Universities Win Order Voiding Agency’s 15% Research Cost Cap

Cornell University Photographer: Bing Guan/Bloomberg Photo by Bing Guan /Bloomberg

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(Bloomberg Law) — Brown and Cornell universities, the Massachusetts Institute of Technology and several other US schools won a federal court order striking down a National Science Foundation cap on indirect cost rates for government-funded research.

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Judge Indira Talwani struck down the cap on Friday, finding it “arbitrary, capricious and contrary to the law,” granting summary judgment to the suing schools plus the Association of American Universities, and denying that relief to the government.

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The US District Court for the District of Massachusetts judge also denied the schools’ bid for injunctive relief, stating it was now moot.

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The ruling is the third successful university challenge this year to federal agencies slashing research funding, following court victories against the National Institutes of Health and Department of Energy. A fourth case against the Department of Defense is pending.

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“Although the 15% Indirect Cost Rate does not affect existing or continuing grant awards, Plaintiffs and member institutions collectively have thousands of proposals pending before NSF, which they submitted in reliance on their negotiated indirect cost rates,” Talwani said. Those proposals are worth “tens of millions of dollars” according to the order.

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The cap will prompt institutions to lay off specialized researchers, cause staff to leave for other institutions, and immediately inhibit planning, hiring, and operations, she said, adding that schools will be forced to cut “graduate student and trainee positions, damaging critical talent pipelines.”

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Talwani’s ruling follows the government’s May 16 decision to stay the implementation of a research costs cap policy, and the court’s subsequent decision to cancel a hearing on the plaintiffs’ motion.

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The schools and AAU, in their lawsuit filed May 5 called the NSF policy, which had imposed a categorical 15% cap on all new grant and cooperative agreements to universities “clearly unlawful.”

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A Tailored Approach

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Congress authorized the use of predetermined fixed-percentage rates for payment of reimbursable indirect costs attributable to research agreements with education institutions, at 41 U.S.C. § 4708, the complaint said.

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“And with Congress having preserved a tailored approach to indirect cost rates since 1965, it beggars belief to suggest that Congress—without saying a word—impliedly authorized NSF to enact a sweeping, one-size-fits-all command that will upend research at America’s universities,” the plaintiffs said.

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The rate cap also violates regulations promulgated by the Office of Management and Budget to ensure that funding recipients can recover the actual costs of conducting research the government selected them to undertake, the complaint said.