The Department of Defense (DOD) has issued a new memorandum announcing its intent to cap indirect cost rates at 15% or lower for all new financial assistance awards to institutions of higher education. This change will go into effect 21 days from May 14, 2025, and marks a significant shift in how DOD will reimburse universities for facilities and administrative costs on grants and cooperative agreements.
What You Need to Know:
- DOD will cap indirect cost rates at 15% or lower for all new financial assistance awards to institutions of higher education. This change will go into effect 21 days from May 14, 2025.
- Renegotiation of Existing Awards: DOD has also ordered that all existing financial assistance awards to higher ed institutions be renegotiated within 30 days of the memo. Where cooperative modification is not possible, termination and reissuance under new terms may be pursued—all to be completed within 180 days.
- Upcoming Guidance: The Under Secretary of Defense for Research & Engineering (USD(R&E)) will issue detailed policy guidance and integrate these changes into all future grant solicitations and Notices of Funding Opportunity.
Legal Challenges Across Agencies:
This move by the DOD is the latest in a growing wave of federal efforts to limit indirect cost recovery at research institutions. Several agencies have introduced similar caps in recent months, triggering legal challenges from the higher education community. Here’s where things currently stand across major federal research funders:
- NIH: Injunction in place; the Trump Administration is currently appealing the decision.
- DOE: Preliminary injunction granted as of last night.
- NSF: Lawsuit filed; awaiting a ruling on a Temporary Restraining Order (TRO).
- DOD: Legal challenge expected from the Association of American Universities (AAU).
The Department of Contracts and Grants (DCG) will continue monitoring legal developments and agency guidance closely and will share updates as they become available.