July 9, 2026
By: Blair Hancock and Jonathan Lowenthal
Since taking office, the second Trump administration has withheld or terminated billions of dollars in federal financial assistance, citing reasons ranging from statutory authority and recipient noncompliance to inconsistency with administration priorities. President Donald Trump has also issued a series of executive orders directing agencies to eliminate or restrict federal awards that allegedly fund diversity, equity, inclusion, and accessibility (DEI/DEIA) programs and initiatives. Several of these actions have been challenged in federal court. To help “ensure that federal financial assistance is administered in a manner consistent with the president's policy agenda,” the Office of Management and Budget (OMB) and 41 executive agencies and departments issued the proposed rule, Regulation for Federal Financial Assistance. The proposed rule revises the Uniform Guidance (2 CFR Part 200), which serves as the OMB “rulebook” governing how federal agencies award, administer, suspend, and terminate federal financial assistance to non-federal entities. The administration states that the proposed rule aims to improve transparency, accountability, and oversight of how taxpayer dollars are used in the context of federal grantmaking. Additionally, it is intended to clarify 2 CFR’s status as an OMB regulation and align its statutory authority by establishing financial management policies and requirements.
The rule is not yet final. Public comments are due July 13, 2026, and OMB has proposed an effective date of October 1, 2026. Because the rule is intended to apply to all federal agencies, any grant or other federal funding assistance recipients or applicants should begin evaluating how the proposed rule could affect applications, current awards, programs, subawards, and future funding strategies.
Why It Matters
The proposed rule is the principal regulatory vehicle through which OMB aims to implement Executive Order 14332 (August 7, 2025), along with other Trump administration executive orders and policy priorities, into the Uniform Guidance (UG). Unlike executive orders, which generally tell agencies what the president wants them to do, amendments to the UG adopted through notice-and-comment rulemaking become part of the regulatory framework agencies use to administer federal grants and other covered federal financial assistance. Agencies must follow the UG amendment unless Congress passes a conflicting statute, OMB or another federal agency later amends it, or it is invalidated through judicial review.
The practical result of these revisions is a significant change in the award, administration, and oversight of grants across all federal agencies.
Key Proposed Changes
Among the proposal’s more than 300 revisions, the following changes are likely to be most relevant to federal funding recipients and applicants:
- Introduction of a mandatory agency review for discretionary awards. Requires senior agency/department appointees or their designees to review every award before it is issued to determine whether it aligns with broader administration and presidential priorities, national interest, and applicable laws.
- Significant expansion of agency suspension and termination authority. Provides broad discretionary authority to federal agencies and pass-through entities, to the extent permitted by law, in determining whether to terminate all or part of an award or suspend grant funding “if the Federal agency or pass-through entity determines that a termination is in the interest of the Federal agency or pass-through entity, including if a Federal award does not effectuate program goals, Federal agency priorities, or the national interest."
- Additional scrutiny of applicant risk. Gives federal agencies greater discretion to examine financial responsibility, integrity, past performance, practices, and affiliations with certain organizations when evaluating award applicants and recipients of funding.
- Imposition of DEI/DEIA restrictions. States that "in administering Federal awards, to the maximum extent permitted by law, the Federal agency or pass-through entity must ensure that the Federal award is not used to fund, promote, encourage, subsidize, or facilitate‘ DEI/DEIA ’policies, principles, or practices that violate any applicable Federal anti-discrimination laws.”
- Domestic-first approach for research and development. Limits federal research and development awards to U.S.-organized entities, unless a foreign award is expressly authorized by statute or justified by a senior agency official based on agency mission, administration priorities, and U.S. interests. It would also require agencies to apply a domestic-first framework when designing research programs and evaluating applications, and would restrict the use of federal funds for certain collaborations with covered foreign countries or entities unless an exception applies.
- Limits the role of scientific peer-review. Allows agencies to continue using peer review to evaluate discretionary award applications and research proposals, but requires peer-review recommendations to remain advisory and not be routinely deferred to or treated as effectively binding. Senior agency appointees, or their designees, would be required to conduct pre-issuance review of discretionary awards and use independent judgment to determine whether selected proposals are consistent with applicable law, agency priorities, presidential priorities, and the national interest.
- Changes to award structures and administration. Eliminates fixed amount awards and fixed amount subawards unless authorized by federal statute, clarifies award and subaward reporting expectations, and adds requirements affecting pass-through entities, related organizations, subrecipient monitoring, and recipient compliance.
Vought has maintained that the proposed rule does not affect Congress' ability to direct funding to specific projects through congressionally authorized earmarks.
