The National Institutes of Health (NIH) awards research grants to universities and institutes amounting to about $ 35 billion every year.  This $ 35 billion number amounts to $ 26 billion for actual research and $ 9 billion for “indirect costs,” defined as “facilities” and “administration.”  Universities, notably the University of Michigan, have ratcheted up these indirect and administration premia to boost federal research contract profits into the stratosphere.  Only Uncle Sucker has been paying outrageous junk fees which often exceed 50% of nominal contract value.

No more.  The NIH Office of The Director just issued NOT-OD-25-068 which caps these ups and adds at 15%.  This is more in line with private foundation research grants, many of which allow no indirect cost billings. Needless to say, universities are howling:

https://grants.nih.gov/grants/guide/notice-files/NOT-OD-25-068.html

Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates

Notice Number:

 

NOT-OD-25-068

 

Release Date:

February 7, 2025

Issued By:

Office of The Director, National Institutes of Health (OD)

Purpose

The National Institutes of Health (NIH) awards a large number of grants providing substantial federal funding for research purposes.  These grants include significant payments for “indirect costs,” defined as “facilities” and “administration.”  45 CFR 75.414(a). The “facilities” category is “defined as depreciation on buildings, equipment and capital improvements, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses.”  Id.  And the “administration” category is defined as “general administration and general expenses such as the director’s office, accounting, personnel, and all other types of expenditures not listed specifically under one of the subcategories of ‘Facilities”’ (including cross allocations from other pools, where applicable).  Id.

In issuing grants, NIH generally uses the indirect cost rate negotiated by an “agency with cognizance for F&A/indirect cost rate (and other special rate) negotiation.” Grants Policy Statement at IIA-68; see 45 C.F.R. 75.414(c)(1).  NIH may, however, use “a rate different from the negotiated rate for either a class of Federal awards or a single Federal award.”  45 C.F.R. 75.414(c)(1).  NIH may deviate from the negotiated rate both for future grant awards and, in the case of grants to institutions of higher education (“IHEs”), for existing grant awards.  See 45 CFR Appendix III to Part 75, § C.7.a; see 45 C.F.R. 75.414(c)(1).

In deviating from the negotiated indirect cost rate, NIH must “implement, and make publicly available, the policies, procedures, and general decision-making criteria that their programs will follow to seek and justify deviations from negotiated rates.”  45 C.F.R § 75.414(c)(3).

In 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.

Providing Indirect Cost Rates that Comport with Market Rates

NIH’s mission is to “seek fundamental knowledge about the nature and behavior of living systems” in order to enhance health, lengthen life, and reduce illness and disability.  In furtherance of this mission, NIH spent more than $35 Billion in Fiscal Year 2023 on almost 50,000 competitive grants to more than 300,000 researchers at more than 2,500 universities, medical schools, and other research institutions across all 50 states and the District of Columbia.[1] Of this funding, approximately $26 billion went to direct costs for research, while $9 billion was allocated to overhead through NIH’s indirect cost rate.

Although cognizant that grant recipients, particularly “new or inexperienced organizations,” use grant funds to cover indirect costs like overhead, see 89 FR 30046–30093, NIH is obligated to carefully steward grant awards to ensure taxpayer dollars are used in ways that benefit the American people and improve their quality of life.  Indirect costs are, by their very nature, “not readily assignable to the cost objectives specifically benefitted” and are therefore difficult for NIH to oversee.  See Grants Policy Statement at I-20.  Yet the average indirect cost rate reported by NIH has averaged between 27% and 28% over time.[2]  And many organizations are much higher—charging indirect rates of over 50% and in some cases over 60%.

Most private foundations that fund research provide substantially lower indirect costs than the federal government, and universities readily accept grants from these foundations.  For example, a recent study found that the most common rate of indirect rate reimbursement by foundations was 0%, meaning many foundations do not fund indirect costs whatsoever.  In addition, many of the nation’s largest funders of research—such as the Bill and Melinda Gates Foundation—have a maximum indirect rate of 15%.  And in the case of the Gates Foundation, the maximum indirect costs rate is 10% for institutions of higher education.

