On February 7, 2025, the National Institutes of Health (NIH) issued Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates (NOT-OD-25-068). In its guidance, the NIH announced that it is capping the indirect cost rate at 15% across all NIH grants, effective February 10, 2025. The guidance notes that the current average indirect cost rate for organizations receiving grants is between 27% and 28%, but many organizations have higher indirect cost rates of over 50% and in some cases over 60%. These indirect costs include facilities and administration, such as equipment and capital improvements, operations and maintenance expenses, and accounting and personnel expenses.
The guidance, along with its associated policies, is currently tied up in litigation. There have been three separate lawsuits filed against the NIH by 22 states and coalitions of colleges and universities. On February 10, 2025, the District of Massachusetts issued a temporary restraining order (TRO) and enjoined the NIH from taking any steps to implement, apply, or enforce the Rate Change Notice. On February 21, 2025, the district court ruled to extend this TRO until it decides whether to issue a preliminary injunction.
Despite the uncertainty surrounding the Rate Change Notice, and with much grant funding currently being held up by the Trump Administration – not only by the NIH but other agencies and departments providing federal assistance – entities that receive grant funding can still proactively prepare for the upcoming changes by taking the following steps:
- Keep apprised of regulatory developments, including the current litigation in the District of Massachusetts, as well as other expected legal challenges.
- Anticipate and prepare to deal with terminations for convenience by the NIH or other agencies providing federal financial assistance.
- Anticipate and prepare for withdrawal from programs if the cap on indirect costs is ultimately allowed and the subject program would not be feasible with the cap in place.
- Prepare to pursue claims for breach of contract against the NIH or other funding agencies under the Tucker Act.
- Prepare for issues related to subcontract and subrecipient agreements with high costs, including ensuring that current subcontracts, vendor agreements, and subrecipient agreements all contain termination for convenience clauses, and provisions that permit alteration of key terms if government funding changes. Address the process for finalization of costs in the event of a termination in time to submit a convenience termination settlement proposal or claim to the granting agency.
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If you have any questions, or would like additional information, please contact one of the attorneys on our Government Contracts team.