Congressional Impact and Response
If finalized, the proposal may prompt congressional consideration of the appropriate balance between legislative direction and executive discretion in administering grant programs. Congress could enact legislation to codify, modify, or prohibit specific provisions of the final rule, thereby superseding the underlying regulation. Alternatively, Congress could provide more detailed statutory direction regarding program objectives, eligibility requirements, allowable uses of funds, or other implementation requirements to reduce administrative discretion in future grant administration.
Democratic senators are urging the administration to rescind the proposal, arguing it undermines Congress’ role in directing federal spending. Led by Senate Minority Leader Chuck Schumer and Sens. Gary Peters (D-MI), Patty Murray (D-WA), and Jeff Merkley (D-OR), Democrats in the Senate issued a letter to the White House stating, “When Congress authorizes and appropriates money for federal grants, it does so with the understanding that all Administrations will distribute those grants consistent with Congressional intent and the funding instructions articulated in law.” Additionally, Reps. Jamie Raskin (D-MD), Suzan DelBene (D-WA), and Lori Trahan (D-MA), joined by 122 additional members of the House, sent a letter to Vought on June 25. “We write in opposition to the Office of Management and Budget’s (OMB) disastrous and likely unlawful proposed rule that would devastate American health care innovation for generations.”
Democrats have been arguing for the reassertion of congressional authority for months, and a victory in the midterms may result in legislative attempts to curb or eliminate the proposed regulation. They may also support lawsuits against future efforts to curb grant eligibility once the rule comes into effect, tying the administration up in legal fights as has been done over the last year.
Republican lawmakers have responded less publicly to the proposal, although some have raised concerns about specific provisions. While the proposed regulation may lead GOP appropriators to adjust legislative language on grants moving forward, as things stand, a legislative override of the regulation itself is unlikely. Members nonetheless may become more vocal as the appropriations process moves forward over the next few months. For her part, Senate Appropriations Chair Susan Collins (R-ME) wrote a letter to Vought stating, “While I agree these principles should guide the administration and oversight of Federal funds, the rule would impose new, burdensome requirements on award recipients that would harm small and rural communities, undermine scientific and biomedical research, and conflict with Congress’ control over the federal funding process.” Collins also called for an extended comment period so OMB can better incorporate public comments and feedback into a final rule.
If Republicans maintain a majority in 2027, it’s unlikely they would go far to act against Trump and his administration. If leadership and appropriators remain agreeable to greater presidential discretion, as they generally have, then others are likely to fall in line. However, this could be a miscalculation, given that a future Democratic administration could alter its statutory intent as Trump has done with Democratic priorities.
The Takeaway
Businesses, nonprofits, research institutions and universities, healthcare entities, and local governments receiving federal financial assistance should use this period to review federally funded initiatives through the lens of the proposed rule changes. If finalized, agencies will have greater flexibility to align funding decisions with administration priorities. Thus, there may be less certainty when pursuing federal funding, and recipients should closely evaluate existing awards, pending applications, and future funding opportunities.
- Inventory current awards, pending applications, and anticipated fiscal year 2027 opportunities, especially those with a DEI requirement.
- Identify awards that are discretionary, research-focused, or otherwise likely to receive heightened agency review.
- Review grant-funded or otherwise federally funded activities, certifications, public-facing materials, subrecipient terms, and internal controls for alignment with applicable federal requirements.
- Document the statutory authority, public purpose, measurable outcomes, and compliance record of significant awards.
- Assess whether any foreign collaborations, international research elements, or related-entity transactions could require additional justification.
- Consider whether to submit comments before the July 13 deadline, particularly if the proposal could affect current funding, future eligibility, or existing reliance interests.
GrayRobinson’s federal lobbying and legal teams are monitoring the proposed rule, congressional response, and agency implementation activity. Contact us with questions or for assistance with reviewing current award and funding pipelines, particularly where fiscal year 2027 funding is material to operations, research, infrastructure, or program delivery.
Proposed Rule
Regulation for Federal Financial Assistance
Comments are due on or before July 13, 2026. According to the notice, the final regulation will be effective on October 1, 2026.
Relevant Executive Orders
EO 14154 - Unleashing American Energy
EO 14332 - Improving Oversight of Federal Grantmaking
EO 14398 - Addressing DEI Discrimination by Federal Contractors
Congressional Letters
6.24.26 - (House) Letter to Director Vought re Regulation for Federal Financial Assistance
7.01.26 - (Senate) Letter in Opposition to Proposed Regulation on Federal Financial Assistance
7.06.26 - Sen. Collins Asks OMB to Withdraw Parts of Grant Rule, Extend Comment Period
Questions?
Contact GrayRobinson Senior Government Affairs Advisor Blair Hancock or a member of the Federal Lobbying Team.