OMB Proposes Government-Wide Rewrite of Federal Grant Rules

The Office of Management and Budget proposed a sweeping revision of government-wide federal financial assistance rules, covering grants, cooperative agreements and related awards across dozens of agencies.

The 412-page proposed rule, scheduled for publication May 29, would revise 2 CFR parts governing federal awards and require conforming changes by agencies including HHS, Agriculture, State, USAID, VA, Energy, Treasury, Defense, Transportation, Commerce, Interior, EPA, NASA, DOJ, Labor, DHS, Education, Ex-Im Bank, FCC, CPSC and others. Comments are due 45 days after publication, through docket OMB-2026-0034. 

OMB says the rule is intended to strengthen “transparency, accountability, and oversight” in federal grantmaking, clarify that the 2 CFR text operates as an OMB regulation, and reduce recipient burden. The proposal also frames the grantmaking changes around administration policy priorities, including merit-based selection, anti-DEI provisions, restrictions on unlawful discrimination, and tighter alignment of awards with statutory purposes and agency priorities. 

For recipients, the most operationally significant provisions appear to be expanded agency discretion over award design, merit review and termination. OMB proposes revisions to the funding-opportunity and applicant-risk sections to emphasize merit-based selection and agency discretion, including clearer authority to evaluate financial capacity, organizational integrity and institutional affiliations. It also would clarify that peer review is advisory and does not displace agency discretion. 

The proposal would also revise termination provisions. OMB says agencies generally would be required to include standard termination clauses in awards and would be allowed to define additional termination grounds in award terms, if consistent with authorizing law. It also proposes a stop-work-style temporary suspension authority and a discretionary termination framework requiring agencies to give a brief reason why an award no longer serves program goals, agency priorities or the national interest. 

OMB says the rule would preserve reimbursement for allowable costs incurred before termination and allow recipients to submit information on termination costs, while giving agencies case-by-case discretion to weigh those costs against policy concerns. 

This is not a narrow grants-management cleanup. If finalized, it would give agencies clearer tools to condition, suspend and terminate awards based on programmatic and administration-policy judgments, while shifting more compliance attention to award terms, applicant-risk review, subaward reporting, institutional affiliations and termination-cost documentation.

Department-Specific Impact

The practical impact is not identical: State and DoD have the most distinctive program-specific provisions; Commerce has notable trade-program carveouts and lower-tier debarment coverage; Treasury mainly adopts the OMB framework with existing deviations; Justice expressly declines to extend debarment coverage beyond first-tier procurement contracts.

For all five agencies, the main change is that the revised OMB grant framework would become the operative regulatory baseline.

The agency-specific sections largely answer three questions: how each agency adopts part 200, how far suspension/debarment obligations extend, and what program-specific exceptions survive.

The highest compliance salience is likely in State foreign assistance, DoD research and cooperative agreements, and Commerce-funded programs involving trade, economic development or technical-assistance supply chains.

Commerce would adopt the revised 2 CFR part 200 for its federal awards, giving the OMB grant rules direct regulatory effect for Commerce grants. Transactions excluded from covered-transaction treatment include emergency or disaster-response transactions such as the Fisherman’s Contingency Fund, certain incidental public benefits, and activities where applying an exclusion would be prohibited by law, including

• administration of the antidumping and countervailing duty statutes, 
• Export Trading Company Act Certification of Review Program,
• Trade Adjustment Assistance Program Certification,
• Foreign Trade Zones Act, and
• Statutory Import Program. 

State gets a more flexible foreign-assistance framework than domestic grantmaking agencies. Recipients in foreign assistance, public diplomacy, NGO, and for-profit channels should watch fixed-amount award terms, foreign-law exceptions, and FAR-based cost treatment.

The Department of Defense preserves a distinct defense-grants architecture. Universities, defense research performers, nonprofits and for-profit R&D recipients should focus on DoDGARS terms, national-policy clauses, incremental-funding checks, and the treatment of prototype/other-transaction-like activity outside the standard debarment rule.

Treasury appears to be incorporating the government-wide OMB framework rather than creating a large Treasury-specific overlay in this notice. The operational effect will be through the revised 2 CFR part 200 rules themselves: award design, merit review, recipient-risk review, termination, suspension, cost allowability, subaward controls and audit requirements.

The Justice Department states that it does not extend nonprocurement suspension and debarment requirements beyond first-tier procurement contracts under a covered nonprocurement transaction.

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Practitioner Perspective:

Akin Gump: Proposed 2 C.F.R. Part 200 Changes: Expanded Oversight, Political Scrutiny and New Compliance Obligations for Award Recipients. 

Arnold & Porter: A New Rulebook for Federal Grantmaking: An Analysis of OMB’s Proposed “Uniform Grants Regulation”