Barbara, if I were in your position I would be somewhat
skeptical of the prime grantee's assertion that the blame for
the indirect cost "reduction" rests with the prime funding
agency.  I don't think the feds reach down into subcontractor
budgets without their grantees' knowledge and approval.
After all, funding agencies have no direct relationship with
their awardees' subcontractors.  It sounds to me as if your
prime is simply trying to negotiate a discount from your
institution (perhaps to finance extra expenses the feds are
refusing to increase the prime award to cover).  Depending
on your bargaining power, you may or may not be able to
negotiate out of it.  Good luck!

Jim Simpson
California Public Health Foundation/Public Health Institute
xxxxxx@publichealth.org