Although indirect rates (money paid for indirect costs as a percentage of the money that goes directly to the researcher to support his work) average around 30 percent, many universities have indirect cost rates in excess of 50 percent. A sudden and unexpected rate cut to 15 percent, applied retroactively, as the Trump administration had planned, would create serious financial problems for large research universities.
The district court's original decision held that this change was legally problematic for several reasons. It violated the Administrative Procedure Act because it was issued without any notice or comment, and the low flat rate was found to be arbitrary and capricious, especially compared to the system it replaced. The ruling found that the new policy also violates existing Department of Health and Human Services procedures.
But a three-judge panel of the Court of Appeals unanimously decided that they didn't even need to consider all of those issues because Congress had already prohibited that very action. In 2017, the first Trump administration also attempted to impose the same low, flat fee on all indirect costs, and Congress responded by attaching an additional condition to the budget agreement that blocked changes to NIH's overhead policy. Congress has since extended that contract.
Explicit ban
In arguing for its new policy, the government tried to present it as consistent with the Congressional ban. Ryder allowed some exceptions to the usual ways of calculating overhead rates, but these were extremely limited; The NIH tried to argue that these exceptions could include every grant made to a university, which the court said was clearly inconsistent with the limits set by Congress.
The court also noted that the NIH policy was declared to apply to each individual grant, regardless of whether the recipient attended university—which the court later argued was the result of “unskillful language.” But the judges wrote that it was a little late to revise the policy, saying, “We certainly cannot ignore what the Supplemental Guidance actually says in favor of what the NIH now wants it to say.”
