DoD ONR Memorandum: Implementation of a 15% Indirect Cost Cap on Assistance Awards to Institutions of Higher Education

Dear Colleagues,

The Department of Defense issued a memo signed by Secretary of Defense Pete Hegseth on May 14, 2025 to cap indirect cost reimbursement rates for higher education institutions at 15 percent. 

The memo directed the DOD to develop the new policy within 21 days, marking the fourth federal agency—including the National Institutes of Health, the Department of Energy and the National Science Foundation—that has enacted a plan to cap indirect cost rates at 15 percent.

So far, universities have been using their respective approved indirect cost reimbursement rates negotiated with the federal government to pay for research infrastructure support costs such as facilities maintenance and administrative personnel necessary to pursue research.

On Friday, June 13, 2025, Principal Investigators (PIs) on active research grants and contracts funded by the DoD Office of Naval Research (ONR) received emails stating that ONR is in receipt of DoD memorandum dated June 12, 2025 directing the implementation of a 15% indirect cost cap for future and existing DoD assistance awards with IHEs. The ONR email advised that an ONR representative would be contacting PIs about their ongoing ONR grant(s) in the near future.

In the DoD memo dated June 12, the following statements on negotiating the indirect costs for new and existing awards are provided:

“For all new assistance awards to IHEs, DoD Components that make financial assistance awards to IHEs are directed not to allow indirect cost rates above 15% in all new assistance awards to IHEs as of the date of publication of this memorandum. In negotiating indirect cost rates for financial assistance awards to IHEs, DoD Components should consider the criteria for identifying and computing indirect cost rates as described in Appendix III to 2 CFR Part 200. However, DoD Components must not exceed the 15% indirect cost rate cap on any award to IHEs. All notices of funding opportunity for DoD assistance awards must be updated to include information about the 15% indirect cost rate cap for IHEs. In addition, all DoD Components that make financial assistance awards to IHEs are reminded that they must ensure that all indirect costs on assistance awards are reported to the Financial Assistance Award Data Collection System, which is the Department's system of record for compliance with the Digital Accountability and Transparency Act of 2014.”

“For all existing assistance awards to IHEs, DoD Components must also apply the 15% cap on indirect cost rates. Where possible, DoD Components should renegotiate indirect cost rates on existing DoD assistance awards with IHEs to comply with the 15% indirect cost rate cap. The 15% indirect cost rate cap on existing assistance awards is not required to be retroactive to the beginning of an award but must have an effective date that is not later than November 10, 2025. DoD Components may allow existing awards to operate under their originally determined indirect cost rate until a renegotiation is completed. However, all renegotiations on indirect cost rates must be complete by no later than November 10, 2025. If a DoD Component is unable to reach an agreement with an IHE to limit the indirect cost rate under a DoD assistance award to 15%, the DoD Components shall terminate the assistance award, as allowed by statute, regulation, and the terms and conditions of the award, in accordance with 2 CFR 200.340(a).”

If you receive any such email notification to negotiate the indirect cost rate from any federal agency, or any stop order, termination letter, request for budget change or sign any attestation from, please continue to forward it to me (dhawan@njit.edu) and copy Eric Hetherington, AVP- Sponsored Research Administration (erich@njit.edu).

Please do not respond to program official or sign and submit any document on federal research grants and contracts until you are advised to do so by the Office of Research.

We will continue to carefully review at the institutional level with the provost and general counsel offices to advise and follow up. The Office for Research and the Office of General Counsel will review the request and respond with instructions for you to follow.

Please visit our website periodically for updates on this situation.

Sincerely,

Atam Dhawan

Senior Vice Provost for Research