.S. funding for biomedical research, for example, the Pew Charitable Trusts “have attempted to identify a place within the biomedical research funding community where their support can be effectively leveraged to achieve the greatest impact” (University of California, 1996). Other programs, such as the California Breast Cancer Research Program (see Appendix A), have adopted the same strategy.
Cost sharing or matching also can help assure real commitment to projects by participants, which may be particularly true for technology development programs, where cost sharing can provide some assurance that a company views a project as a promising one. The Advanced Technology Program of the National Institute of Standards and Technology, for example, imposes strict cost-sharing requirements for its grantees (see Appendix A). A National Research Council assessment (2001) notes that this feature keeps the program anchored in the market economy and focused on efficiency and the bottom line. It also provides a mechanism for weeding out unpromising research approaches.
However, a number of potential negative effects of the cost-sharing or matching mechanism also have been identified (Feller, 1997, 2000a, 2000b; Hardy, 2000; Seligman, 2000). It might, for example, shift funding from other related projects and thus not yield a net benefit to the advancement of knowledge. In addition, the pot of money available for research on a given topic would be unlikely to change if CDMRP imposed cost-sharing or matching requirements; what might change, however, is the decisionmaking process of the organizations responsible for administering research funding. If organizations—for example, those dedicated to supporting research on a specific disease—perceive that investigations will no longer be supported by CDMRP unless they provide funds, they may divert resources from other projects to meet this requirement.
Cost sharing or matching also would impose additional costs on applicants, their institutions, and CDMRP, because applicant and institutional costs include those incurred in the process of identifying and accounting for sources of matching funds. This entails having more staff and spending more time preparing funding proposals. Often, the principal investigator loses valuable research time in order to participate in proposal preparation. For CDMRP, this would mean an increase in proposal review time and effort as well as the need to provide auditing to ensure that the cost sharing is legitimate and not doubly counted as cost sharing
for other federal grants. However, it is difficult to estimate the precise scale and impact of these costs, because hard data in this area are lacking.
Mandating cost sharing or matching also would inject financial criteria into the peer review process, the most direct consequence of which would be that some high-quality proposals may not receiving funding or may never be submitted because of a lack of adequate matching funds, while some lower quality proposals for which matching funds are available might succeed. A study of cost sharing at the National Science Foundation (NSF) by Feller (2000a) showed that open-ended cost sharing resulted in bidding wars, and recent NSF Inspector General reports have found that as a result, grantees often were unable to deliver the cost sharing they had optimistically bid to win the award.
If cost sharing or matching were mandated, universities with significant institutional resources would have a competitive advantage, as they may have an office specifically intended to identify potential sources of funding and to administer policies to obtain such funding. Cohen et al. (1998) note that several universities now maintain such offices to administer technology transfer and licensing in order to facilitate funding relationships. In addition, Larson and Brahmakulam (2002) found that “partnership friendly” policies make a difference in the ability of universities to attract cooperative funding. The development of policies that promote cost sharing or matching also takes a commitment on the part of the institution that may be more difficult to make when resources are scarce.
Seligman (2000) suggests that cost-sharing requirements present an opportunity for some institutions to improve their standing in the ranks of research recipients by buying their way into grants that they might otherwise be unlikely to receive. Furthermore, economies of scale may provide an advantage to larger and more financially secure institutions, including larger indirect cost recovery funds from which to draw.
Mandated cost sharing or matching would give universities in states with aggressive economic development or other research promotion programs a competitive advantage. Some states are explicit in their intent to use funds in this matter. For example, the Arkansas Research Matching Fund states that its purpose is “[t]o raise the national ranking of Arkansas’ research performance and to be competitive in our economic and educational endeavors by investing in research and research infrastructure” (Arkansas Science and Technology Authority, 2000).
These arrangements could distort the priorities of awardee institutions by imposing financial obligations that detract from other university missions, such as instructional programs. This concern is expressed by a number of sources, including a draft DOD cost-sharing policy; however, the committee did not identify any studies that substantiate it. Bienenstock (2000) was told anecdotally by the president of a southern public university that, because of the importance of research in maintaining faculty vitality, he felt pressured to divert funding from the humanities to provide cost sharing to secure research grants.
