Over the past few weeks, the Trump administration has introduced sweeping changes across the federal government that have impacted the federal grantee and contractor community. Adding to these changes, the National Institutes of Health (NIH) issued supplemental guidance on February 7, 2025 that stated, "[f]or any new grant issued, and for all existing grants to [institutes of higher education (IHEs)] retroactive to the date of issuance of this Supplemental Guidance, award recipients are subject to a 15 percent indirect cost rate."
Generally indirect cost rates enable grant recipients to receive reimbursement for their administrative, overhead, and other costs that the organization incurs in the performance of their research and other work under a federal grant or cooperative agreement. These are the costs incurred by these organizations to "keep the lights on." Historically, many IHEs and other grant recipients have gone through the effort of developing, negotiating, and administering indirect cost rates with their cognizant agency.
While NIH claims "[t]his rate [15%] will allow grant recipients a reasonable and realistic recovery of indirect costs while helping NIH ensure that grant funds are, to the maximum extent possible, spent on furthering its mission," it represents a departure from the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), which the U.S. Department of Health and Human Services and NIH have largely adopted. Simply stated, through this guidance, NIH is attempting to replace long-standing agreements with a single overhead rate for all entities.
Moreover, this notice is confusing because it provides that it is retroactive for existing grants held by IHEs and applies only to new grants for all others, but also states, "[t]his policy shall be applied to all current grants for go forward expenses from February 10, 2025 forward as well as for all new grants issued." Thus, the guidance confers contradictory language regarding whether non-IHEs' future expenses under existing awards are subject to the cap. Interestingly, the notice also provides, that while NIH will not apply the cap retroactively to past expenses, NIH "[believes] we would have the authority to do so."
Other details are likewise unclear from Friday's NIH policy notice. For example:
- When does this apply to non-IHEs and IHEs, to existing awards, effective February 7, 2025 or February 10, 2025, etc.? NIH will need to clarify.
- Is this legal? Honestly, this is unclear and will require some time to resolve. However, several lawsuits have already been filed to examine NIH's guidance and a judge has already issued a temporary restraining order enjoining the effective date of this new rule.
- Might other agencies follow suit and look to impose a similar fixed rate? Maybe, stay tuned.
Venable will continue to monitor this and other agency guidance to help advise clients and prepare them for this new landscape. If you have questions about the NIH policy notice you'd like to discuss, contact one of the authors, or anyone from our Government Contracts team.