Sneak Preview: Proposal Avoids Indirect Cost Provision Changes
(The following was excerpted from a recent Thompson Grants Compliance Expert article.) When evaluating the Office of Management and Budget’s (OMB) May 29 proposed revisions to the uniform guidance, stakeholders will likely note that OMB did not change one very important provision — that addressing indirect costs at §200.414. The reason for this stems from congressional appropriations actions earlier this year. However, OMB did propose to amend other certain cost principles within subpart E.
Last year, several federal agencies, at the behest of the Trump administration, sought to limit indirect costs charged to federal awards by financial assistance recipients, contending that such overhead costs do not support the central focus of the grant and can lead to wasteful spending of federal funds. For example, four agencies (National Institutes of Health (NIH), Department of Energy (DOE), National Science Foundation (NSF) and Department of Defense (DOD)) issued instructions in 2025 that indirect costs would be capped for all awards to reduce the expense grants posed to the government. The guidance issued across these agency notices all followed similar themes, proposing to cap allowable indirect cost rates between 10-15% depending on the type of organization (see “The Ongoing Battle for Indirect Costs”).
These attempts to set indirect cost rate caps led to challenges in court from organizations representing grant recipients (see “Court Rules Against NSF, DOD on Indirect Cost Caps”). Still, it was widely anticipated within the grants community over the last year that when OMB proposed uniform guidance revisions, changes to the indirect cost provision particularly would be forthcoming to meet the administration’s priorities, particularly after President Trump’s July 2025 Executive Order 14332, Improving Oversight of Federal Grantmaking, directed OMB to revise government requirements to limit indirect (i.e., facilities and administration) costs.
However, in February, the Commerce, Justice, Science; Energy and Water Development; and Interior and Environment Appropriations Act of 2026 (Pub. L. 119-74) became law, stating that in making federal financial assistance, the Energy Department “shall continue to apply the indirect cost rates, including negotiated indirect cost rates … to the same extent and in the same manner as was applied in FY [federal fiscal year] 2024.” Similar language was included in section 542 of the law with respect to the Department of Commerce, the National Aeronautics and Space Administration and NSF. Section 224 of the Consolidated Appropriations Act of 2026 (Pub. L. 119-75) explained that indirect cost rates will apply to NIH to the same extent and in the same manner as such provisions were applied in the third quarter of fiscal year 2017.
In addition, various organizations are now working with the federal government, such as through the Joint Associations Group on Indirect Costs, on different models on how to identify and recover indirect costs (see “Congress Says No F&A Caps; Assns. Offer New Model”).
Therefore, OMB did not include changes to the current provision at §200.414, and is encouraging commenters to the proposed rule “not to submit comments on the indirect cost rate negotiation system in response to this document.” However, in the pre-award provision for merit review in §200.205(b)(3), be aware that OMB did add that federal agencies, when reviewing proposals, should give preference “for discretionary awards … to institutions with lower indirect cost rates.”
(The full version of this story has now been made available to all for a limited time here.)
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