The NIH indirect cost cap is permanently blocked. A January 2026 ruling by the U.S. Court of Appeals for the First Circuit upheld a district court injunction against NIH’s proposed 15% cap on indirect (facilities-and-administrative) cost reimbursement, and the Department of Justice let its April 6, 2026 deadline to petition the Supreme Court pass without action. For research institutions, this closes 14 months of litigation and means individually negotiated F&A rates remain the governing standard for new and existing NIH awards.
The NIH indirect cost cap was a February 2025 policy notice, NOT-OD-25-068, that would have replaced institution-specific negotiated indirect cost rates with a uniform 15% rate for facilities and administrative costs on NIH grants. That policy is now permanently enjoined and cannot be reinstated by NIH without new legislation.
- What did the 2026 appeals ruling decide?
- What happens to negotiated F&A rates now?
- Are indirect costs on subawards affected?
- What should institutions do with 2026 budgets?
- Answer-first questions on the ruling
- What’s next: FY2027 budget risk and the FAIR model
What did the 2026 appeals ruling decide?
On January 5, 2026, the First Circuit Court of Appeals affirmed a lower court’s permanent injunction against the NIH’s 15% indirect cost cap. The court found that the policy violated both an appropriations rider that has barred NIH from unilaterally altering negotiated indirect cost rates since fiscal year 2018, and NIH’s own regulations governing how F&A rates are set through individual negotiation.
The Department of Justice had until April 6, 2026 to petition the U.S. Supreme Court for review. According to reporting from McAllister & Quinn, that deadline passed with no petition filed, leaving the First Circuit’s decision — and the original district court injunction — permanently in effect. There is no pending appeal and no remaining judicial avenue for NIH to revive the 15% cap as written.
| Date | Event |
|---|---|
| 7 February 2025 | NIH announces a uniform 15% indirect cost rate for all extramural grant recipients (NOT-OD-25-068) |
| 10 February 2025 | 22 state attorneys general and a coalition led by the Association of American Medical Colleges (AAMC) sue; a nationwide temporary restraining order is issued |
| 4 April 2025 | District court converts the TRO into a permanent injunction blocking the cap |
| 8 April 2025 | NIH appeals to the First Circuit Court of Appeals and requests expedited review |
| 5 January 2026 | First Circuit upholds the injunction, ruling the cap unlawful under appropriations law and NIH’s own regulations |
| 6 April 2026 | DOJ’s deadline to petition the Supreme Court passes with no filing; the injunction becomes final |
What happens to negotiated F&A rates now?
Institutions keep the indirect cost rate they individually negotiated with their cognizant federal agency. The permanent injunction means NIH cannot apply a flat 15% rate to any new or existing award, and Congress reinforced this in final FY26 appropriations by prohibiting NIH from adjusting institutions’ negotiated rates for the full fiscal year, through 30 September 2026.
Negotiated rates vary widely by institution type and are typically far above 15%. A 2025 study cited by McAllister & Quinn, drawing on data from more than 350 NIH-funded institutions, found negotiated indirect cost rates averaged 58% of modified total direct costs (MTDC). No rate renegotiation, revised Notice of Award, or budget resubmission is required as a result of this ruling — the negotiated rate on file with your cognizant agency remains authoritative.
Are indirect costs on subawards affected?
No. The ruling does not create a separate rule for subawards. Under existing NIH policy and 2 CFR 200 (Uniform Guidance), a pass-through entity must honour a subrecipient’s federally negotiated indirect cost rate, or the 10% de minimis rate where the subrecipient has none, on the first $25,000 of each subaward. Because the 15% cap never took lawful effect, subaward budgets built on a subrecipient’s individually negotiated rate — or the de minimis rate — do not need to be revised.
This matters directly for consortium and multi-institution grants, where a prime awardee’s budget office must confirm each subrecipient’s current negotiated rate before finalising subaward agreements for the next competitive or non-competitive renewal cycle.
What should institutions do with 2026 budgets?
With the legal uncertainty resolved, research administration offices have concrete, near-term tasks rather than contingency planning:
- Confirm the current negotiated rate agreement on file with the cognizant federal agency and verify it is reflected correctly in any FY2026 or FY2027 budget justification.
- Re-check subaward budgets across active consortium agreements to ensure indirect costs reflect each subrecipient’s actual negotiated or de minimis rate, not a provisional 15% placeholder some offices applied during the litigation period.
- Retain documentation from any award where indirect costs were withheld, reduced, or disputed between February 2025 and April 2026, in case retrospective reconciliation is needed.
- Monitor FY2027 appropriations language, since Congress — not the courts — is now the only body that can authorise a future cap.
- Track the Financial Accountability in Research (FAIR) model discussion, an alternative to a flat cap being developed with the Joint Associations Group, which research offices may want to evaluate for voluntary transparency reporting.
Answer-first questions on the ruling
Is the NIH indirect cost cap still in effect in 2026?
No. The 15% cap is permanently blocked. The First Circuit Court of Appeals upheld the injunction on 5 January 2026, and the Department of Justice did not petition the Supreme Court by its 6 April 2026 deadline, leaving the block in place with no further appeal possible.
What is the difference between direct and indirect costs at NIH?
Direct costs are expenses tied to a specific project, such as salaries, supplies, and equipment. Indirect costs, also called facilities-and-administrative (F&A) costs, cover shared institutional overhead — utilities, facilities, and central administration — reimbursed at each institution’s individually negotiated rate.
Does the ruling change how indirect costs on subawards are calculated?
No. Subaward indirect costs still follow the subrecipient’s own federally negotiated rate, or the 10% de minimis rate under 2 CFR 200 where none exists. The blocked 15% cap never lawfully applied to subawards or prime awards.
Will the 15% cap return in the NIH FY2027 budget?
The administration’s FY2027 budget request still proposes a 15% cap, but per the Congressional Research Service, this can now only take effect through an act of Congress, not unilateral agency action, since the courts closed that route.
What’s next: FY2027 budget risk and the FAIR model
The legal question is settled, but the policy debate is not. The same appropriations rider and regulatory reasoning that blocked NIH’s cap also stopped similar attempts at the Department of Defense and Department of Energy, effectively ending across-the-board indirect cost caps as an executive-branch tool for now. Congress has directed the House and Senate Appropriations Committees to work with the Joint Associations Group on alternatives, including the FAIR model, which would split overhead reporting into research-performance support and general operations for greater transparency without a blanket cut.
For institutions, the near-term risk has shifted from indirect cost policy to direct budget levels: the FY2027 proposal includes double-digit percentage cuts to NIH’s overall topline, which will affect award volume and paylines regardless of how indirect costs are reimbursed. Research administration teams tracking this shift alongside broader research administration compliance obligations should treat the indirect cost litigation as closed and redirect planning capacity toward FY2027 appropriations monitoring and subaward rate verification.