NIH Indirect-Cost Caps Are Unlawful: Appropriations Riders and HHS Deviation Rules Bar Across-the-Board Rates, and APA Jurisdiction Lies for Challenges to Agency-Wide Guidance

1. Introduction

In Commonwealth of Mass. v. National Institutes of Health (1st Cir. Jan. 5, 2026), a coalition of states, medical associations, and universities challenged a sudden NIH “Supplemental Guidance” (NOT-OD-25-068) that announced a uniform 15% cap on reimbursement of NIH grant “indirect costs” (also known as facilities and administration (F&A) costs), effective the next business day.

The central issues were (i) forum and sovereign-immunity waiver—whether the plaintiffs’ claims belonged in federal district court under the Administrative Procedure Act (APA) or were essentially contract claims reserved to the Court of Federal Claims (CFC) under the Tucker Act; and (ii) legality—whether NIH could impose an across-the-board indirect-cost rate given a recurring congressional appropriations rider and HHS’s own regulations governing negotiated rates and deviations.

The defendants were NIH, its Director (in an official capacity), HHS, and the HHS Secretary (official capacity). The district court issued nationwide preliminary relief, later converted (by agreement) into a permanent injunction and vacatur of the guidance. The First Circuit affirmed.

2. Summary of the Opinion

Jurisdiction: The district court properly exercised jurisdiction under the APA to hear a challenge to agency-wide guidance; the case was not an action “founded upon” contract for Tucker Act purposes.
Merits: The 15% cap was unlawful because it violated (a) the recurring appropriations rider governing NIH indirect-cost rules and (b) HHS regulations, particularly 45 C.F.R. § 75.414(c).
Disposition: Affirmed the permanent injunction and vacatur of the Supplemental Guidance. The panel did not reach alternative APA theories (arbitrary and capricious, notice-and-comment, retroactivity) because statutory and regulatory violations sufficed.

3. Analysis

3.1. Precedents Cited

A. APA vs. Tucker Act (forum selection) and “money damages” concerns

Department of Education v. California, 604 U.S. 650 (2025) (per curiam)
Role in the opinion: Served as the Supreme Court’s key signal that district courts likely lack jurisdiction where the relief effectively enforces contractual payment obligations (i.e., orders that functionally compel the government “to pay money” under grant agreements). The First Circuit treated this as a boundary-setting decision: APA review is not a vehicle for what is essentially contract enforcement.
NIH v. American Public Health Association ("APHA"), 145 S. Ct. 2658 (2025) (mem.)
Role in the opinion: The controlling concurrence (Justice Barrett) supplied a two-track framework: (1) challenges to agency-wide guidance/policies belong in district court under the APA; (2) challenges to grant terminations/withholding under existing awards belong in the CFC as contract claims. The First Circuit applied this distinction directly and found the present case falls on the “guidance” side.
California v. Dep't of Educ., 132 F.4th 92 (1st Cir. 2025) and Am. Pub. Health Ass'n v. NIH, 145 F.4th 39 (1st Cir. 2025)
Role in the opinion: Provided factual and procedural context for the Supreme Court’s emergency rulings. The First Circuit used these companion cases to illustrate how relief that reinstates terminated grants differs from vacatur of general guidance.
Bowen v. Massachusetts, 487 U.S. 879 (1988)
Role in the opinion: Quoted via Department of Education for the proposition that district court jurisdiction is “not barred” merely because setting aside agency action may result in funds being disbursed—yet that does not extend to relief that enforces a contractual payment obligation.
Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002)
Role in the opinion: Quoted via Department of Education for the principle that the APA waiver does not extend to orders “to enforce a contractual obligation to pay money,” reinforcing the line between APA relief and contract enforcement.
Am. Sci. & Eng'g, Inc. v. Califano, 571 F.2d 58 (1st Cir. 1978)
Role in the opinion: Cited for the exclusivity of the CFC’s jurisdiction over suits grounded in contract and for the “essentially a contract dispute” test. The panel acknowledged the general doctrine but found the Supreme Court’s more recent “like cases” guidance decisive.
Albrecht v. Comm. on Emp. Benefits of the Fed. Rsrv. Emp. Benefits Sys., 357 F.3d 62 (D.C. Cir. 2004)
Role in the opinion: Cited for the proposition that the Tucker Act’s grant of contract jurisdiction impliedly forbids APA district court actions where the suit is fundamentally contractual in nature.
Megapulse, Inc. v. Lewis, 672 F.2d 959 (D.C. Cir. 1982)
Role in the opinion: Recognized as part of the long-standing body of law distinguishing APA claims from disguised contract claims. The panel, however, emphasized it could “look no further” than the Supreme Court’s recent emergency decisions to resolve the jurisdictional question here.
Trump v. Boyle, 145 S. Ct. 2653 (2025)
Role in the opinion: Cited for the idea that even emergency Supreme Court decisions in “like cases” can meaningfully inform lower-court analysis, despite not resolving ultimate merits questions in a full-dress opinion.
Marks v. United States, 430 U.S. 188 (1977) (quoting Gregg v. Georgia, 428 U.S. 153 (1976))
Role in the opinion: Used to justify treating Justice Barrett’s concurrence in APHA as controlling because it represented the narrowest grounds supporting the judgment in a fragmented Court.