CDMRP priorities, which are set by each program’s Integration Panel, might
be distorted if it is easier to fund some types of activities than others. A primary concern in this regard, as discussed elsewhere in the report, is that applied research is far more likely than basic research to attract the interest of industries that can supply funding—a direct consequence of the for-profit sector making the rational choice to seek to benefit from its investment by obtaining preferential access to new knowledge. There is some literature relevant to this issue that addresses the more general question of whether economic pressures have resulted in a shift from basic to applied work in academic research. Cohen et al. (1998) note that universities are pushing toward greater funding from industry and observe that this drive may well be a reflection of the decreasing support for research offered by government sources. Although the researchers argue that industry sponsorship goes preferentially to applied research, there are no data that show that this shifts academic work toward applied research. In fact, the National Science Board (NSB) in its examination of trends in researchers’ activities from 1993 to 1999 (2002), found that the decrease in the basic research component of those activities was modest (although statistically significant), from 61.9 percent to 59.9 percent.
AGENCY EXPERIENCES WITH COST SHARING
The experiences of NSF with cost sharing are instructive. In the early 1990s, NSF (and other federal agencies) began to ratchet up cost-sharing requirements, and the aggregate impact on universities began to cause many of the problems outlined above. After a survey by Irwin Feller in 1997 on the Matching Fund and Cost-Sharing Experiences of U.S. Research Universities documented these problems, NSF adopted a new, more restrictive policy on cost sharing in 1999 (Feller, 1997). The new NSF policy specified that:
Cost sharing is an eligibility criterion, not a review criterion (that is, voluntary cost sharing beyond the required amount stated in the solicitation is not supposed to be a factor in review).
Only statutory cost sharing (1 percent) is required for unsolicited proposals (which includes those responsive to general program announcements).
Cost sharing that exceeds 1 percent must be clearly stated in the solicitation.
If the proposed cost of the project is reduced, the level of cost sharing must be reduced accordingly (thus preventing the shifting of costs to the recipient).
The policy statement on cost sharing also provided criteria for imposing higher cost sharing:
In addition to the statutory requirements [of 1 percent], NSF can require cost sharing when we believe there is tangible benefit to the award recipient(s) (normally beyond the immediate term or scope of the NSF-supported activity). Benefit is defined in terms of capacity building, potential dollar revenues, time frames, or third party users. NSF-funded activities which are characterized by
such benefits are awards for infrastructure-building purposes (instrumentation/ equipment/centers/facilities) or for awards where there is clear potential to make profit or generate income (e.g., curriculum development) (NSB, 1999).
Another impetus for the new NSF policy was a series of reports from the Office of Inspector General (OIG) of NSF about the problems it was finding in university accounting for cost sharing. The NSF OIG was concerned because in FY 2000, for example, NSF awards required cost sharing totaling more than a half billion dollars. “Given the large amount of these commitments, the failure to honor cost-sharing obligations or to keep proper accounts can have serious consequences for NSF’s awards” (NSF, 2003a).
The NSF OIG identified the keeping of cost-sharing commitments as one of the 10 most serious management and performance challenges facing NSF beginning in FY 2001, following findings of “overvalued and unsupported cost sharing” at 2 campuses of a western state university system in 2000 and 2001. The OIG concluded that cost sharing was overstated to make proposals more competitive, but that the institutions subsequently were unable to show how much was actually provided (NSF-OIG, 2002).The OIG then conducted two audits to gauge the extent of cost-sharing problems and whether they were systemic. One audit covered five additional campuses at the same western state university system, while the second was of eight educational institutions that had pledged $500,000 or more of cost sharing. In most cases, the universities could not substantiate some of the cost sharing. In 2003, the NSF Inspector General wrote NSF and NSB that “our past audit work indicates that many awardees do not adequately account for or substantiate the value of cost-share expenditures, raising questions about whether required contributions are actually being made” (NSF, 2003b).
On December 28, 2000, in response to a 1999 report of the National Science and Technology Council, Renewing the Government-University Partnership, the President issued Executive Order 13185, “To Strengthen the Federal Government-University Research Partnership.” The Executive Order presented a list of principles, one of which was that “Agency cost-sharing policies and practices must be transparent.” DOD responded by drafting a policy, Cost Sharing in DOD Research Programs Using Assistance Instruments, as part of the DOD series of administrative instruction.1 The instruction, which has not been formally issued, said that while DOD does not have a general requirement of cost sharing in its research grant programs, program offices could use cost sharing in individual programs on a case-by-case basis if they follow procedures to ensure that its use is appropriate.2 Inappropriate use of cost-sharing requirements could be unfair to
DOD policies for R&D contracts prohibit cost sharing unless there is a reasonable probability of potential commercial applications (subparagraph E1.6 of DOD Instruction 5000.1, The Defense Acquisition System, May 12, 2003).
those conducting research, for example, if it stimulated competitive cost-share bidding, and it could create financial hardship and draw funds for research that otherwise would go to undergraduate education or the broader research infrastructure (also interests of DOD). It also could disqualify some proposals that may be technically outstanding, but that are submitted by applicants who are unable to participate in cost sharing.
