This email was sent to PIs and Co-PIs on federal grants, academic leaders, and RIO staff and forwarded to the Grants Management User Network, UMN associate deans for research, Sponsored Financial Reporting, Sponsored Projects Administration staff, and the UMN Certified Approvers group by the Research and Innovation Office.
Dear Research Colleagues,
On Friday evening, February 7, the National Institutes of Health (NIH) announced an indirect cost rate cap of 15% for new and existing awards. The new indirect rate, which was proposed to go into effect for expenses incurred on or after February 10, would have replaced previously negotiated rates for universities and research institutes. The University of Minnesota’s negotiated rate through June 2028 for most research activities is 54%. We also have a negotiated rate of 37% that is used for non-research activities such as public service and outreach awards.
The implementation of this change has been delayed by several lawsuits, which have resulted in two temporary restraining orders preventing NIH from implementing or enforcing its February 7 guidance. A preliminary injunction hearing will be held by the US District Court in Massachusetts on February 21. Meanwhile the temporary restraining orders remain in effect.
While the current attempt to modify the rate pertains only to NIH awards, the negotiated federal indirect cost rate for each organization is used by other federal agencies, and similar changes could be made by other federal agencies in the future.
What Is the Research Indirect Cost Rate?
Indirect costs, which are also known as facilities and administration (F&A) costs, support real, audited expenses that the University incurs but cannot efficiently be tracked on a project-by-project basis. This includes such items as utility costs, building and major equipment costs, libraries, the costs of running compliance committees such as the human participant and animal subject review committees, and the staff that prepare, negotiate, oversee and bill proposals and awards. This infographic explains some of the types of indirect costs that these funds support.
Existing legislative limitations on administrative costs, and the negotiation process with our cognizant agency, already result in a lower F&A rate than is reflective of the actual expenses incurred by the University of Minnesota.
Impact of the 15% Cap
The University of Minnesota Office of Cost Analysis (OCA) has performed an analysis to estimate the impact a 15% cap on indirect cost recoveries would have on the University of Minnesota. Using the most recent expense information, in FY2024, the University incurred $498 million in reimbursable costs on awards received directly from NIH as well as on pass-through awards received from other entities on which NIH was the prime funder (i.e. subawards). Of those costs, $362 million were for direct costs, and $136 million were for indirect costs. Retaining the indirect rate for all awards that were under the proposed 15% rate (i.e. training grants received at 8% would remain at 8%) and assuming that the Modified Total Direct Cost Base would continue to be used as the base upon which F&A is assessed, OCA has estimated that the impact of a reduction to a 15% indirect rate in FY24 would have resulted in a loss of $97.5 million to the University.
To project the future impact of such a cap on the F&A rate, OCA assumed an annual growth rate of 5% (actual annual growth over the past several years has been closer to 9%) and determined that the loss to the University would range from $100 million to $130 million per year over the next five years.
If the 15% cap is extended to all federal agencies, OCA has projected that cuts to the University would increase to a range between $155M to $188M per year over the next five years.
Please note President Cunningham’s message:
“We are also supporting national efforts led by higher education associations to address the legality of this directive, and the University will stand in firm opposition to such drastic cuts that impede on our ability to advance research discoveries and innovations.”
The Research and Innovation Office will continue to update you as new
information is available.
Sincerely,
Pamela Webb, Associate Vice President for Research and Innovation
David Hagen, Director, Office of Cost Analysis