While the decision to tighten fiscal restraints around indirect costs is understandable in the face of federal budget constraints, it poses a unique challenge for institutions that have come to rely on these funds. For those institutions, the 15% cap represents a substantial decrease in support for the infrastructure that enables groundbreaking research.

But while the news is concerning, it’s not all doom and gloom. In this blog, we’ll explore creative workarounds to mitigate the impact of the new cap and help your institution adapt to this changing landscape.

Understanding the 15% Cap: What’s Really Changing?

Indirect costs, also referred to as Facilities & Administrative (F&A) costs, are a critical part of research funding. They cover things like building maintenance, utilities, administrative support, and institutional infrastructure—expenses that support the overall research ecosystem but can’t always be directly tied to a specific project.

With the new 15% IDC cap in place, institutions will now be reimbursed for these costs at a significantly reduced rate compared to the FNCRA rates they have been accustomed to. This means institutions may need to reevaluate their budget allocations and look for new ways to manage and support research operations moving forward.

1. Re-Evaluating Cost Categorization: Direct vs. Indirect

One of the most powerful strategies for minimizing the impact of the 15% cap is to scrutinize how costs are applied. In some cases, what is traditionally classified as an indirect cost may actually qualify as a direct cost under the new guidelines. Direct costs are typically those that are specifically associated with a project, such as personnel salaries, materials, equipment, and travel.

To maximize your funding, consider reviewing your budget to identify opportunities to shift costs from indirect to direct categories.

Some examples include:

• Administrative Personnel: If administrative staff are directly involved in a research project (e.g., managing data collection or coordinating study protocols), their salaries may be classified as direct costs, rather than overhead.

  
  

• Facility Usage: Instead of categorizing facility usage as an indirect cost, can it be identified as a direct cost if the space is being used for specific research activities? This could include lab space or specialized equipment usage.

  
  

• Consultants and Services: External consultants or services (e.g., statistical analysis, software development) could potentially be categorized as direct costs if they are involved specifically in the research project.

  
  

This shift requires close collaboration with your grants management team and careful documentation, but it can go a long way in ensuring that you maximize available funding.

2. Embrace Cost Sharing and Institutional Investment

While the IDC cap limits the amount of indirect costs that can be reimbursed, many institutions have found success in leveraging cost-sharing agreements or institutional investments to fill in the gaps. Cost-sharing involves the institution contributing a portion of the costs of the research, often in the form of additional resources, personnel, or infrastructure.

Consider these options:

• Institutional Support: Some institutions may be able to offset the reduced IDC by increasing their commitment to supporting research infrastructure through their own budget or internal grants. This is especially true for high-priority projects that align with institutional goals.

  
  

• Collaborative Partnerships: Partnering with other institutions or private industry to co-fund research initiatives can spread the financial burden. This approach allows multiple parties to share the indirect costs and ensures that research continues without sacrificing quality or infrastructure.

  
  

• In-Kind Contributions: When possible, negotiate in-kind contributions, such as access to specialized equipment or shared lab space, which can be counted as direct costs.

  
  

3. Optimize Internal Administrative Processes

With less funding available for administrative overhead, it's more important than ever to run efficient administrative processes. One way to address the 15% IDC cap is by reducing administrative costs through streamlined operations and automation.

Consider these approaches:

• Outsourcing Certain Services: Outsourcing functions like accounting, payroll, and IT support to third-party providers can reduce internal overhead, freeing up more funds for direct research activities.

  
  

• Process Automation: Implementing software solutions that automate tasks like grant administration, time tracking, and budget reporting can improve efficiency and reduce labor costs.

  
  

By optimizing these internal processes, your institution may be able to reallocate more resources toward research while keeping administrative costs under control.

4. Advocating for Flexibility in the Policy

While there are workarounds for dealing with the 15% IDC cap, the long-term solution may involve continued advocacy at the federal level. Research institutions can band together to advocate for more flexible IDC policies that better reflect the realities of modern research environments. In particular, institutions with specialized research needs (e.g., medical or engineering research) may find that their infrastructure demands exceed what the 15% cap can support.

In the meantime, institutions can work with professional organizations, such as the Council on Governmental Relations (COGR), to ensure that their voices are heard in discussions about future funding policies.

5. Increasing Efficiency through Better Resource Management

Finally, institutions can focus on better resource management to stretch their limited funding further. This includes prioritizing projects that will have the highest impact, seeking out additional funding sources, and making sure that existing resources are utilized as efficiently as possible.

By implementing more robust budgeting practices and continuously evaluating research priorities, you can maximize the effectiveness of every dollar spent—both direct and indirect.

Conclusion: Adaptation and Resilience in a Changing Landscape

The NIH's new 15% IDC cap represents a significant shift in how research funding is allocated, but it’s not a death sentence for institutions that have relied on higher FNCRA rates. By creatively adjusting cost categorizations, advocating for policy flexibility, and optimizing internal resources, institutions can continue to support world-class research and overcome the challenges posed by these new fiscal constraints.

The road ahead may be a little rockier, but with a proactive and innovative approach, research institutions can continue to thrive, even in the face of budget cuts.

Need help navigating these solutions? We’re here to help.