The DOD instruction specified that cost sharing should be used only when there is a policy basis for it: “Budget augmentation is never to be used as a reason to require cost sharing.” A policy basis is either a statutory requirement for cost sharing or the existence of projects that would generate benefits for the entity that performed the research beyond DOD-related benefits. Cost sharing is especially appropriate in dual-use research, for example, “not only because the performers should benefit financially from commercialization, but also because cost sharing is strong evidence of their judgment that the technology is likely to be commercially viable.”
Although DOD has not issued the draft guidance for cost sharing in assistance agreements, the Undersecretary of Defense for Acquisition and Technology has strongly discouraged cost sharing in R&D contracts: “Contractors should not be encouraged or required to supplement DOD appropriations by bearing a portion of defense contract costs…” (Aldridge, 2001).3
Other agencies also limit cost sharing on research projects to instances when the recipient will gain some monetary benefit from the project—that is, for technology development projects. For example, the National Aeronautics and Space Administration (NASA) Guidance for the Preparation and Submission of Unsolicited Proposals says:
By statute, cost sharing is usually required on contracts for basic or applied research projects resulting from unsolicited proposals However, colleges and universities need not propose cost sharing since their activities generally do not produce benefits that can be measured as having significance apart from the benefit intrinsic in conducting research for NASA.4
NASA grants and cooperative agreements do not require cost sharing by institutions of higher education, hospitals, or other nonprofit organizations, and it is only required of commercial firms if they are “expected to receive substantial compensating benefits for performance of the work.”5
“The only exception to this policy would be unusual situations where there is a reasonable probability of a potential commercial application related to the research and development effort.”
National Aeronautics and Space Administration. Guidance for the Preparation and Submission of Unsolicited Proposals. See ec.msfc.nasa.gov/hq/library/unsold-Prop.html.
National Aeronautics and Space Administration. Section A, Part 1260—Grants and Cooperative Agreements, in NASA Grant Policy Book. See ec.msfc.nasa.gov/hq/granta.doc.
The Department of Energy (DOE) has a similar policy of not imposing cost sharing on basic research.
The decision as to whether an acquisition or assistance agreement will include either a cost-sharing or cost-participation provision, respectively, is made on a case-by-case basis. Normally, DOE will fully fund the early phases of basic research and development programs. However, subsequent phases of those programs, which provide the performer with present or future economic benefits through commercialization, will require some form of cost-sharing or cost-participation.6
In conclusion, although matching fund requirements at first glance appear to be a good way to leverage funds, for several reasons they may not in fact expand the amount of research conducted in a particular area. First, matching funds may be diverted from other research projects, and some highly promising research may go unfunded because of a lack of matching funds, or the match itself may reduce the total number of projects and therefore the number of ideas that are funded. Second, the matching requirements are not free from demands on time and resources on the part of principal investigators and institutional research administrators, who must line up donors, plan the project, and prepare a more complex application. Involving multiple funders also may further dilute the focus of the research because they may have different objectives. In addition, opportunity costs may become involved, because the time researchers must allocate to fundraising is time not spent conducting research. This may have the effect of hindering important scientific advances. It also may be the case that imposing matching requirements could result in better known investigators attracting more funding than investigators who may be less prominent. Along the same lines, wealthier institutions that have greater means to provide matching funds may attract more support than other entities that have fewer resources. Finally, as mentioned earlier, both the recipient institution and CDMRP would have to expand their staffs to audit the matching funds in order to ensure that they are legitimate and not counted as matching on another federal grant.
The April 2004 two-day workshop convened by this committee and the review of research on public-private collaborations in R&D prepared for the committee by Andrew Toole and Anwar Naseem (see Appendix D) focused on the incentives for nonfederal funders to pool or coordinate their resources with
Department of Energy. Guide for the Submission of Unsolicited Proposals. See professionals.pr.doe.gov/ma5/MA-5Web.nsf/WebAttachments/UnsolicitedProposal/$File/UnsolicitedProposal.pdf.
