Last week, the Trump Administration decided not to appeal the most recent court ruling on the National Institutes of Health’s (NIH) indirect costs policy. This is a significant win for the scientific community, protecting funding for infrastructure necessary to conduct scientific research at institutions. The legal battle first arose in February 2025 after NIH announced a new policy capping indirect cost rates – also known as facilities and administrative (F&A) cost rates – at 15 percent.
Several interested parties immediately filed lawsuits challenging NIH’s proposal, arguing the policy violated both NIH regulations and federal law (see previous FABBS reporting). Similar suits followed after three other federal agencies – the Departments of Energy (DOE) and Defense (DOD), as well as the National Science Foundation (NSF) – announced their own 15 percent caps on F&A rates. A district court granted a nationwide permanent injunction in the NIH case in April 2025, blocking the agency from implementing the rate change until litigation had concluded. Courts also granted injunctions in the DOE, DOD, and NSF cases. As a result, negotiated rates did not change in 2025.
In January 2026, a panel of the U.S. Court of Appeals for the First Circuit unanimously affirmed the district court’s 2025 decision and left the permanent injunction against NIH in place. The appeals court panel confirmed the policy violated both a congressional appropriations provision and NIH’s own regulations and procedures. The Trump Administration had 90 days to appeal this decision to the Supreme Court but declined to do so without providing any public reasoning. The Administration also voluntarily dropped its appeals in the DOE, DOD, and NSF cases.
It is unclear if the Administration plans to pursue the 15 percent cap through different routes, as it is included in the President’s FY27 Budget Request (see FABBS coverage). Nevertheless, the scientific community’s efforts prevailed against a policy that NIH tried to implement without careful consideration of its impact on the research enterprise. Despite these legal wins, there is still work to be done to improve transparency and accuracy of F&A rates.
Moving Forward
The Joint Associations Group (JAG) on Indirect Costs developed a new model for funding F&A costs on federal research grants: the Fiscal Accountability in Research (FAIR) Model (see FABBS coverage). The FAIR Model is more efficient and transparent than the current model, and uses more precise budgeting and accounting to capture the “true institutional costs” of conducting research.
Recently, JAG hosted a webinar to discuss the legislative strategy surrounding the FAIR Model for fiscal year 2027 (FY27). Stakeholders are requesting language in the Financial Services and General Government (FSGG) appropriations bill – which covers the Office of Management and Budget (OMB) – that would enact the FAIR Model government-wide during a two-year transition period. The current F&A reimbursement system would remain in place until the new model is fully implemented and operational across all funding agencies.
During the FY26 appropriations process, Congress showed support for consideration of the FAIR model but chose to keep the current system in place for the immediate future. The final joint explanatory statement for the Labor, Health and Human Services, and Education (LHHS) bill directs departments and agencies to engage in discussions with the Appropriations Committees about potential alternatives, including FAIR (see previous FABBS coverage). It is unknown if those conversations have taken place yet, but JAG and other stakeholders will continue to advocate for the FAIR Model as an improved approach for funding indirect costs on federal grants.
