Universities Sue NSF Over Indirect Research Cost Policy

A coalition of universities and trade groups is suing the National Science Foundation over the independent federal agency’s plan to cap higher education institutions’ indirect research cost reimbursement rates at 15 percent. 

In the lawsuit, filed Monday in the U.S. District Court for the District of Massachusetts, the same day the NSF’s new policy went into effect, the coalition argued that a cut would risk the country’s standing “as a world leader in scientific discovery” and “the amount and scope of future research by universities will decline precipitously.”

It warned that “vital scientific work will come to a halt, training will be stifled, and the pace of scientific discoveries will slow” and that “progress on national security objectives, such as maintaining strategic advantages in areas like AI and quantum computing, will falter.”

Plaintiffs in the lawsuit include the American Council on Education, the Association of American Universities, the Association of Public and Land-grant Universities, and 13 universities, including Arizona State University, the University of Chicago and Princeton University.

They attest that the NSF violated numerous aspects of the Administrative Procedure Act, including bypassing Congress to unilaterally institute an “arbitrary and capricious” 15 percent rate cap and failing to explain why it’s only imposing the policy on universities.

The NSF awarded $6.7 billion to some 621 universities in 2023.

Indirect costs fund research expenses that support multiple grant-funded projects, including computer systems to analyze enormous volumes of data, building maintenance and waste-management systems. In 1965 Congress enacted regulations that allow each university to negotiate a bespoke reimbursement rate with the government that reflects institutional differences in geographic inflation, research types and other variable costs.

Typical negotiated NSF indirect cost rates for universities range between 50 and 65 percent, according to the lawsuit.

And while the Trump administration has claimed that indirect cost reimbursements enable wasteful spending by universities, the plaintiffs note that an existing cap on administrative costs means that universities already contribute their own funds to cover indirect costs, “thereby subsidizing the work funded by grants and cooperative agreements.” In the 2023 fiscal year, universities paid $6.8 billion in unrecovered indirect costs, the lawsuit read.

The NSF is the third federal agency that has moved to cap indirect research costs since President Donald Trump took office in January; federal judges have already blocked similar plans from the National Institutes of Health and the Department of Energy.

“NSF’s action is unlawful for most of the same reasons,” the lawsuit read, “and it is especially arbitrary because NSF has not even attempted to address many of the flaws the district courts found with NIH’s and DOE’s unlawful policies.”