CDMRP. For-profit firms, universities, foundations and other charities, and state governments have different goals and constituencies, and they operate under different norms of behavior, laws and regulations, and other constraints. Thus, it could be asked why they would wish to collaborate. “The answer, according to the literature, is that each party gets something they value out of the arrangement” (Toole and Naseem, Appendix D, p. 143). That is, the advantages of such an arrangement are that each participant can leverage the other and can expect to see a benefit from the collaboration, which can achieve a critical mass by pooling resources for a large-scale project or by creating a synergy that results in the whole becoming greater than the sum of its parts.
Cooperative R&D consortia are prevalent in other sectors, especially the microelectronics sector, to support generic pre-competitive research, going back to the Electric Power Research Institute in 1972, the Gas Research Institute in 1976, the Microelectronics Center of North Carolina in 1980, and the Semiconductor Research Corporation and the Microelectronics and Computer Technology Corporation in 1982. The National Cooperative Research Act was passed in 1984 to exempt such consortia from antitrust laws. These and later consortia, such as SEMATECH, support the development of technologies that can be used by all members, and they often develop technology “roadmaps” to guide research funding.
In a different approach, the Central Intelligence Agency (CIA) has established its own venture capital enterprise, InQTel. InQTel’s mission is to stimulate the development of leading-edge technologies that might be useful to the CIA by investing in promising companies.
Public-private R&D consortia are less common in the biopharmaceutical sector, although there are some examples, such as the Osteoarthritis Initiative, which is described in Chapter 3. The Mouse Sequencing Consortium and the Alzheimer’s Disease Neuroimaging Initiative include for-profit companies and foundations that are co-funding the functional equivalent of generic precompetitive research—the mouse genome sequence and biomarkers that can be used to evaluate disease progression in clinical trials.
Public-private partnerships (PPPs) have been growing rapidly in the international sector, facilitated by several large foundations with an interest in international health, such as the Wellcome Trust and the Bill and Melinda Gates Foundation. One of these, the Global Alliance for TB Drug Development, was the subject of a presentation by its CEO at the April 2004 workshop. Most of the international PPPs for R&D focus on product development, such as vaccines, drugs, diagnostics, and microbicides (Widdus, 2003).7 Their strategy is to fund key steps in the process between research and delivery that the private sector alone is not funding because of the risks of high costs and small markets. These
steps include target identification and characterization, identification of hit compounds, converting hit compounds to leads, pre-clinical research, Phase I, II, and III clinical trials, and regulatory approval. Funding of product development PPPs totals nearly $1 billion, of which more than $700 million has been committed by the Gates Foundation (Kettler, 2003).
These ventures are focused on the development of products, platform technologies, research tools, and research resources such as databases rather than basic research. PPPs for funding research are less common, although there are examples. Some foundations and public charities—for example, the Cystic Fibrosis Foundation, the Muscular Dystrophy Association, and the Juvenile Diabetes Research Foundation International—have co-funded or supplemented National Institutes of Health (NIH) research and research training grants, but the amounts of funding are relatively small. An exception is the Avon Foundation, which recently pledged $20 million to the National Cancer Institute (NCI) for a program of clinical research grants (see Box 4-1).
On the other hand, there are a number of possible disadvantages to these collaborations:
Collaborations to stretch program resources might distort CDMRP’s priorities because only certain kinds of activities are likely to be of interest to the other funding sources with the deepest pockets, such as industry and state economic development programs. These will tend to be research and related efforts (i.e., infrastructure and training) that have near-term commercial possibilities and not those that the majority of CDMRP’s budget currently supports—i.e., exploratory and other early-stage research projects).
Program administration may be more complicated because collaborators usually will want to have a say in program direction.
To the extent the activities will result in generic or precompetitive knowledge that can be exploited by others (“free riders”), or produce trainees that might go to work for competitors, attracting industry funds will be more difficult. Collaborating companies will want off-setting compensation, such as faster or more extensive access to research results, or a larger share in the intellectual property rights resulting from the research.
Universities in geographic regions that are already institutionally rich with R&D organizations and related functions will have a competitive advantage in forming research funding collaborations. This would include universities in California’s Silicon Valley, on Massachusetts’ Route 128, in North Carolina’s Research Triangle Park, near NIH in Maryland, near pharmaceutical firms in the Delaware Valley, around Austin, Texas, or near San Diego, California (DeVol et al., 2004).
According to Toole and Naseem (Appendix D), government sees R&D collaborations as a mechanism to leverage limited financial resources and, in some
The corporate foundation of Avon Products, Inc., established the Avon Breast Cancer Crusade in the United States in 1993 to raise funds for breast cancer medical research, education, and support services. Most of the funds come from annual three-day fundraising walks, the Avon Breast Cancer 3-Day, and the proceeds of special Avon Crusade Pink Ribbon products sold by Avon sales representatives.
