OMB Proposed Rule Would Revise Federal Award Regulations 

Overview and Background 

On May 29, the Office of Management and Budget (OMB) announced a proposed rule for a sweeping revision of government-wide federal financial assistance rules (2 CFR), covering grants, cooperative agreements and related awards across dozens of agencies. The rule would require conforming changes by agencies including the departments of Agriculture, State, Energy, Treasury, Transportation, Commerce, Interior, Labor, Education, Environmental Protection Agency and others.  

OMB’s proposed rule codifies a number of executive orders (EOs) issued within the Trump administration related to federal awards. These EOs center around shifting the authority for grantmaking to the administration’s appointees, as well as ensuring that awards do not contribute to Diversity, Equity, and Inclusion (DEI) activities.  

What’s included in the proposed rule? 

OMB states the proposed rule is intended to strengthen “transparency, accountability, and oversight” in federal grantmaking and reduce burden on grant recipients. To ensure agency compliance, OMB clarifies that 2 CFR will be revised to clarify its status as a binding regulation rather than guidance.  

Specific changes announced in the proposed rule include:  

• Requiring approval by a political appointee before an agency may issue awards. 

• Instructing agencies that awards must “demonstrably advance the President’s policy priorities,” where applicable.  

• Providing discretionary authority for agencies to terminate grants or subawards, respectively, except when prohibited by statute. 

• Adding prohibitions on using grant funds to:
  • support collaborations with covered foreign entities and covered foreign countries; and 

• • DEI, DEIA, and gender ideology programs. 

• Striking the Councils of Governments (COGs) exemption which allowed COGs to include up to 50 percent of salaries and expenses directly attributable to managing and operating Federal programs in the indirect cost calculation without documentation. 

• Expanding the Department of Homeland Security E-Verify system citizenship status checks in FAR-funded contracts to grant-funded employees and contractors. 

• Eliminating fixed amount subawards, requiring a shift to a cost-reimbursable model. 

• Restricting allowable costs, with conferences, publications, memberships, fundraising, and lobbying-adjacent activities facing new pre-approval requirements or outright restrictions. 

• Encouraging giving discretionary awards to institutions with the lowest indirect cost rates.  

• Directing agencies to design awards as multi-year rather than requiring annual re-competition. 

• Enhancing monitoring obligations and SAM.gov reporting requirements for subrecipients, with noncompliance now a potential ground for termination. 

Next Steps 

Comments on the proposed rule are due on July 13 and can be submitted HERE.  

The proposed rule is likely to draw public opposition. Last year, a federal court ruled to block enforcement of key provisions of EOs 14173 and 14151; however, that decision was overturned earlier this year. Given that the proposed rule relies heavily on previously challenged executive orders, this rulemaking process is expected to be litigated. 

As we continue to evaluate the impacts of the proposed rule, please reach out to [email protected] with concerns or questions on impacts this may have on your work.