A sample list of foundations that provide indirect cost funding and their respective maximum indirect rate is below:[3]

Maximum Indirect Cost Rate	Organizations
10%	Gates Foundation (for institutions of higher education) Smith Richardson Foundation
12%	Gordon and Betty Moore Foundation Robert Wood Johnson Foundation
15%	Carnegie Corporation of New York Chan Zuckerberg Initiative John Templeton Foundation Packard Foundation Rockefeller Foundation (for institutions of higher education)

Indeed, one recent analysis examined what level of indirect expenses research institutions were willing to accept from funders of research. Of 72 universities in the sample, 67 universities were willing to accept research grants that had 0% indirect cost coverage.  One university (Harvard University) required 15% indirect cost coverage, while a second (California Institute of Technology) required 20% indirect cost coverage. Only three universities in the sample refused to accept indirect cost rates lower than their federal indirect rate. These universities were the Massachusetts Institute of Technology, the University of Michigan, and the University of Alabama at Birmingham.

The United States should have the best medical research in the world. It is accordingly vital to ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead.  NIH is accordingly imposing a standard indirect cost rate on all grants of 15% pursuant to its 45 C.F.R. 75.414(c) authority.  We note in doing so that this rate is 50% higher than the 10% de minimis indirect cost rate provided in 45 C.F.R. 75.414(f) for NIH grants.  We have elected to impose a higher standard indirect cost rate to reflect, among other things, both (1) the private sector indirect cost rates noted above, and (2) the de minimis cost rate of 15% in 2 C.F.R. 200.414(f) used for IHEs and nonprofits receiving grants from other agencies.

NIH Implementation

For any new grant issued, and for all existing grants to IHEs retroactive to the date of issuance of this Supplemental Guidance, award recipients are subject to a 15 percent indirect cost rate.  This rate 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.  This 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.  We will not be applying this cap retroactively back to the initial date of issuance of current grants to IHEs, although we believe we would have the authority to do so under 45 CFR 75.414(c). 

[1] NIH, Budget (Oct. 3, 2024),  https://www.nih.gov/ABOUT-NIH/WHAT-WE-DO/BUDGET .

[2] NIH, Fiscal Year 2021 Overview Supplementary Tables at 87,  https://officeofbudget.od.nih.gov/pdfs/FY21/br/5-SupplementaryTables.pdf .

[3] See Bill & Melinda Gates Found., Indirect Cost Policy (Feb. 2017),  https://docs.gatesfoundation.org/Documents/Indirect_Cost_Policy.pdf ; Smith Richardson Found., Strategy and Policy Fellows Program,  https://www.srf.org/wp-content/uploads/2014/04/2021-SPFP-Application-Requirements-and-Proposal-Template.pdf ; Gordon & Betty Moore Found., Moore Inventor Fellows: 2024-2025 FAQ,  https://www.moore.org/docs/default-source/moore-inventor-fellows/moore-inventor-fellows-faq.pdf ; Robert Wood Johnson Found., Policies for Action:Grants FAQs, https://anr.rwjf.org/templates/external/P4A_FAQS.pdf; Carnegie Corp. of New York, Grantee FAQs, https://www.carnegie.org/grants/grantee-faqs/#:~:text=What%20is%20your%20indirect%20cost,think%20tanks%2C%20and%20government%20entities; Chan Zuckerberg Initiative, Application Instructions, https://chanzuckerberg.com/wp-content/uploads/2020/06/CZI_Imaging_Scientists_2_Detailed_Instructions.pdf; John Templeton Found., Grant FAQ, https://www.templeton.org/grants/grant-faq;The Packard Found., Fostering Equitable Grantmaking through Indirect Cost Coverage,  https://www.packard.org/insights/perspective/fostering-equitable-grantmaking-through-indirect-cost-coverage/ ; The Rockefeller Found., Guidance: Preparing a Project Grant Budget for the Rockefeller Foundation, https://www.rockefellerfoundation.org/wp-content/uploads/2024/06/The-Rockefeller-Foundation-Project-Budget-Guidance-v2024.pdf.

Please direct all inquiries to:

NIH Office of Policy for Extramural Research Administration (OPERA)

Division of Grants Policy

grantspolicy@nih.gov

A commentary, from Byron York:

https://www.washingtonexaminer.com/opinion/columnists/3315099/after-nih-move-doge-hysteria-spreads/

After NIH move, DOGE hysteria spreads
By Byron York - February 8, 2025

AFTER NIH MOVE, DOGE HYSTERIA SPREADS. There was an alarmist report in the Washington Post over the weekend about the Trump administration and the National Institutes of Health. Beneath the headline, “NIH cuts billions of dollars in biomedical funding, effectively immediately,” the paper cited various sources who said a new way of calculating medical grants, imposed by the Trump administration, would be a “devastating” move that would “imperil … universities and medical centers,” “cripple lifesaving research and innovation,” result in “higher degrees of disease and death in the country,” and “imperil clinical research,” for which Americans would “pay the price with their lives.”

