Redstone Government Consulting Blog | Lynne Nalley and John Shire (2)

On April 11, 2025, the Department of Energy (DOE) announced a new policy action to limit indirect costs of DOE research funding to Institutes of Higher Education (IHE) to 15%. DOE projects this change to generate over $405 million in annual savings. As expected, a judge has issued a Temporary Restraining Order (TRO) on this policy. This comes on the heels of the National Institute of Health (NIH) issuing Supplemental Guidance to the 2023 NIH Grants Policy Statement: Indirect Costs dated February 7, 2025, limiting indirect costs on current and future grants to 15%. A Temporary Restraining Order (TRO) is still outstanding on the NIH policy.

President Trump has signed several Executive Orders (EO) addressing ways to improve the acquisition process through simplifying the regulations, utilizing competitive marketplace and commercially available products and services, consolidating procurements at General Services Administration (GSA), and now overhauling the Department of Defense acquisition processes.

On April 9, 2025, President Trump signed the Executive Order (EO), Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base. The EO indicated that the factory floor is as significant as the battlefield, and the current defense acquisition system must have a comprehensive overhaul to deliver state-of-the-art capabilities at speed and scale.

On April 24, 2024, the US District Court for the Western District of Pennsylvania issued a decision on the Defendant’s request to dismiss a False Claims Act brought by a relator alleging violations and retaliation by Magee-Womens Research Institute and Foundation (Foundation), University of Pittsburgh, University of Pittsburgh Medical Center and UPMC Magee-Womens Hospital under the False Claims Act. The decision identified the areas of the False Claims Act that pertained to the case as follows:

• Knowingly present, or cause to be presented, a false or fraudulent claim for payment or approval
• Knowingly make, use, or cause to be made or used, a false record or statement material to a false or fraudulent claim
• Conspire to commit a violation
• Knowingly make, use, or cause to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceal or decrease an obligation to pay or transmit money.

Why do contractors have to do market research? Simply put, you signed a contract with the US Government or a subcontract with a prime contractor that expects it – yes, it is contractually required. Plus, it is one of the most often reported contractor purchasing system review (CPSR) findings.

Let’s start with the basics. When is a commercial determination required in the Federal Acquisition Regulations (FAR)? The common belief is that only when the award of a subcontract exceeds the cost or pricing data threshold. This common belief is what we refer to as a too-often believed myth. The truth is that FAR 52.244-6, Subcontracts for Commercial Products and Commercial Services, specifically requires that “to the maximum extent practicable, the Contractor shall incorporate, and require its subcontractors at all tiers to incorporate, commercial products, commercial services, or non-developmental items as components of items to be supplied” to the Government. To comply with this requirement, as many as possible of your purchase orders issued under your U.S. Government contracts and subcontracts should have commercial determination regardless of the dollar value.

Both the Federal Acquisition Regulations (FAR) used by Federal Agencies to acquire products and services to support their operations and 2 Code of Federal Regulations (CFR) 200 used by Federal Agencies for grants to support Federal programs set forth requirements that the organizations awarded contracts or grants have an established purchasing/procurement systems. Before getting a procurement under a grant, you must determine if any lower-tier organization is either a subrecipient or a contractor (read more in this article, “Understanding your Lower-Tier Relationships with Subrecipient and Contractor Determinations under 2 CFR 200.” In this article, we are only dealing with contractors under 2 CFR 200 and subcontractors under the FAR.

On October 15, 2024, the Department of Defense (“DoD”) published the final rule of the Cybersecurity Maturity Model Certification (“CMMC”) requirements in Title 32 of the Code of Federal Regulations, effective December 16, 2024. The Final Rule updates DoD national security regulations to ensure contractors have implemented cyber security measures to safeguard Federal Contract Information (FCI) and Controlled Unclassified Information (CUI). CMMC will be contractually required when the Defense Federal Acquisition Regulation (“DFARS”) clause has not been finalized (see our article, “DoD Issues CMMC Proposed Rule – Submit your comments by October 15, 2024”). We will refer to this DFARS clause throughout this blog as the DFARS CMMC Clause Final Rule.

Direct Costs

To understand indirect costs, it is always best to understand direct costs. Below is a comparison of the definition of direct cost in the Federal Acquisition Regulations (FAR) and 2 Code of Federal Regulation (CFR) 200. FAR Part 31 provides the cost principles for commercial for-profit organizations and 2 CFR 200 Subpart E provides the cost principles for all other organizations (e.g., non-profits and educational institutions).

Title 2 Subtitle A Chapter II of the Code of Federal Regulations (CFR) includes Part 200 – Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (i.e., grants and cooperative agreements). 2 CFR 200.405, Allocable costs, falls under Subpart E–Cost Principles applicable to all organizations that are not commercial for-profit organizations. 2 CFR 200.405(d) states: