Federal Court Permanently Strikes Down NIH 15% Indirect Cost Cap
March 14, 2026 · 2 min read
David Almeida
The fight over how much universities can charge the government for research overhead is over — at least for now.
U.S. District Judge Angel Kelley has permanently barred the National Institutes of Health from imposing a flat 15% indirect cost rate on research grants, ruling the agency violated federal statute, acted in an "arbitrary and capricious" manner, and failed to follow required rulemaking procedures.
What the Cap Would Have Done
In February 2025, the NIH published supplemental guidance capping facility and administration costs — the overhead universities charge for utilities, lab space, equipment, and administrative support — at 15% of direct research costs. Most research universities negotiate rates between 50% and 65%. The cap would have stripped roughly $4 billion annually from the nation's research infrastructure.
The First Circuit Court of Appeals upheld Judge Kelley's preliminary injunction in January 2026, and the permanent ruling now forces NIH to maintain individually negotiated indirect cost agreements. The administration is expected to appeal.
What Researchers Should Do Now
The permanent injunction means universities can continue submitting grants at their full negotiated rates. But the ruling does not prevent future rulemaking through proper channels, and the administration has signaled it views indirect costs as ripe for reduction.
Researchers should note that Congress also acted: the FY2026 defense spending bill separately blocks the Pentagon from reducing indirect cost rates below 2024 levels, protecting the $9 billion DOD spends annually on university research.
For principal investigators currently preparing NIH submissions, the ruling removes the immediate threat. But institutions should document the research infrastructure their overhead rates support — equipment maintenance, compliance staff, lab safety — in case a formally proposed rule emerges.
The broader takeaway: federal research funding is under sustained pressure from multiple directions. Grant seekers tracking these shifts can find analysis of how budget changes affect specific programs on the Granted blog.