Court Blocks NIH Cap on Indirect Cost Rates for Government Contracts
In a significant development for research institutions and federal contractors, a federal judge has temporarily blocked the National Institutes of Health (NIH) from enforcing its cap on indirect cost rates. This decision comes as a result of a temporary restraining order (TRO) issued by the U.S. District Court for the District of Massachusetts followed by an additional ruling to expand the block across all 50 states.
Background: The NIH Indirect Cost Rate Cap
The NIH’s Supplemental Guidance (NOT-OD-25-068), issued in early 2025, sought to impose a standardized 15% indirect cost rate on applicable grants and contracts. The policy aimed to streamline financial policies and ensure funding efficiency, but it faced strong pushback from research institutions and state governments that rely on higher negotiated rates to sustain operations.
For more details on the initial policy, see EverGlade Consulting’s breakdown: Understanding the NIH Indirect Cost Rate Guidance
Why Was the Cap Blocked?
Key Takeaways from the Court Order:
- NIH and HHS cannot enforce the indirect cost rate cap within plaintiff states until further notice.
- NIH must continue disbursing federal financial assistance funds without applying the rate change.
- A hearing is scheduled for February 21, 2025, to determine further legal action.
What’s Next?
The NIH has until February 14, 2025, to file an opposition to the motion, with further legal arguments expected before the hearing on February 21, 2025. If the court rules against NIH, the agency may need to revise or abandon its 15% indirect cost cap.
For research institutions and federal contractors, this decision offers a temporary reprieve, but long-term uncertainty remains. Organizations should continue to monitor the legal proceedings and engage with financial and compliance teams to stay prepared for potential policy changes.
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