Judge Blocks DOE Move to Cut Indirect Cost Rate
The U.S. District Court for the District of Massachusetts, where the Department of Energy and the National Institutes of Health are facing lawsuits for capping indirect cost rates for grantees at 15%.
Wikimedia Commons / 4300streetcar / CC BY 4.0
A federal judge issued a temporary restraining order today after the Department of Energy announced Friday that it would place a 15% cap on indirect cost rates for university research grants and terminate current grants that do not adhere to the cap. Universities and higher education associations sued the department on Monday, arguing that the change was “arbitrary and capricious” and does not follow the government’s own indirect cost regulations.
DOE stated that the average rate of indirect costs incurred by the department’s grant recipients at colleges and universities is more than 30% and that the cap would save over $405 million annually. DOE currently awards more than $2.5 billion annually to more than 300 universities.
“The purpose of Department of Energy funding to colleges and universities is to support scientific research – not foot the bill for administrative costs and facility upgrades,” Energy Secretary Chris Wright said in the announcement.
The plaintiffs asked the court to prohibit DOE from putting the rate cap policy into effect and from terminating any grants where a grantee refuses to accept an indirect cost rate below their institution’s negotiated rate.
The plaintiffs include nine universities that are expected to lose millions of dollars in indirect cost recovery annually under the DOE cap. These range from MIT, which would lose more than $15 million in indirect cost recovery over the next year, to Michigan State University, which would lose $32 million in indirect cost recovery annually, according to the lawsuit. Brown, Cornell, and Princeton are also plaintiffs and have separately had hundreds of millions of dollars in research grants frozen by the Trump administration earlier this month.
Indirect costs, also known as facilities and administrative (F&A) costs, are used to cover research-related expenses such as equipment and facilities maintenance, IT services, and administrative support. Indirect costs are paid in addition to direct research costs and are often expressed as a percentage. For example, an indirect cost rate of 50% means that for every dollar awarded as part of a research grant for eligible direct costs, the institution would receive an additional 50 cents to cover indirect costs. In that case, indirect costs would represent one-third of the total award.
Brown’s Vice President for Research Greg Hirth wrote in a filing with the court that the new policy would force the university to eliminate research-related administrative and facilities maintenance positions, stop graduate students’ work and thereby hinder their degree completion, and reduce or close experimental and computational facilities.
For universities, indirect cost rates are typically negotiated by either the Department of Health and Human Services or the Department of Defense’s Office of Naval Research, normally depending on which agency provided more funds directly to the university in the last three years. All other agencies must use this negotiated rate for their grants to that university, the lawsuit states. Rates are negotiated based on the university’s documented costs and can be adjusted if an audit establishes that the university has recovered excess costs.
“DOE denigrates ‘indirect cost payments’ as ‘not for the department’s direct research funding,’” the lawsuit states. “But DOE ignores that indirect costs are often necessary for DOE’s own research to continue: Cutting-edge research, for example, requires physical infrastructure and equipment, ethics review boards, and many other costs that are not traceable to specific grants but are nonetheless essential for the work.”
The lawsuit argues that the policy change does not follow required procedures or provide appropriate justification to deviate from negotiated indirect cost rates. The new policy also fails to consider “reliance interests,” including institutions’ long-term budget planning around established indirect cost rates and the early career scientists who will lose their jobs as a result of grant cuts, the lawsuit adds.
Regarding current grants, the lawsuit further argues that terminating these grants based on a new cap would be illegal. Agencies can only legally terminate grants if the grantee gives consent or fails to comply with the terms of the grant, or the award “no longer effectuates the program goals or agency priorities.” The new policy also makes retroactive changes to current grants, which is only permissible with congressional authorization, the lawsuit adds.
DOE is the first agency after the National Institutes of Health to announce a policy change on indirect costs. The first Trump administration attempted to cap indirect cost rates on NIH grants at 10%, but the proposal faced bipartisan opposition in Congress, which enacted legislation that prevents deviations from negotiated rates.
The lawsuit states that NIH’s attempted 15% cap, announced in February, was illegal for many of the same reasons. A federal judge in Massachusetts blocked NIH’s cap earlier this month and the agency subsequently appealed the decision. The plaintiffs in the DOE case filed their lawsuit in the same court.