B. Statutory interpretation and avoidance of surplusage

Corley v. United States, 556 U.S. 303 (2009)
Role in the opinion: Provided the anti-surplusage canon. The court used it twice: (1) to reject NIH’s reading of the rider that would collapse distinct clauses into redundancy, and (2) to reject NIH’s reading of “class of federal awards” that would make the regulatory definition meaningless.
McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. 2007)
Role in the opinion: Cited for the use of statutory context as “confirmatory evidence” of congressional intent, supporting the rider’s evident purpose: to prevent NIH from imposing broad caps on indirect-cost reimbursement.
Dep't of Com. v. New York, 588 U.S. 752 (2019)
Role in the opinion: Invoked to justify realism in statutory interpretation—courts need not ignore obvious political and historical context. This bolstered the panel’s reading that the rider was a targeted response to prior proposals to cap indirect costs.

C. Issue preservation and appellate waiver

U.S. ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116 (1st Cir. 2013) and United States v. Zannino, 895 F.2d 1 (1st Cir. 1990)
Role in the opinion: Used to hold NIH waived certain arguments (e.g., reframing the “class of awards” as only awards to IHEs, and other underdeveloped theories), reinforcing that agencies must present their best textual defenses in the trial court and properly develop them on appeal.

3.2. Legal Reasoning

A. Jurisdiction: guidance challenges vs. contract-payment disputes

The First Circuit adopted the Supreme Court’s functional distinction: relief that effectively enforces a grant’s payment terms resembles a Tucker Act contract claim (and belongs in the CFC), while relief that vacates prospective, agency-wide guidance is classic APA work for district courts.

Crucially, the plaintiffs did not seek reinstatement of terminated grants or an order compelling NIH to pay amounts allegedly due under particular grant agreements. They challenged the legality of a generally applicable policy statement—the “Supplemental Guidance”—that would govern reimbursement going forward and across programs. Because vacating the guidance is not itself an order “to pay money” under identified contracts, the APA waiver applied and the Tucker Act did not displace district court jurisdiction.

B. The appropriations rider: three independent statutory barriers

The court read the recurring rider (as reenacted, e.g., Further Consolidated Appropriations Act, 2024, Pub. L. No. 118-47, § 224) as having three separate operative constraints—any one of which could invalidate NIH’s 15% cap:

“Continue to apply” sentence (regulations frozen as applied in Q3 FY2017): NIH must apply the indirect-cost provisions of 45 C.F.R. part 75, including deviation approval, “to the same extent and in the same manner” as in Q3 FY2017. Because the court concluded NIH violated those regulations (see below), it necessarily also violated this statutory command.
Ban on using funds to “develop or implement a modified approach”: Even if the regulations might be read flexibly in isolation, Congress separately prohibited a “modified approach” to those provisions. NIH’s unprecedented use of deviation authority to impose an across-the-board cap was, by ordinary meaning, the implementation of a “modified approach.” The court rejected NIH’s attempt to read this clause as mere duplication of the first sentence (which would create surplusage).
Proportionality limit on expanding the “fiscal effect” of deviations: NIH’s own public statement touted $4 billion in annual “savings,” i.e., a massive fiscal consequence from using non-negotiated rates. Even accepting NIH’s narrow reading of “fiscal effect” as only the government’s finances, the record lacked evidence that such an effect was proportionate to deviation impacts in Q3 FY2017. The court treated NIH’s evidentiary gap as decisive: without proof of proportionality, the rider bars the action.

Context mattered. The panel treated Congress’s repeated reenactment as a sustained repudiation of executive-branch attempts (notably the 2017 proposal) to cap indirect costs and redirect funds. That history reinforced that Congress meant the rider to block broad caps like NIH’s 15% policy.

