Dominique L. Casimir and Shane A. Pennington ●
On May 29, 2026, the Office of Management and Budget (“OMB”) published a lengthy proposed rule in the Federal Register that would fundamentally transform the government-wide framework for federal financial assistance. Joined by virtually every grantmaking agency in the Executive Branch, the proposal seeks to revise Title 2 of the Code of Federal Regulations (the “Uniform Guidance”) in pursuit of three stated objectives: (1) improving transparency, accountability, and oversight for use of federal funds; (2) clarifying the regulatory status of the OMB requirements; and (3) reducing recipient burden.
Comments are due July 13, 2026, and may be submitted electronically via regulations.gov under docket OMB–2026–0034. OMB chose a 45-day comment period, and a final rule could be effective by October 1, 2026. Late comments will be considered “only to the extent practicable.”
What the Administration Is Seeking to Achieve
At its core, the proposed rule seeks to codify the policy directives from various executive orders into a durable regulatory framework that applies government-wide. OMB frames this as eliminating “wasteful spending” that became prevalent during the prior administration, ending what it characterizes as “unlawful DEI mandates,” “gender ideology,” and other “divisive doctrines.” The administration states that federal programs must be designed to achieve “essential public purposes authorized by law” while aligning with “administration policies and priorities.” The preamble reaffirms the view of OMB Director Russell Vought that the government’s ledger contains too much spending that is “wasteful,” “divisive,” or “woke.”
The Administration’s Approach
The approach is twofold. First, OMB is converting the Uniform Guidance from its current status as “guidance, not regulation,” into an OMB regulation, to be renamed the “Uniform Grants Regulation” or “UGR.” Under the proposed framework, when OMB amends Title 2 of the Code of Federal Regulations through a notice-and-comment rulemaking, those changes will apply government-wide and with the force of law on the effective date of OMB’s final rule, without the need for dozens of secondary agency rulemakings. This represents a significant assertion of OMB authority. Previously, each grantmaking agency would conduct its own rulemaking to adopt changes to the Uniform Guidance. OMB now proposes to issue a single regulation that binds all agencies, foreclosing separate agency action. That is a notable departure from the decentralized model that has governed federal grants administration for more than a decade.
Second, the rule imposes a comprehensive set of substantive requirements touching every phase of the grant lifecycle, from program design to merit review, to award administration, to termination.
What Could Be Required of Grantees
If the proposed rule takes effect, grantees will face a significantly altered compliance landscape:
Pre-issuance review by political appointees. All discretionary awards must undergo pre-issuance review by senior political appointees, who must ensure proposals are “consistent with applicable law, Federal agency priorities, and the national interest” and “demonstrably advance the President’s policy priorities.”
National policy conditions. Federal award funds may not be used for activities that “deny the biological reality of sex or the sex binary in humans,” promote “anti-American values,” contribute to illegal immigration, advance DEI, assist in voter registration, or fund the “transition” of a child under 19 from one sex to another. Recipients must also be scrutinized for compliance with “religious liberty laws” and their “memberships and affiliations” with outside groups.
Discretionary termination and suspension. All discretionary awards must include a provision permitting the agency to terminate an award “in its entirety” if the agency determines the award no longer effectuates “program goals, Federal agency priorities, or the national interest as they exist at the time of the termination.” A parallel suspension authority would permit 90-day work stoppages.
Elimination of fixed amount awards. OMB proposes eliminating fixed amount awards and subawards, which it views as limiting transparency and hindering oversight.
Enhanced payment accountability. Recipients will be required to provide justification for payment requests, and agencies and pass-through entities must exercise due diligence before issuing payments, including using Treasury’s “Do Not Pay” system.
Subrecipient reporting and related-entity transfers. Pass-through entities must report subawards on SAM.gov, and transfers to affiliates or related organizations cannot be treated as internal allocations exempt from subaward/contractor determinations.
Research restrictions. Awards for scientific research must be categorized as basic, applied, or experimental development, and agencies must fund only “Gold Standard Science” as defined by the administration.