The Avon Foundation awards competitively peer reviewed grants in research areas that have high potential but that are underfunded by other sources. Examples include research on new screening technologies; prevention and risk reduction strategies; therapeutic vaccines; and the role of environmental factors and genetic susceptibility in the causation of breast cancer (Avon Foundation, 2004).
In the past, the Avon Foundation solicited proposals from and made grants to academic health centers and other nonprofits on the basis of a peer review process it arranged. In 2002, Avon pledged $20 million to NCI to fund breast cancer research over five years through a competition open to institutions with NCI cancer center and/or SPORE (Specialized Programs of Research Excellence) grants. Called the Avon Foundation-NCI “Progress for Patients” Awards for Early Phase Clinical Interventions in Breast Cancer, the program is intended to provide a rapid means to support novel and promising Phase I and II clinical trials and studies focusing on risk assessment or validation of biomarkers in human subjects (NCI-Avon, 2003).
In this partnership, NCI conducts the application and review process and administers the awards and most of the indirect costs for the awards. Avon is responsible for supplying funds to NCI for the direct costs and up to 10 percent of the indirect costs of the awards and can take advantage of NCI’s peer review process and award administration system to save those costs. For NCI, as an official explained at the announcement of the first awards in October 2002:
It’s a cost savings because instead of paying $2.5 million for grants through our SPOREs, We’re only paying $600,000 and saving about $2 million every six months…We are in a situation where everyone is winning because we are providing our expertise and a private foundation like Avon is providing their funding and insight. Otherwise, we would not have been able to make all these awards possible (NCI, 2002).
According to the president of Avon Products:
As a company for women, Avon is committed to corporate social responsibility and to the breast cancer cause, one of the most important issues in women’s health…. With this latest gift [of $20 million], we are especially proud to initiate a unique public-private partnership with the National Cancer Institute. (Avon Products, 2001)
In the first round, Avon provided $1.99 million and NCI $660,000 for six two-year awards. To date, the program has made 19 awards, and NCI is reviewing 32 proposals for another round of funding in the summer of 2004.
cases, unique research capabilities to achieve social goals such as (1) increasing industrial competitiveness; (2) fostering economic growth by overcoming market failures in R&D markets; and (3) meeting agency-specific mission-oriented goals through cost- and risk-sharing. One of the risks facing government agencies involved in public-private R&D collaborations is the problem of measuring results, because the effects of research are often indirect and may occur years in the future. Another major concern is the status of public opinion and trust relationships between public agencies and citizens, because private partners may appear to be dominant and to be using public resources for their own gain.
For-profit firms engage in R&D collaborations because such research partnerships have potential benefits. They are a cost-effective alternative to paying for in-house research capacity, and they improve the effectiveness of a firm’s strategic management by enabling it to see how a technology is developing without having to pay the full costs of such an effort. Collaborations in generic or precompetitive research, when they involve other firms, mitigate the problem of underinvestment in R&D, which can happen when firms, acting alone, do not wish to pay for research that could be exploited by competitors. Firms also want access to leading university scientists, federal laboratory scientists, and students trained in the latest methods and tools who can be recruited subsequently for employment.
The risks of collaborations for for-profit firms include those of losing proprietary information and gaining incomplete intellectual property rights when new technologies are developed jointly. Firms also have to worry about recouping their investments, given that industrial research generally proceeds over a much shorter period than does academic research.
IMPACTS OF ALTERNATIVES ON THE CURRENT PROGRAM
Although the scientific community was initially skeptical about CDMRP’s location in DOD and the participation of consumers in its peer review and priority-setting processes, it has been demonstrated to be a program that has been efficiently managed and scientifically productive, and it has become a valuable component of the nation’s health research enterprise (IOM, 1997). At the committee’s April 2004 workshop, consumer representatives cautioned that great care should be taken to ensure that changes in the program intended to leverage funding do not damage the features that have made it efficient and cost effective, driven by scientific priorities, and scientifically productive (Atkins, 2004; Kolker, 2004; Visco, 2004). Some of these features are low administrative costs, an effective two-tier peer review system, and program priorities that are focused on new investigators and basic research, including exploratory grants.
