On February 10, 2025, a lawsuit was filed by 22 states with the U.S. District Court for the District of Massachusetts requesting a federal judge temporarily block a policy change announced by the National Institutes of Health (NIH). The policy change was to set a 15% cap on payments for indirect costs, for both administrative and facility costs, linked to research. Later the same day, U.S. District Judge Angel Kelley granted a temporary restraining order (TRO) pausing the NIH policy change.
The TRO states, “Defendants and their officers, employees, servants, agents, appointees, and successors are hereby enjoined from taking any steps to implement, apply, or enforce the Rate Change Notice (NOT-OD-25-068) within Plaintiff States until further order is issued by this Court.”
The lawsuit alleges this “rate change notice” violates the Administrative Procedure Act (APA), a federal law that governs the way administrative agencies of the federal government propose and establish regulations.
The policy was announced on Friday, February 7, 2025, and went into effect on Monday, February 10, 2025. The policy retroactively modifies existing contracts that have already established an indirect cost rate between the federal government and research institutions.
When issuing grants, the NIH uses an indirect cost rate that has been negotiated by the specific awarded agency. However, the NIH can choose to use a different rate for a class of federal awards. Per the NIH, this flexibility applies to new grants and existing grants in the case of higher education institutions.
In retroactively modifying the negotiated indirect cost rate, the NIH must also make publicly available the policies, procedures, and general decision-making criteria that their programs will follow to request and justify deviations from negotiated rates.
NIH Notice NOT-OD-25-068 states that, “[i]n accordance with 45 CFR 75 and its accompanying appendices, this Guidance implements and makes publicly available NIH’s updated policy deviating from the negotiated indirect cost rate for new grant awards and existing grant awards, effective as of the date of this Guidance’s issuance. Pursuant to this Supplemental Guidance, there will be a standard indirect rate of 15% across all NIH grants for indirect costs in lieu of a separately negotiated rate for indirect costs in every grant.”
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