Department of Energy Caps Universities’ Indirect Research Costs at 15%

Two months after the National Institutes of Health unilaterally capped indirect research cost reimbursement rates at 15 percent—which a federal judge has permanently blocked—the Department of Energy announced a similar plan Friday that explicitly applies to higher education institutions.

The DOE sends more than $2.5 billion a year to more than 300 colleges and universities, a portion of which covers indirect costs, such as laboratory space, waste disposal and utilities. Some of those DOE-funded projects include developing next-generation materials critical to commercializing fusion power at the University of Kentucky, a critical mineral production workforce readiness program at Tennessee State University and a comprehensive road map for repurposing offshore infrastructure for clean energy projects in the Gulf of Mexico at the University of Houston.

“The purpose of Department of Energy funding to colleges and universities is to support scientific research—not foot the bill for administrative costs and facility upgrades,” U.S. Secretary of Energy Chris Wright said in the memo. “With President Trump’s leadership, we are ensuring every dollar of taxpayer funding is being used efficiently to support research and innovation—saving millions for the American people.”

DOE grant recipients at colleges and universities currently have an average 30 percent indirect cost rate. According to the agency, that’s “a significantly higher rate than other for-profit, nonprofit and state and local government grant awardees,” though those entities’ definitions of indirect versus direct costs often differ from the federal government’s. Nonetheless, the DOE claims that “limiting these costs to a standard rate of 15 percent will help improve efficiency, reduce costs and ensure proper stewardship of American taxpayer dollars.”

COGR: Rate Cut Is ‘Bad Policy’

But COGR, an association of research universities, affiliated medical centers and independent research institutes, characterized the policy as “ruinous,” writing in a statement that “our nation’s economic competitors are laughing at another self-inflicted policy wound that will slow the pace of American research and innovation.”

“First it was NIH. Now it is DOE. Bad policy is bad policy, and doubling down on it doesn’t make it better,” the COGR statement said. “Americans deserve better than a series of misguided policy proclamations that harm our nation’s research enterprise, economy, health, and security.”

If the past is prologue, it’s also not clear that DOE has the authority to unilaterally enact such changes. In response to the lawsuit filed against the NIH after it capped indirect costs rates, the federal judge who blocked the policy said the move usurped congressional authority and the NIH failed to provide any sufficient reasoning, rationale or justification for the change.

If the plan moves forward unchallenged, the DOE said the indirect cost rate cap is expected to save $405 million in taxpayer funds and will deliver on Trump’s “commitment to bring greater transparency and efficiency to federal government spending,” according to the memo. (While the NIH made a similar argument when it first announced its move to cap indirect costs, estimating a $4 billion savings, the agency later told a federal judge that it wasn’t intended to be a savings at all and instead planned to reallocate that money for direct research costs.)

The DOE also said it will “terminate all grant awards” to higher education institutions “that do not conform with this updated policy.”

Despite claims by the Trump administration that indirect costs are an example of wasteful, “difficult to oversee” spending on the part of universities, the DOE—like the NIH—has not yet presented any publicly available evidence to show how universities have systematically abused indirect cost funding.

For decades, colleges and universities receiving federal research grants have periodically negotiated their indirect cost rates with the granting agencies. While direct costs of research projects cover easily quantifiable expenses for a particular grant project, such as researcher salaries, the indirect cost rates—formally known as facilities and administrative costs—help to cover costs “that cannot be identified or tracked to a single activity, project, job, contract or costs that apply to more than one project,” such as space rental, utilities and clerical and managerial staff salaries, according to 2023 DOE guidance.

Negotiated rates can vary widely from institution to institution and depend on factors such as geographic cost differences and building maintenance schedules. The rates are calculated by examining previous audits, experience, information resulting from recent review or similar reliable data or experience of other contracting activities. And any costs universities label as “indirect” are also subject to a complex government audit.

However, days before the DOE announced its plan to cap indirect costs, a coalition of 10 academic and research organizations, including COGR, the Association of American Universities and the Association of American Medical Colleges, announced a plan “to spur the development of a more efficient and transparent model for funding indirect costs on federal research grants,” according to a joint statement.

“Despite the historical success of the current F&A cost reimbursement model, it is not without limitations that unnecessarily complicate the indirect costs structure, lead to confusion and misunderstanding, and increase administrative burdens,” the statement said. Though the details of the effort launched last week aren’t yet clear, the coalition “seeks to identify and reduce or eliminate regulatory barriers, produce a simple and easily explained model, and increase transparency, all in service of a singular goal: to ensure that taxpayer dollars continue to be used effectively to advance research that benefits all Americans.”