Untangling indirect cost rates, for real this time

The legal fight over the NIH’s proposed 15% indirect cost cap is over (for now). STAT reports that the administration let the Supreme Court petition deadline pass without filing, ending 14 months of litigation. The courts found that NIH violated congressional appropriations language in trying to unilaterally replace negotiated rates. But indirect cost reform isn’t off the table; the administration may still attempt changes through OMB’s Uniform Guidance, and Congress is looking at alternatives like the FAIR model. If you want to understand the substance, two pieces are worth your time. This week, writing for the Good Science Project, Jeremy Berg published a detailed explainer that walks through how indirect cost (IDC) rates are negotiated, what they cover, and common misunderstandings. And over the summer, Pierre Azoulay, Daniel Gross, and Bhaven Sampat wrote a policy brief for IFP (adapted from their NBER working paper) unpacking the history of IDCs, the details of their calculation and implementation, and the pros and cons of proposed reforms. A key takeaway from both is that the negotiated IDC rate and the percent of total funding that universities take home for indirect costs differ significantly, primarily because (a) not all direct costs or grant types are eligible for IDC funding, and (b) the numbers use different denominators. For example, a 50% negotiated IDC rate applied to a grant with $1mil of direct costs, $250k of which are exempt from indirects, would yield: a total indirect cost of 50% * ($1mil - $250k) = $375k, for an effective IDC rate of $375k / $1mil = 37.5%, and a total indirect cost share for the university of $375k / ($1mil + $375k) = 27%. If that’s not clear, don’t worry, the administration conflated the total indirect share and the negotiated rate in their original 15% cap announcement too.