Technician uses soldering iron to solder metal and wire of lithium-ion rechargeable battery.
By Kritika Agarwal
On January 27, the Department of Energy announced that, because of the signing of the FY26 Energy-Water spending bill into law, “the Policy Flashes related to adjusting indirect rates … are no longer in effect.” The bill requires DOE to apply negotiated indirect cost rates as they were applied in FY24. A full list of the DOE policy flashes that are no longer in effect is available here.
The department first announced its policy cutting the indirect cost reimbursement rate to 15% for all DOE research grants to colleges and universities in April 2025.
Indirect costs, also known as facilities and administrative (F&A) costs, are the infrastructure and operational expenses that make federally funded university research possible. As AAU explains in an FAQ, F&A costs typically cover necessary research expenses, such as maintaining state-of-the-art laboratories, operating high-speed data networks, ensuring national security and export control compliance, handling radiation safety and hazardous waste, and more.
When DOE first announced its policy slashing indirect costs, AAU noted that the agency’s “action would have an immediate and dire impact on critical energy, physical sciences, and engineering research nationwide.”
Subsequently, AAU was joined by the American Council on Education, the Association of Public and Land-grant Universities, and nine universities to file a lawsuit against the department challenging the cut. In June, Judge Allison D. Burroughs of the United States District Court for the District of Massachusetts issued a final judgment vacating DOE’s rate cap policy and its applicability to institutions of higher education nationwide. (That lawsuit remains pending in the 1st U.S. Circuit Court of Appeal.)
AAU also joined with various association partners to form the Joint Associations Group (JAG) on Indirect Costs to develop a new model for funding indirect costs. The JAG eventually developed the Financial Accountability in Research (FAIR) model to offer an alternative to arbitrary 15% caps on indirect cost rates and to improve transparency and accountability in how indirect costs are reimbursed.
In September, 293 national organizations, including AAU, sent a letter to congressional appropriators expressing support for the FAIR model. The associations asked lawmakers to include language in FY26 appropriations bills supporting the work of the JAG; blocking federal agencies from capping or otherwise changing existing negotiated indirect cost rates; and preserving continued support for indirect costs at existing levels while federal agencies work with the academic stakeholder community to implement the FAIR model.
The FY26 Energy-Water bill, which President Trump signed into law, directs DOE to continue to apply negotiated indirect cost rates as it did in FY24 and notes that the agency may not use FY26 appropriated funds “to develop, modify, or implement changes” to existing negotiated rates.
An explanatory statement accompanying the bill also states that the appropriations committees “acknowledge that there is room for improvement in the system used to identify and recover indirect cost rates” and calls out the FAIR model as meriting “further consideration.”
On January 28, the JAG thanked appropriators for “guaranteeing support for critical funding and infrastructure” in the FY26 spending bills. “We look forward to continuing working with you in FY27,” it said.
Kritika Agarwal is assistant vice president for communications at AAU.