The United StatesNational Institutes of Health (NIH) has announced a significant policy shift, lowering the indirect cost rate for all grants to a flat 15%. This move is expected to have far-reaching consequences for research institutions countrywide.

Indirect costs, also known as Facilities and Administrative (F&A) costs, refer to expenses that are not directly related to a specific research project but are required for overall operations. These include utilities, maintenance, administrative assistance, and building upkeep. Historically, schools have negotiated indirect cost rates with federal agencies that frequently surpass 50% of the overall grant amount.

The NIH's plan to standardise the indirect cost rate at 15% aims to streamline financing processes and send more grant cash towards research activity. However, this reduction presents issues for institutions that rely on increased indirect cost recoveries to fund their research infrastructure.

Many universities and research centres have voiced concerns that the lower rate will not cover necessary operational costs, potentially leading to financial problems. This could lead to diminished administrative assistance, postponed maintenance, and restrictions on facility renovations, all of which are critical for performing cutting-edge research.

The policy change is expected to disproportionately affect larger universities with significant research activities, which rely more largely on indirect cost recoveries. Smaller institutions and those with lower negotiated rates may see less immediate impact.

The NIH has acknowledged these concerns and stated that it will monitor the impact of this policy move. We recommend that institutions review their financial strategy and explore alternative financing sources to mitigate potential issues arising from the lower indirect cost rate.

This transition marks a significant turning point in government research funding, emphasising the necessity for institutions to adjust to evolving financial environments while maintaining their dedication to scientific advancement.