Wow. Here is the issue: When a university or research institution receives a grant from NIH, it charges the government for “indirect costs,” that is, for administrative and overhead costs. The amount charged can vary, but it’s a lot of money. “The average indirect cost rate reported by NIH has averaged between 27 percent and 28 percent over time,” NIH wrote in a statement announcing the new policy. “And many organizations are much higher — charging indirect rates of over 50 percent and in some cases over 60 percent.”

In fiscal 2023, NIH gave out $35 billion in grants. Of that, NIH said, $26 billion went to direct costs for research, while $9 billion went to indirect costs to pay for administration and overhead.

NIH noted that when research institutions receive grants from private foundations, the private foundations don’t pay nearly as much for indirect costs as NIH does. “A recent study found that the most common rate of indirect rate reimbursement by foundations was 0 percent, meaning many foundations do not fund indirect costs whatsoever,” NIH wrote. “In addition, many of the nation’s largest funders of research — such as the Bill and Melinda Gates Foundation — have a maximum indirect rate of 15 percent. And in the case of the Gates Foundation, the maximum indirect costs rate is 10 percent for institutions of higher education.”

NIH also included the maximum indirect costs payment rate for other foundations. The Chan Zuckerberg Initiative is capped at 15%, as is the John Templeton Foundation and the Carnegie Corporation of New York. The Robert Wood Johnson Foundation is capped at 12%, and the Smith Richardson Foundation is capped at 10%.

So this is what the Trump administration did. It announced that NIH will now cap the rate of indirect costs at 15%. That way, the thinking goes, NIH will be more in line with private foundations and will be able to spend more on research and less on administration and overhead. Under the new policy, of the $35 billion spent on grants last year, about $5 billion would go to administration and overhead, instead of the $9 billion that was actually paid in fiscal 2023. The savings would be $4 billion.

It seemed reasonable, but the media reaction approached five alarms. In addition to the Washington Post, the New York Times headline was “Trump Administration Cuts Put Medical Progress at Risk, Researchers Say.” CNN’s headline was “Researchers decry ‘disastrously bad idea’ as NIH slashes payments for research infrastructure.” Not to be outdone, the Huffington Post went with “TRUMP SLEDGEHAMMERS NIH FUNDING; ‘CATASTROPHIC’ HIT TO SCIENCE.”

Democrats in Washington were happy to amplify the point. The new NIH policy “will mean shuttering labs across the country, layoffs in red and blue states, and derailing lifesaving research on everything from cancer to opioid addiction,” Sen. Patty Murray (D-WA) said. Rep. Jamie Raskin (D-MD) called the new policy “another deep wound inflicted against American medicine, science and health by Musk’s juvenile night crew of data thieves following the Project 2025 playbook.”

As Raskin indicated, for Democrats the chief villain in the narrative was, of course, Elon Musk of the Trump-created Department of Government Efficiency, and also the Heritage Foundation’s Project 2025. Musk had called the old, high indirect costs payments a “ripoff.” Last year, Project 2025 recommended that “Congress should cap the indirect cost rate paid to universities so that it does not exceed the lowest rate a university accepts from a private organization to fund research efforts. This market-based reform would help reduce federal taxpayer subsidization of leftist agendas.”

Meanwhile, knowledgeable Republicans were appalled — not at the new policy but at the media/Democratic reaction. “As a physician who has conducted NIH-funded research, I understand how important research funding is,” said Rep. Andy Harris (R-MD), a Johns Hopkins-trained anesthesiologist, in a statement. “But for years, the American taxpayer has paid inflated 50-60 percent ‘indirect costs’ for research in universities while nonprofits, private companies, and foundations only pay 15 percent or less. The NIH’s new indirect cost rate of 15 percent is in line with what research institutions receive from private foundations, and could actually allow more NIH funding to go directly to critical scientific research, instead of funding bloated university bureaucracies, including DEI offices.” The Washington Post article, Harris added, was “grossly misleading.”

All of that came within 24 hours of the announcement of the new policy. It’s not yet clear whether the NIH matter will reach USAID-levels of intensity among Democrats and the media. But it’s off to a strong start.

I am so old I can remember when Democrats and their bureaucrats were totally opposed to "junk fees".