Currently, compared with most other government programs, CDMRP has a relatively low administrative overhead of approximately 6 percent. Although increased cost-sharing requirements would impose costs chiefly on applicants and awardees—in terms of time or diversion of recipient resources—it also would require more DOD staff in order to ensure that cost-sharing requirements are met and to arrange and maintain relationships with the other funders. Establishing a foundation to plan collaborative programs and solicit funding from nonfederal sources would only add to overhead costs.
CDMRP has used the two-tier review system recommended in the 1993 IOM report to ensure that scientific quality and program relevance are the main determinants of the distribution of funds. Increased cost sharing would need to be carefully designed to ensure that the peer review system is not distorted, for example, by discouraging proposals from institutions that do not have access to many cost-sharing resources or by creating a bidding war.
If CDMRP adopts the strategy of accepting donations from pharmaceutical or biotechnology companies to expand the pool of grants for a particular program of mutual interest, the funding should be distributed through the regular peer review process to recipients that present the best proposals in terms of technical excellence and program relevance. The funding should not be earmarked for specific projects.
Currently, the majority of funding appropriated to CDMRP supports new investigators and exploratory basic, translational, and clinical research—activities that industry is less likely to want to co-fund than those that may be closer to commercial development. Although foundations and charities do fund basic and exploratory research, and should be encouraged to collaborate, they have relatively few resources compared with industry or the federal government. The easiest way to maximize nonfederal funding would be to change program priorities to emphasize the development and testing of diagnostics, therapeutics, medical devices, and other efforts to develop commercial products. However, the advisability of such a shift should be carefully considered, given the amount of funding that industry and other federal agencies already devote to such activities, especially considering the great need for additional basic, especially exploratory, research in understanding the diseases addressed by CDMRP.
Potential Consequences of Collaboration with For-Profit Firms
The consequences of a government agency collaboration with for-profit firms could include the imposition of secrecy on the scientific process, possible delays and bias in the reporting of research results, the shifting of research priorities toward near-term development, and financial conflicts of interest for both the research institutions and the individual researchers (Campbell et al., 2004). Studies of academic institutions collaborating with industry—which provide a close analogy to government-industrial partnerships—have shown that academic institutions can face numerous challenges: conflicts of interest can emerge for faculty interested in benefiting financially from their university research; increased secrecy and other restrictions can limit dissemination of industrial research results; time spent on commercial research can reduce faculty commitments to the university; and use of students on privately funded research can divert resources and place limits on the ability of students to communicate the results of their work (see studies cited by Campbell et al., 2004).
NIH has recognized the issues that might arise in public-private ventures. In 1994, NIH issued guidelines on Developing Sponsored Research Agreements: Considerations for Recipients of NIH Research Grants and Contracts, which were intended
to provide Recipients with issues and points to consider in developing sponsored research agreements with commercial entities, where such agreements may include research activities which are fully or partially funded by NIH. The intent is to assist recipients in ensuring that these agreements comply with the requirements of the Bayh-Dole Act and NIH funding agreements while upholding basic principles of academic freedom.8
These guidelines focus on the preservation of academic freedom, the timely dissemination of research results, and permissible amounts of private support both absolutely and as a percentage of the recipient’s total research funding.
In addition, in 1997 the Centers for Disease Control and Prevention (CDC) issued Guidance for Collaboration with the Private Sector,9 and CDC and the CDC Foundation have developed Joint Guidelines for Co-Sponsorship Arrangements, a document that contains a list of “red flag issues” that arise if the answers to certain questions are unsatisfactory. These issues must be resolved or arrangements must be made to manage them before a collaborative activity is undertaken. The questions include the following:
See ott.od.nih.gov/NewPages/text-com.htm. In 2003, the National Heart, Lung, and Blood Institute issued revised guidelines for “Third Party Involvement in NHLBI-Supported Clinical Trials and Other Population-Based Studies: Awardee/Contractor Third Party Related Issues.” See www.nhlbi.nih.gov/funding/policies/thirdparty.htm.
Does the potential co-sponsorship arrangement appear to lack an identifiable, substantial public health benefit?
Does the potential co-sponsorship arrangement appear to lack a clear, identifiable, substantial leadership role for CDC?
Is the nonfederal entity a “prohibited source” under the Standards of Ethical Conduct for Employees of the Executive Branch?
Has the nonfederal entity indicated that its funding is revocable or contingent on any action by CDC other than actions described in the proposal documents (including, for example, the … participation of certain individuals in the event, etc.)?
Has the nonfederal entity requested exclusivity in the co-sponsorship arrangement or otherwise suggested a structure which could create the impression of a “brand affiliation,” endorsement, or other form of advertising for the nonfederal entity?
