The Department of Energy’s 15% cap on indirect research costs was struck down in court and then killed by Congress. A federal judge in Massachusetts blocked the cap within days of the universities’ April 2025 lawsuit, vacated it outright that June, and the government dropped its appeal in March 2026. By then, Congress had already barred the DOE from spending money to change negotiated rates, and the agency formally rescinded the policy.
The Policy That Triggered the Suit
On April 11, 2025, the DOE issued Policy Flash PF-2025-22, imposing a flat 15 percent ceiling on indirect cost reimbursements for all research grants to colleges and universities.1U.S. Department of Energy. PF-2025-22 Adjusting Department of Energy Grant Policy for Institutions of Higher Education Indirect costs cover the shared expenses that support research without belonging to any single project: building maintenance, utilities, lab safety compliance, administrative staff, and libraries. Universities had previously negotiated their reimbursement rates individually with the federal government, typically landing between 30 and 70 percent of modified direct costs.2Congressional Research Service. Indirect Costs in Federal Research
The new policy replaced those negotiated rates and directed the DOE to begin terminating existing grants at institutions that refused the 15 percent figure.1U.S. Department of Energy. PF-2025-22 Adjusting Department of Energy Grant Policy for Institutions of Higher Education The DOE said the change would save $405 million a year and that its funding was meant “to support scientific research — not foot the bill for administrative costs and facility upgrades.”3Chemistry World. US Energy Department Cap on Indirect Research Costs Temporarily Halted After Universities File Lawsuit The agency distributes more than $2.5 billion a year to over 300 universities.4U.S. Department of Energy. Department of Energy Overhauls Policy on College and University Research
Who Sued and What They Argued
Three days later, on April 14, 2025, three higher education associations and nine universities filed suit in the U.S. District Court for the District of Massachusetts. The associations were the Association of American Universities, the American Council on Education, and the Association of Public and Land-Grant Universities. The university plaintiffs were Brown, Caltech, Cornell, the University of Illinois, MIT, the University of Michigan, Michigan State, Princeton, and the University of Rochester.5Civil Rights Litigation Clearinghouse. Association of American Universities v. Department of Energy The case went to Judge Allison D. Burroughs.
The plaintiffs called the policy “flagrantly unlawful” and warned of “immediate and devastating” harm to research.3Chemistry World. US Energy Department Cap on Indirect Research Costs Temporarily Halted After Universities File Lawsuit Their legal theory rested on the Administrative Procedure Act. They argued the cap conflicted with a federal regulation requiring agencies to honor negotiated indirect cost rates, that it was arbitrary and capricious, that retroactive application to existing grants exceeded the DOE’s authority, and that the agency had skipped required rulemaking procedures.5Civil Rights Litigation Clearinghouse. Association of American Universities v. Department of Energy
How the Court Ruled
Judge Burroughs moved quickly. On April 16, 2025, two days after the complaint was filed, she issued a temporary restraining order barring the DOE from implementing the cap or terminating grants under it, finding that the universities had shown they would “sustain immediate and irreparable injury” if the policy took effect.6Higher Ed Dive. Federal Judge Freezes Energy Department’s 15% Cap on Indirect Costs
On May 15, 2025, she converted the order into a nationwide preliminary injunction. She held that the plaintiffs were likely to succeed on three of their four APA claims: that the policy was arbitrary and capricious, that it violated the regulation requiring acceptance of negotiated rates, and that it could not be applied retroactively to existing grants.7Higher Ed Dive. Federal Judge Blocks Energy Department’s 15% Cap on Indirect Research Costs5Civil Rights Litigation Clearinghouse. Association of American Universities v. Department of Energy
The case ended on June 30, 2025, when Judge Burroughs entered a final judgment vacating Policy Flash PF-2025-22 in its entirety, granting an unopposed motion to convert the preliminary injunction into a final ruling.8Association of American Universities. Final Judgment Vacating Department of Energy Rate Cap Policy The government appealed to the First Circuit, then reversed course and moved to dismiss the appeal on March 11, 2026. The First Circuit granted the motion on March 16, 2026, making the district court’s ruling permanent and unreviewable.9Association of American Universities. Resources on AAU, ACE, APLU Legal Action Contesting DOE Cuts to F&A Reimbursement Rates
How Congress Finished the Job
The courtroom loss was reinforced by legislation. On January 23, 2026, H.R. 6938, the Commerce, Justice, Science; Energy and Water Development; and Interior and Environment Appropriations Act of 2026, was signed into law. Section 313 directed the DOE to keep applying the negotiated indirect cost rates in place for fiscal year 2024 and prohibited the agency from spending any funds to develop or implement changes to those rates.10U.S. Department of Energy. PF-2026-30 Indirect Cost Rates Policy Flashes and Financial Assistance Letter No Longer in Effect
Four days later, on January 27, 2026, the DOE issued Policy Flash PF-2026-30, formally rescinding every earlier policy flash that had imposed indirect cost caps on universities, nonprofits, for-profit organizations, and state and local governments.10U.S. Department of Energy. PF-2026-30 Indirect Cost Rates Policy Flashes and Financial Assistance Letter No Longer in Effect Negotiated rate agreements are once again the governing standard for DOE grants.
Recovering Reimbursements That Were Withheld
Institutions that saw their reimbursements reduced while the cap was in force can seek to recover the difference. Guidance to grantees is to contact their DOE contracting officers to request supplemental funding or to submit adjustment invoices for previously unreimbursed costs.11CBH Insights. DOE Rescinds 15% Indirect Cost Cap – PF-2026-30 Impacts
The DOE Case in Context
The DOE cap was one of four parallel 15 percent caps the administration imposed on federal research agencies in 2025. The National Institutes of Health, National Science Foundation, and Department of Defense each announced similar policies, and each was challenged in federal court by overlapping coalitions of universities and higher education groups. All four were blocked, and the government eventually dropped every appeal.12American Council on Education. Association Lawsuit NIH F&A13Association of Public & Land-grant Universities. Resources on APLU, AAU, ACE Legal Action Contesting Cuts to F&A Reimbursement Rates Across the four cases, courts reached the same conclusions: the agencies had bypassed required rulemaking, violated regulations mandating negotiated rates, and applied the caps retroactively without congressional authorization.