indirect costs

Appeals court agrees that Congress blocked cuts to research costs

While indirect rates (the money paid for indirects as a percentage of the money that goes directly to the researcher to support their work) average about 30 percent, many universities have ended up with indirect cost rates above 50 percent. A sudden and unexpected drop to the 15 percent applied retroactively, as planned by the Trump administration, would create serious financial problems for major research universities.

The district court’s initial ruling held that this change was legally problematic in several ways. It violated the Administrative Procedures Act by being issued without any notice or comment, and the low flat rate was found to be arbitrary and capricious, especially compared to the system it was replacing. The ruling determined that the new policy also violated existing procedures within the Department of Health and Human Services.

But the Appeals Court panel of three judges unanimously determined that they didn’t even have to consider all of those issues because Congress had already prohibited exactly this action. In 2017, the first Trump administration also attempted to set all indirect costs to the same low, flat fee, and Congress responded by attaching a rider to a budget agreement that blocked alterations to the NIH overhead policy. Congress has been renewing that rider ever since.

A clear prohibition

In arguing for its new policy, the government tried to present it as consistent with Congress’s prohibition. The rider allowed some exceptions to the normal means of calculating overhead rates, but they were extremely limited; the NIH tried to argue that these exceptions could include every single grant issued to a university, something the court found was clearly inconsistent with the limits set by Congress.

The court also noted that, as announced, the NIH policy applied to every single grant, regardless of whether the recipient was at a university—something it later contended was a result of “inartful language.” But the judges wrote that it’s a bit late to revise the policy, saying, “We cannot, of course, disregard what the Supplemental Guidance actually says in favor of what NIH now wishes it said.”

22 states sue to block new NIH funding policy—court puts it on hold

Grant funding, grants, HHS, indirect costs, lawsuit, NIH, Policy, Science / 9u50fv / February 11, 2025

Regardless of what else they might be doing, the indirect costs pay for various critical campus services, including at research hospitals. Suddenly having that amount slashed would create a major budgetary shortfall that will be hard to cover without shutting programs down.

The resulting damage to research campuses in their states was one of the harms cited by the states that joined the suit as part of their effort to establish standing. The other was the harm caused by the general slowdown in biomedical research that the policy will trigger, which the states argue will delay the availability of treatments for their citizens.

The states taking part include most of those that were won by Kamala Harris in 2024, as well as states that voted for Trump but currently have Democratic governors and attorneys general: Arizona, Michigan, Nevada, North Carolina, and Wisconsin. Notably, the suit only seeks relief from the altered NIH policy for institutions located in those states; they’re essentially leaving states controlled by Republicans to suffer the damages caused by the new policy.

Allegations and backup allegations

The states allege that the new NIH policy, by applying to all grants in progress, is equivalent to rewriting a contract. It cites an earlier legal decision that determined that “Once the [Notice of Award] is signed or money is drawn, the [Notice of Award] and the grant terms are binding on the grantee and the government.” Beyond that, the states argue the policy violates two separate pieces of legislation.

The first is the Administrative Procedures Act, which describes the processes that agencies need to follow when they formulate formal rules to translate legislation into implementations. Among other things, this prevents agencies from formulating rules that are “arbitrary and capricious.” It argues that, by including audits and negotiations in the process of setting them, the current individualized indirect rates are anything but.

By contrast, the states argue, there’s no significant foundation for the 15 percent indirect rate. “The Rate Change Notice is arbitrary and capricious in, among other ways, its failure to articulate the bases for the categorical rate cap of 15 percent,” the suit alleges, “its failure to consider the grant recipients’ reliance on their negotiated rates, and its disregard for the factual findings that formed the bases for the currently operative negotiated indirect cost rates.”

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