Does the potential project create any real or perceived conflict of interest (financial or personal) for staff or Board members of CDC, CDC Foundation, or their families?
Will the anticipated outcomes of the co-sponsorship arrangement likely lead to direct monetary benefit for the nonfederal entity?
Does the potential project follow the requirements for independence and objectivity of scientific judgment as set forth in CDC’s Guidelines for Collaboration with the Private Sector?
Universities have also developed guidelines for collaborating with external parties. The University of California, for example, issued guiding principles to govern “research relationship with governmental agencies, nonprofit foundations, and industry.” The principles include open dissemination of research results; commitment to students; public benefit; legal integrity; and avoidance of conflicts of interest.10
DOD should consider the relevancy and applicability of these guidelines in developing a set that could be applied to CDMRP collaborations.
CHANGES IN FEDERAL LAWS AND REGULATIONS REQUIRED BY ALTERNATIVE FUNDING SOURCES AND MECHANISMS
DOD has the authority to award grants, cooperative agreements, and contracts to for-profit enterprises, states, and consortia as well as to universities and other nonprofit research institutions. It also has the authority to require cost sharing on grants, cooperative agreements, and contracts, at least to the extent that the other party or parties are expected to benefit. But DOD lacks adequate
authority to accept conditional contributions that the donors may want to direct to an extramural grant program such as CDMRP. It also cannot solicit private funds and does not have a means to overcome that restriction, such as establishing a foundation that could accept funding for the agency (as was done for NIH with the Foundation for the National Institutes of Health [FNIH] or for CDC, with the CDC Foundation). Unlike NIH, CDC, or NSF, however, DOD has special authority to make awards that are not subject to conditions that apply to federal grants, cooperative agreements, and contracts, such as Bayh-Dole intellectual property provisions, and this authority could be delegated to CDMRP to make it easier to co-fund projects with for-profit firms that have technologies of interest to CDMRP.11
One mechanism for securing nonfederal funding for CDMRP would be to accept voluntary contributions from foundations, companies, state governments, and other funders of medical research to enlarge a specific CDMRP grant program. NIH, for example, has the authority under Sections 231 and 405 of the Public Health Service Act to accept conditional gifts for study, investigation, or research and other purposes [42 U.S.C. 238(a)]. Currently, under 10 U.S.C. 2601, which authorizes general gift funds, the purpose of contributions to the U.S. Army or DOD cannot be specified by the donor except for hospitals, schools, and other health, education, and welfare activities. Other donations must be unconditional and appropriated by Congress before they can be used.
In order for CDMRP to accept nonfederal funds in support of a project or program, DOD would need statutory authorization to accept contributions from nonfederal donors for a specific purpose—for example, to fund grants for research on a particular disease. Based on the NIH and CDC experience, however, the amounts of nonfederal funding would be very small compared with federal funding.
Dedicated Fundraising Foundation
A nonprofit foundation could be used to solicit funds for CDMRP programs. Such a foundation would be needed because, even if CDMRP were authorized to accept contributions, federal employees may not actively seek them to augment appropriated funds [36 Comp. Gen. 268,269 (1956)]. As mentioned earlier, some agencies, such as NIH (42 U.S.C. 290b) and CDC (42 U.S.C. 280e-11), have foundations with staffs that seek donors for agency programs (see Box 4-2). To establish a similar foundation for CDMRP, Congress would need to create a
FNIH was chartered by Congress in 1990 as a means for NIH to establish relationships with and raise funds from private partners in academia, philanthropy, and industry. FNIH is a 501(c)(3) nonprofit organization that has raised $258 million in private dollars, $200 million of which came from a single grant received from the Bill and Melinda Gates Foundation in 2003 to establish and administer a new program, the Grand Challenges in Global Health Initiative. Thus far, FNIH has received $3.5 million from appropriated funds for operating costs.
Currently, the foundation manages 39 programs, mostly in education, training, and research. In 2000, the foundation was the mechanism for used to pool $30 million from industry and a foundation with NIH funding to establish a Mouse Sequencing Consortium. The consortium was able to sequence the mouse genome in a far shorter time than would have been possible otherwise. Currently, FNIH is managing the private share of the Osteoarthritis Initiative. Three pharmaceutical companies are providing $22 million of the $60 million being spent to create a public database of biomarkers for the progression of osteoarthritis, which will improve research and clinical testing. The foundation also manages the Best Pharmaceuticals for Children Fund, through which corporations, foundations, and interested individuals can partner with the National Institute for Child Health and Human Development to fund clinical studies in pediatric patients. Also currently, FNIH is raising $20 million from pharmaceutical and medical imaging companies as part of a $60 million Alzheimer’s Disease neuroimaging program sponsored by the National Institute on Aging, which is providing the other $40 million, the Food and Drug Administration, the Alzheimer’s Association, and the Institute for the Study of Aging.
charter for it or expand the authority of the Henry M. Jackson Foundation for the Advancement of Military Medicine.
