Research and the (full) cost of doing business

Key points

• The new US Department of Government Efficiency (DOGE) was created to reduce the cost of the US public service, which led to the directorship of the National Institutes of Health (NIH) announcing the application of a new, reduced standard rate for indirect costs of 15% to be applied to all NIH grant funding.

• Whether foreign research institutions’ NIH grants will be affected is not clear; however, reconsideration of Canada’s own federal system for indirect research costs — the Research Support Fund (RSF) — is long overdue.

• The RSF system is widely considered to be suboptimal, and recent analyses found the rates paid insufficient to support the full indirect costs of doing research in Canada.

• Other factors, such as cuts to and restrictions on postsecondary institutions, contribute to an environment that compromises Canada’s international competitiveness and productivity in science.

• Canadian policy-makers should heed the recent commissioned science policy report and a chorus of advocacy calling for an enhanced indirect cost system.

A flurry of drastic changes to federal policy and functions in the United States has followed the inauguration of Donald J. Trump as the country’s 47th president. Prominent are the sweeping changes triggered by the Trump administration’s new Department of Government Efficiency (DOGE), which seeks to downsize and reduce the cost of the US public service. In this context, on Feb. 7, 2025, the directorship of the National Institutes of Health (NIH) announced the application of a new, reduced standard rate for indirect costs of 15% to be applied to all NIH grant funding, regardless of host institution.¹ This represents a cataclysmic change to the US research funding landscape and one that is likely to hurt universities and the world-leading US research enterprise. Whether foreign research institutions, including Canadian ones, will also see cuts to funding associated with NIH grants is not entirely clear. However, this is an opportune time to consider Canada’s own federal system for indirect research costs — the Research Support Fund (RSF)² — which is widely considered to be suboptimal.

For those unfamiliar with the details of research funding in the US and Canada, indirect costs are distinct from the costs incurred when conducting a research project. Direct costs of research include the cost of personnel who conduct research, expendable supplies for research, and any specialized services purchased to enable it. Indirect costs of research are usually not tied to individual researchers or projects. Rather, these are typically costs borne by institutions to enable research by the collective. They relate to the operation, maintenance, and upgrade of research facilities; animal care infrastructure; resources such as library holdings and information technology systems; management and administration of institutional research; costs associated with regulatory requirements and accreditation for research; and costs associated with intellectual property management and knowledge mobilization.

For NIH funding in the US, research institutions have historically made detailed submissions regarding their indirect costs to the Department of Health and Human Services, from which a negotiated institutional NIH indirect cost rate is determined. This results in institutional rates that vary — from a low of 15% to more than 70% — with most research-intensive universities receiving awards at the upper end of that range.³ Therefore, the new across-the-board indirect cost rate of 15% associated with NIH grants in the US will, for leading research universities, result in an annual funding loss of more than $100 million. Such cuts cannot simply be absorbed by university budgets, and they represent a major setback to the conduct of research.

Canadian institutions are currently supported for their indirect costs by the federal government’s RSF,² introduced in 2003, through which annual payments are made directly to institutions according to a funding formula that is based on the level of tri-council funding received by each institution. The RSF payment is not directly tied to individual grants or researchers, but rather is structured in such a manner that it pays a higher proportion for the first tri-council dollars that an institution receives — 80% on the first $100 000, 50% on the next $900 000 — before dropping stepwise to a much lower proportion for tricouncil funding exceeding $7 million. This results in indirect cost rates that vary from a high of 80% paid for the smallest institutions with little tri-council funding to a low of about 19% for Canada’s most research-intensive universities.²

The rates paid by the RSF are insufficient to cover the full indirect costs of doing research in Canada. A 2023/24 analysis, undertaken by the University of Toronto, estimated the true indirect costs of research to be 61.7%,⁴ while the federal government’s 2017 Fundamental Science Review⁵ reports true indirect costs in Canada to be between 40% and 60% of the value of grants. Recognizing this shortfall in Canadian research funding relative to peer countries, the Fundamental Science Review called for RSF funding levels to increase over time toward a target of 40% for research-intensive institutions (panel recommendation 7.3).⁵ This call for increased RSF funding has been echoed more recently, such as in U15 Canada’s recent prebudget submission for the 2025 federal budget.⁶

Other sources of funding for indirect costs mitigate the situation somewhat. For example, other federal granting programs, specifically the Canada First Research Excellence Fund⁷ and the Canada Excellence Research Chairs,⁸ allow up to 25% of indirect costs to be included in submitted budgets, and the Canada Foundation for Innovation (CFI) provides universities with funding through an Infrastructure Operating Fund that supports the operation and maintenance of CFI-funded research infrastructure. ⁹ Moreover, Canadian institutions are increasingly diligent in applying institutional overhead charges to their research contract and grant arrangements with industry partners; for these, most institutions are now applying a 40% rate. However, these cannot be relied upon to make up for RSF inadequacies, particularly in a time when the postsecondary sector in Canada is facing unprecedented financial stress.¹⁰

In recent years, many provinces have cut provincial grants to postsecondary institutions, while also restricting the extent to which compensatory tuition fee increases can be imposed.¹⁰ Furthermore, the federal government has recently applied limits on the number of international students that can be recruited by each province, which has meant international student quotas assigned to individual universities. These are heavy blows for universities struggling to maintain viable operations, let alone internationally competitive research, in the face of inflationary pressure. Ultimately, these measures have the potential to not only compromise Canada’s international competitiveness in science, but also to limit national productivity and prosperity.

As the US stands on the brink of tearing down its exemplary system for covering the full costs of research, Canada, with its flawed federal system for indirect costs, should heed the recent commissioned science policy report and a chorus of advocacy calling for an enhanced indirect cost system. In the US, a court petition to the US District Court in Massachusetts has yielded an injunction that has brought a pause on the NIH change to indirect costs. Meanwhile, Canadian policy-makers should reflect on our own funding system and, ultimately, the long-term viability and competitiveness of Canadian science.

See related article at www.cmaj.ca/lookup/doi/10.1503/cmaj.250418