Likely Areas of Comment for Grantees
Grantees are likely to comment on several fronts. The breadth of the discretionary termination and suspension provisions will likely draw significant attention, given the absence of meaningful procedural protections and the subjective standard of “national interest.” The vagueness of terms like “anti-American values,” “issue advocacy,” and “memberships and affiliations” raises due process concerns about whether recipients can “knowingly” accept conditions under the Spending Clause framework. The requirement that awards “demonstrably advance the President’s policy priorities” introduces an openly political criterion into what has historically been a merit-based process, which researchers and nonprofits are likely to identify as a threat to scientific independence. Comments might also challenge the compressed 45-day comment period for a lengthy proposed rule with sweeping implications. Finally, commenters might take issue with the elimination of fixed amount awards and the new payment justification requirements because they will impose significant administrative costs on recipients.
Notable Features of the Proposal
Perhaps the most structurally significant aspect of this proposal is the conversion of the Uniform Guidance from “guidance” to “regulation.” OMB proposes to remove the statement in 2 C.F.R. Part 1.05 that the regulatory text is “guidance, not regulation.” As mentioned above, under the new “Uniform Grants Regulation” framework, OMB would issue government-wide amendments through a single Federal Register document, and those amendments would take effect, thereby precluding individual agency rulemakings. This centralizes grant policy authority at OMB in a manner unprecedented since the 2013 consolidation of OMB circulars.
Also notable is the explicit modeling of the discretionary termination provision on the Federal Acquisition Regulation’s termination for convenience clause (48 C.F.R. Parts 49.502 and 52.249-2). OMB is openly drawing a parallel between grants and procurement contracts. This represents a philosophical shift that treats grantees less like partners in public purposes and more like vendors subject to plenary executive control.
The proposed rule’s relationship to prior executive orders is also significant. Many of the proposed restrictions mirror executive order directives that have been challenged or set aside in federal court. By embedding those same policies in a notice-and-comment regulation rather than executive orders, the administration may, with more durable legal footing, achieve through rulemaking what it has been unable to sustain through unilateral executive order action. The distinction matters because guidance is not binding on the agency and does not carry the force and effect of law, whereas a regulation does. By converting 2 CFR from guidance to regulation, OMB would give these requirements a legal status that makes them harder to challenge as arbitrary or to set aside in future administrations without going through another full notice-and-comment rulemaking.
Why the Rulemaking May Make It Harder for Grantees to Seek Relief
Three features of the proposed rule, taken together, could significantly narrow available avenues for grantees to challenge adverse agency action:
First, the proposed rule expressly provides that administrative hearing rights under Part 200.342 are required only for terminations based on noncompliance, not for discretionary terminations or suspensions. OMB reasons that recipients “would not generally be in the best position to present facts or information related to the agency’s priorities” and that the absence of SAM.gov reporting for discretionary terminations reduces the need for hearing rights. The result is that a grantee whose award is terminated because it allegedly does not serve the “national interest” would have no right to an administrative hearing, no right to object, and no opportunity to formally challenge the decision within the agency.
Second, the proposed rule channels judicial review to the U.S. Court of Federal Claims, stating that “[t]o the extent a grant recipient believes that a particular termination is unlawful, it could raise that concern in the U.S. Court of Federal Claims.” By designing the regulatory framework this way, and by characterizing the discretionary termination as analogous to a contract termination for convenience, the administration may be attempting to frame any future challenge as a Tucker Act claim for money damages rather than an Administrative Procedure Act action for injunctive relief in district court. For grantees, this could mean the difference between being able to obtain a preliminary injunction that preserves their funding and being limited to a backward-looking damages claim that will not reverse the termination.
Third, by converting the Uniform Guidance into a regulation and centralizing amendment authority at OMB, the proposal eliminates the practical need for individual agency rulemakings, which previously provided additional notice-and-comment opportunities at the agency level. Future changes to grant policy would flow from a single OMB rulemaking process, reducing the number of decision points at which grantees and their advocates can intervene.
The net effect is a framework designed to give the Executive Branch maximum discretion to terminate or suspend grants for policy reasons, while minimizing the procedural and judicial mechanisms through which grantees might push back.
The comment period closes July 13, 2026. Grantees and their counsel should begin preparing comments now.