U.S. Energy Department Updates Award Criteria to Limit Indirect Costs, Projects $935 Million in Annual Savings

The U.S. Energy Department on May 8 announced three new policy actions that are expected to save over $935 million yearly for taxpayers, while developing U.S. scientific research and innovation. In three new policy memorandums, the department announced that it will follow best practices utilized by fellow grant providers and reduce indirect costs, sometimes referred to as facilities and administration costs, of department funding to 10 percent for state and local governments, and 15 percent for both profit and non-profit organizations.

These policy actions follow an announcement made earlier in the year to reduce financial support of indirect costs of department research funding at colleges and universities to 15 percent, saving a projected additional $405 million yearly. Department data shows indirect costs incurred by its grant recipients at universities and colleges are over 30 percent on average, which is remarkably higher than the percentage for other state and local government grant awardees. Accordingly, the department has now limited these expenditures to a standard rate of 15 percent, which should lower costs, enhance efficiency.

While the department recognizes that many award recipients rely on indirect cost payments to support activities associated with financial assistance awards, these costs do not fund the department’s direct project activities. Given its responsibility to steward public funds effectively, the department is seeking to improve cost efficiency by rebalancing the financial needs of recipients with its obligation to ensure that federal resources are used appropriately in support of program goals.

The guidance applies to new awards under notices of funding opportunity that have not yet been released and to conditional awards where negotiations are ongoing or the award is not yet executed.