US universities win case striking down agency's 15% research cost cap

Business Standard

2 days ago

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.
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.
The US District Court for the District of Massachusetts judge also denied the schools' bid for injunctive relief, stating it was now moot.
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.
'Although the 15 per cent 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.
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.'
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.
The schools and AAU, in their lawsuit filed May 5 called the NSF policy, which had imposed a categorical 15 per cent cap on all new grant and cooperative agreements to universities 'clearly unlawful.'
A Tailored Approach
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.
'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.
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.
The plaintiffs on May 8 moved for their injunction, asserting the policy would cause irreparable damage to universities' educational and research missions, resulting in 'critical research programs being disrupted or stopped altogether.'
The government's May 27 opposition said the cap policy is allowed under National Science Foundation Act, which authorizes the NSF to use its discretion to spend federal money the way it sees fit to support its mission to promote scientific research.
The US also said the court doesn't have jurisdiction to decide the case because because the plaintiffs lack standing. No plaintiff has alleged that the agency altered terms of an existing grant by applying a 15 per cent rate, the government said.
Thirteen schools in all had joined in the suit including the University of California, Carnegie Mellon University, the universities of of Chicago, Michigan and Pennsylvania, and Princeton University.
Jenner & Block LLP and Clement & Murphy PLLC represent the plaintiffs.
The case is Ass'n of Am. Universities v. Nat'l Sci. Found., D. Mass., 1:25-cv-11231, 6/20/25.