C. Regulatory violations: 45 C.F.R. § 75.414(c) does not authorize “all grants” caps

The court then held NIH independently violated HHS’s regulations governing acceptance of negotiated rates and deviations. Three points drove the holding:

“Class of federal awards” is limited; it cannot mean “all NIH grants.”
The regulations allow a different rate only for “a class of federal awards or a single federal award.” The definition of “class of federal awards” requires a group under a “specific program or group of programs” or a “specific type” of entity. NIH’s “all NIH grants” formulation failed this specificity requirement, and interpreting “class” as “all awards” would nullify the definition and the “single award” alternative.
NIH’s post hoc narrowing argument was waived and contradicted by the text.
NIH argued on appeal that the guidance effectively targeted IHEs, but the court deemed the argument waived and, in any event, incompatible with the guidance’s broad language (“all NIH grants,” “any new grant issued”).
The deviation scheme presumes announced criteria and a two-step process.
Section 75.414(c)(3) requires publicly available “policies, procedures and general decision making criteria” programs “will follow” to seek and justify deviations. Read alongside § 75.414(c)(4) (requiring inclusion of indirect-cost policies in notices of funding opportunities so applicants can make informed decisions), the regulation contemplates: (i) advance publication of deviation standards and (ii) later, justified application to a defined award/class. NIH’s “one fell swoop” cap—without program-by-program criteria and without integrating those policies into funding opportunity notices—contradicted the structure.

3.3. Impact

Clearer forum-splitting in federal grant disputes: The opinion operationalizes the APHA/Department of Education distinction. Plaintiffs can challenge agency-wide grant guidance in district court under the APA, but efforts to undo terminations or compel payment under existing awards are likely to be channeled to the CFC as contract disputes.
Strengthened constraints on agencies using “deviation” authority as a policy lever: Agencies cannot treat deviation provisions as a backdoor to rewrite negotiated-rate systems, particularly where regulations require specificity (“class”), transparent criteria, and notice in funding opportunities.
Appropriations riders as substantive guardrails: The decision treats recurring riders not as hortatory budget language but as enforceable, text-driven limits that can independently invalidate agency action—especially when Congress repeatedly reenacts the same constraint after prior executive proposals.
Practical effect on research institutions and budgeting: By preserving NICRAs and negotiated-rate reliance, the decision protects planning assumptions for multi-year research infrastructure and compliance obligations, reinforcing the regulatory goal of budget predictability for grantees.

4. Complex Concepts Simplified

Direct vs. indirect (F&A) costs: “Direct costs” tie to a single project (e.g., a researcher’s salary for one grant). “Indirect costs” are shared research necessities that can’t be assigned neatly to one project (e.g., lab space, utilities, compliance, data security). The labels do not imply importance; both are essential.
NICRA (Negotiated Indirect Cost Rate Agreement): A multi-year agreement setting an institution’s indirect-cost reimbursement rate. Under the regulations, federal agencies generally must honor the negotiated rate for the life of an award.
Deviation authority (45 C.F.R. § 75.414(c)): A limited power allowing NIH to apply a different indirect-cost rate for a defined “class” of awards or a single award, but only under published policies/criteria and with documented justification. It is not a general license to impose uniform caps on all grants.
APA jurisdiction vs. Tucker Act jurisdiction: District courts can review unlawful “agency action” under the APA when plaintiffs seek non-monetary relief (like vacating guidance). The CFC has exclusive jurisdiction over many contract-based claims seeking to enforce payment obligations against the United States. The key question is what the suit is really trying to accomplish.
Appropriations rider: A recurring statutory condition attached to federal funding that can limit what an agency may do with appropriated funds. Here, Congress used a rider to keep NIH’s indirect-cost system anchored to the prior regime.

5. Conclusion

The First Circuit’s decision establishes a durable rule with two pillars. First, guided by NIH v. American Public Health Association ("APHA") and Department of Education v. California, it confirms that district courts have APA jurisdiction to vacate agency-wide grant guidance even when the guidance affects funding, while contract-like claims to reinstate or compel payment under specific awards belong in the CFC. Second, on the merits, it holds NIH cannot use deviation authority to impose a universal indirect-cost cap where Congress has repeatedly barred “modified approaches” and disproportionate fiscal effects, and where HHS regulations require specificity, published criteria, and structured justification.

The broader significance is institutional: when Congress and duly adopted grant regulations require negotiated-rate stability, agencies must pursue change through lawful channels—regulatory amendment, compliant program-specific deviations, or new legislation—not through sudden, across-the-board guidance.