Princeton University joins lawsuit challenging federal cap on research overhead costs, citing threat to scientific innovation

Princeton University and 15 other leading research institutions and academic associations have filed a lawsuit against the National Science Foundation (NSF), arguing that a new federal policy capping reimbursement rates for indirect research costs will jeopardize the country’s scientific infrastructure and threaten the viability of cutting-edge research.

Filed Monday in federal court, the complaint challenges NSF’s decision to impose a fixed 15 percent limit on indirect cost rates for all new grants awarded to universities, a sharp departure from decades of practice under which institutions negotiated individualized rates reflecting their actual overhead expenses.

The plaintiffs, including the Association of American Universities, the Massachusetts Institute of Technology, and Brown University, claim the policy violates federal regulations and the Administrative Procedure Act by imposing a “one-size-fits-all” model that disregards the complexity and diversity of university research operations.

“This policy will badly undermine scientific research at America’s universities and erode our nation’s enviable status as a global leader in innovation,” the complaint reads.

The lawsuit names the NSF and its acting director, Brian Stone, as defendants. It follows similar legal challenges against nearly identical policies issued earlier this year by the National Institutes of Health and the Department of Energy. District courts in Massachusetts have already issued injunctions blocking those policies, citing procedural and statutory violations.

For decades, universities have operated under a federally regulated system that distinguishes between direct and indirect research costs. Direct costs include items like lab supplies or researcher salaries tied to specific projects. Indirect costs cover essential infrastructure such as buildings, IT systems, utilities, and administrative support that enable research but are not easily tied to individual grants.

Universities typically negotiate their indirect cost rates with the federal government based on actual expenditures, institutional size, and research focus. The resulting agreements are binding on all federal agencies under rules established by the Office of Management and Budget.

Princeton and the co-plaintiffs argue that NSF’s blanket cap ignores this regulatory framework and threatens to destabilize an ecosystem that supports billions in annual research. In fiscal year 2023 alone, U.S. universities spent more than $108 billion on research and development, according to federal data, and absorbed more than $6.8 billion in unrecovered indirect costs.

“This dramatic and unilateral shift by NSF discards a longstanding, bipartisan agreement about how we fund research in this country,” said a representative from the Association of American Universities, one of the lead plaintiffs. “Universities already shoulder significant costs to support federal research. Slashing reimbursement rates will inevitably mean fewer projects, fewer jobs, and slower progress on everything from biomedical breakthroughs to national security technologies.”

NSF’s new policy, announced May 2 and set to take effect May 5, applies the 15 percent indirect cost rate only to institutions of higher education. It does not affect other grant recipients, such as federal labs or private contractors, a distinction the plaintiffs say is both arbitrary and discriminatory.

The complaint further asserts that the policy was introduced without adequate explanation or opportunity for public comment, failing to meet the basic requirements of reasoned decision-making under the Administrative Procedure Act. It also accuses the NSF of ignoring the legal precedent set by recent court rulings against similar federal efforts and failing to account for the substantial “reliance interests” of universities currently operating under multi-year negotiated rates.

“This is not just a bureaucratic adjustment,” the plaintiffs argue. “It represents a fundamental break from nearly 60 years of established policy and jeopardizes major research efforts already underway.”

According to the complaint, many proposals currently pending before NSF were budgeted under the assumption that universities would be reimbursed based on their negotiated indirect cost rates. Projects in fields such as artificial intelligence, quantum computing, and biomedical engineering — including some tied to national security and public health — could now face delays, downsizing, or cancellation if funding is slashed midstream.

The plaintiffs are asking the court to issue an injunction halting implementation of the new rate cap and to declare the policy unlawful under both federal grant law and the APA.

In their filing, the universities cite a similar 2017 Trump administration proposal capping NIH overhead reimbursements. That plan was swiftly rejected by Congress on a bipartisan basis, with lawmakers warning it would “radically change” the relationship between government and the research community and disrupt scientific programs nationwide.

“The administration cannot simply override decades of law and precedent with a policy memo,” the complaint says. “Universities have built their budgets, hired staff, and launched complex, multi-year research initiatives based on the government’s assurances.”