Association of American Universities v. National Science Foundation, 1:25-cv-11231

Background

NSF issued a Policy Notice (May 2, 2025) adopting a standard 15% indirect-cost (F&A) rate for new grants and cooperative agreements to Institutions of Higher Education (IHEs), effective May 5, 2025.
Many plaintiff universities and member institutions historically recover negotiated indirect-cost rates (often 50–60%) negotiated with HHS or the Office of Naval Research (ONR); 2 C.F.R. § 200.414 generally requires federal agencies to accept those negotiated rates.
The Uniform Guidance (2 C.F.R. Pt. 200) permits a de minimis 15% rate only for recipients that elect it when no negotiated rate exists; agencies may deviate from negotiated rates only in narrow, prescribed circumstances.
Plaintiffs (AAU, APLU, ACE and 13 research universities) sued under the Administrative Procedure Act (APA) on May 5, 2025, alleging the Policy Notice: (1) exceeds statutory authority; (2) violates 2 C.F.R. § 200.414; (3) departs from cost‑recovery regulations; and (4) is arbitrary and capricious.
Defendants temporarily stayed implementation through June 20, 2025. The district court granted plaintiffs’ summary‑judgment motion, vacated and declared the 15% policy unlawful (June 20, 2025), denied defendants’ summary judgment, and denied the preliminary injunction as moot.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Standing	Universities and associations face imminent, concrete injury because NSF’s 15% cap will reduce future indirect-cost reimbursement, disrupt pending proposals, and force layoffs/cutbacks.	Plaintiffs’ alleged injuries are speculative because the cap applies only to future awards which plaintiffs may accept or decline.	Plaintiffs (and their associations) have standing: threatened loss of reimbursements and disruption to ongoing proposals are sufficiently imminent and traceable.
APA reviewability (committed-to-discretion)	The rule affects private rights and is governed by statutes/regulations, so it is reviewable under the APA.	NSF’s grant‑making (including rate setting) is discretionary and committed to agency judgment, so not reviewable.	Agency action is reviewable; the exception is narrow and §200.414 and statutory standards provide judicially manageable standards.
Statutory authority (NSF Act & 41 U.S.C. § 4708)	Neither the NSF Act nor § 4708 authorizes NSF to adopt a uniform cap that effectively refuses to reimburse actual indirect costs and forces cost‑sharing.	NSF has broad grantmaking authority under the NSF Act and § 4708 permits agencies to use predetermined fixed‑percentage rates.	Court: statutory text and longstanding Executive practice do not authorize an across‑the‑board cap that repudiates reimbursable indirect costs; § 4708 does not permit mandatory cost‑sharing via a flat 15% cap.
Regulatory compliance & reasoned explanation (2 C.F.R. § 200.414; arbitrary & capricious)	The Policy violates §200.414(c)–(f) by imposing a de minimis 15% rate on institutions with negotiated rates and failing to follow required procedures; the Policy Notice gives only aspirational goals without reasoned explanation and ignores reliance interests.	NSF contends the Policy is a permissible deviation adequately justified and furthers efficiency, consistency, and effectiveness.	Court: Policy violates §200.414 (agencies must accept negotiated rates absent narrow procedures which NSF did not follow) and is arbitrary and capricious—the Notice fails to explain how goals are achieved or address reliance and factual underpinnings.

Key Cases Cited

Weyerhaeuser Co. v. U.S. Fish & Wildlife Serv., 586 U.S. 9 (2018) (narrow scope of nonreviewability; courts may review agency action where manageable legal standards exist)
Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious standard—agency must examine relevant data and explain decisions)
Fox Television Stations, Inc. v. FCC, 556 U.S. 502 (2009) (an agency must recognize and explain when it changes course and address reliance interests)
Lincoln v. Vigil, 508 U.S. 182 (1993) (limits on reviewability where action involves allocation of lump‑sum appropriations)
Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971) (courts cannot review where there is "no law to apply")
Dep't of Commerce v. New York, 588 U.S. 752 (2019) (standing and review principles for agency actions affecting private parties)
Murthy v. Missouri, 603 U.S. 43 (2024) (standing requires concrete, particularized, actual or imminent injury)
Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024) (longstanding government practice can inform statutory interpretation)
Encino Motorcars, LLC v. Navarro, 579 U.S. 211 (2016) (agency must provide reasoned explanation when overruling prior policy)