Grant and Contract Provisions That Concern Some Companies
Grants and cooperative agreements for extramural research are subject to a number of conditions that may deter some commercial firms from doing business with the federal government. Under 10 U.S.C. 2371, the Defense Advanced Research Projects Agency (DARPA) and the military departments (including the U.S. Army) have the authority to enter into transactions other than contracts, grants, and cooperative agreements. Such “other transactions” are exempt from the usual controls and oversight mechanisms set forth in acquisition statutes and the Federal Acquisition Regulation and from laws applying only to contracts, grants, and cooperative agreements. Under this authority, DOD has established
In 2000, DARPA entered into a TIA with Motorola, Inc., to develop a multichip module sample preparation system for genetic analysis, which could be used for rapid early detection of infection, exposure to biowarfare agents, and general health monitoring. DOD wanted access to Motorola’s technology, but Motorola does not accept standard government R&D contracts for research. The TIA permitted Motorola to use its existing accounting systems, which were not compliant with the Federal Acquisition Regulation, and to negotiate other rights important to the company, including alternate dispute resolution procedures, intellectual property rights less stringent than the requirements of the Bayh-Dole Act, and foreign access to technology. In return, Motorola paid $1.5 million of the $4.9 million cost of the project.a
an assistance instrument called the Technology Investment Agreement (TIA) in which DOD partners with a company or consortium of companies that contribute half or more of the costs. The purpose of TIAs is to increase participation in defense R&D of for-profit firms reluctant to comply with standard grants and contracts regulations, whose requirements or procedures are considered too burdensome, intrusive, or costly. In a TIA, for example, DOD may negotiate less restrictive intellectual property rights than Bayh-Dole requires (see Box 4-3).
TIAs would be most appropriate when CDMRP is trying to stimulate product or technology development with enough commercial promise that a firm or firms would be willing to pay for half the costs. CDMRP can only award and administer TIAs if the Secretary of the Army delegates the authorities in 10 U.S.C. 2371.
Experience with cost sharing in other federal basic research programs shows that requiring recipients to provide a significant percentage of project costs in order to augment federal funds can impose extra costs on both the recipient and the funder, can have unintended—and often unwanted—consequences (such as discouraging outstanding proposals from researchers at institutions with limited means), and may not substantially increase the total amount of funding in an area of research (or may redirect it from other important uses). Cost sharing is most appropriate when the co-funder receives a tangible benefit, which is much more
likely to happen in later-stage research or infrastructure projects than in exploratory research. Yet the greatest strength of CDMRP has been in the earlier stages of research. Thus, while cost sharing can be a valuable and promising approach to pooling resources for a common goal, it is less effective in the context of exploratory research, where outcomes cannot be predicted.
In using cost-sharing mechanisms, CDMRP should ensure that it does not divert funds from other desirable activities, such as other research projects that would have been funded or the instructional programs of universities. In addition, CDMRP should not let expectations of increased nonfederal funding shift the program’s scientific priorities away from funding innovative exploratory research, research into disease prevention and causation, and epidemiological studies.
The experience of federal R&D funding agencies with voluntary public-private collaborations generally has been a positive one. Collaborations can leverage research results by achieving synergy, economies of scale, critical mass, or other ways in which the whole becomes greater than the sum of its parts. However, because each collaboration must be individually negotiated, significant costs can be added to the research., as well as additional time, which can delay the start of research. In any case, arranging and maintaining such collaborations require substantial effort, and it is difficult to know, in the long run, how cost effective they will be. However, CDMRP already engages in some collaborations with the private sector and should continue to do so as opportunities arise.
Unlike some other federal research agencies, neither CDMRP nor its parent organization, the U.S. Army Medical Research and Materiel Command, has the authority to receive outside funds to augment its budget for extramural awards. Congress would have to provide for the additional costs of establishing and maintaining a foundation to perform this function. Having this authority would increase opportunities for augmenting funding and entering into collaborative research efforts with the private sector.
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