Grants paid by the federal government have two components. One covers the direct costs of performing the research, paying for salaries, equipment, and consumables like chemicals or enzymes. But the government also pays what are called indirect costs. These go to the universities and research institutes, covering the costs of providing and maintaining the lab space, heat and electricity, administrative and HR functions, and more.
These indirect costs are negotiated with each research institution and average close to 30 percent of the amount awarded for the research. Some institutions see indirect rates as high as half the value of the grant.
On Friday, the National Institutes of Health (NIH) announced that negotiated rates were ending. Every existing grant, and all those funded in the future, will see the indirect cost rate set to just 15 percent. With no warning and no time to adjust to the change in policy, this will prove catastrophic for the budget of nearly every biomedical research institution.
Cut in half or more
The new policy is described in a supplemental guidance document that modifies the 2024 grant policy statement. The document cites federal regulations that allow the NIH to use a different indirect cost rate from that negotiated with research institutions for “either a class of Federal awards or a single Federal award,” but it has to justify the decision. So, much of the document describes the indirect costs paid by charitable foundations, which tend to be much lower than the rate paid by the NIH.
The new rate of indirect cost reimbursement will be applied to any newly funded grants and retroactively to all existing grants starting with the issuance of this notice. The retroactive nature of this decision may end up being challenged due to the wording of the regulations cited earlier, which also state that “The Federal agency must include, in the notice of funding opportunity, the policies relating to indirect cost rate.” However, even going forward, this will likely severely curtail biomedical research in the US.
