The second Trump administration has enacted numerous policy changes impacting federal grant recipients, including many nonprofit organizations. On August 7, the administration issued a new Executive Order (EO) that will more permanently affect both grantmaking and grant administration. "Improving Oversight of Federal Grantmaking" directs the implementation of several mechanisms designed to increase policy-level official oversight over grants and empower funding agencies to restrict funding or terminate awards.
Increased Oversight in Federal Grantmaking: New Senior Appointee Roles
The EO directs that each agency head designates one or more "senior appointees" to review funding opportunity announcements (FOAs) and discretionary awards "for consistency with agency priorities and the national interest," and requires that senior appointees be substantively involved in decision-making on grant awards. Although the EO recognizes the continued input of subject matter experts, the EO specifically prohibits senior appointees from "ministerially ratify[ing] or routinely defer[ing] to the recommendations of others in reviewing [FOAs] or discretionary awards" and calls for accountability of such appointees as they carry such duties.
Notably, the EO directs "[d]iscretionary awards must, where applicable, demonstrably advance the President's policy priorities." Given Congress's role in establishing federal grant programs and the potential for divergence between Congressional policy priorities and any president's policy priorities, this element of the EO may lead to challenges for grantees preparing proposals or managing compliance with existing awards.
Finally, suggesting a long-term role for the Office of Management and Budget (OMB) in detailed aspects of individual agency grantmaking and oversight, the order also requires a "continuation of existing coordination" with OMB by the senior appointees designated under the EO.
Impact on Research Grants and Universities Under New Federal Grant Rules
Although institutions of higher education (IHEs) are not specifically called out in the EO, two aspects of the order reflect recent efforts by the administration to significantly alter the research award landscape. First, the EO calls for FOAs to focus on "Gold Standard Science" and "rigorous, reproducible scholarship" over institutional historical reputation. Second the EO calls for facility and administration (F&A) rates to be considered as a factor in award decisions, generally favoring lower F&A rates and stating that "[a]ll else being equal, preference for discretionary awards should be given to institutions with lower indirect cost rates."
The F&A rate focus is in line with the administration's recent actions to cap indirect cost rates at 15%, notably enacted by the National Institutes of Health, the Department of Defense, the National Science Foundation, and the Department of Energy.
Stricter Rules on Federal Grant Fund Usage and Compliance Requirements
With respect to grant management, the EO calls for two changes to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), one government-wide change to the terms and conditions agencies apply to their awards, and continuation of a recent change to agency payment processes. Specifically, the EO directs that:
- OMB revise the Uniform Guidance to add an express regulatory basis for terminating federal awards "for convenience, including when the award no longer advances agency priorities or the national interest." Such a basis had been included in the Uniform Guidance from 2020 to 2024 but was largely removed by changes effective October 1, 2024—an issue that has arisen repeatedly in recent grant termination litigation.
- OMB revise the Uniform Guidance to "appropriately limit the use of discretionary grant funds for costs related to facilities and administration." As noted above, indirect rate caps have been implemented by a number of agencies in different ways under the current administration, nearly all of which have led to litigation.
- Agency heads review all existing grants to assess whether the specific terms and conditions of the award contain a termination convenience provision. Prospectively, agency heads are to ensure such terms are included in new awards. How such implementation will take place, and over what timeline, is yet to be seen. Under the precedent of Bennett v. New Jersey, the terms of existing federal awards cannot generally be unilaterally modified.
- Agency heads are to revise policy to "prohibit recipients [of federal grants] from directly drawing down general grant funds for specific projects without the affirmative authorization of the agency" and "require grantees to provide written explanations or support, with specificity, for each drawdown." This directive is consistent with administrative changes already experienced by many grantees in the past few months. As funding agencies had long used automated electronic letter of credit systems to authorize payments with minimal support for individual draws, this payment process change has been impactful.
What Federal Grant Recipients Need to Know About the New Executive Order
What do all these changes mean and what should nonprofit and other grant recipients be prepared for? How all of these directives will be implemented is not currently known, and we would anticipate a fair number of differences among agencies, but we do anticipate the following:
- First and foremost, grant recipients should expect the continued focus by grantmaking agencies on alignment of funding with administration priorities. It is a bit unclear what this will look like, and it is likely that this will vary across agencies and political appointees, but this less objective standard is certainly a significant departure from decades of practice. How exactly this will impact grantmaking and relate back to congressional mandates and priorities (as opposed to the administration's priorities) is still a bit unknown, but applicants and recipients should maintain their relationships with their funding agencies, remain in good standing with those agencies, and be prepared to justify their value add and benefit to the U.S. government and its interests.
- As has already been the case, grant recipients will start to see amendments and modifications to current and existing awards and notice of funding opportunities that will, at a minimum, seek to improve the government's termination rights (if such terms do not already include termination rights for changed priorities and/or convenience), but also potentially including new terms on indirect costs and the drawing down of funds.
- Grant recipients may also begin to receive pressure and scrutiny on indirect cost rates. IHE's are likely most susceptible to this effort and appear to be coming first in the form of rule changes but grant recipients could begin to see these pressures coming on an ad hoc basis by various agencies as they begin to scrutinize the use of federal funds and aim to remain in good standing with the administration.
- Finally, and while there have been significant delays and administrative hurdles imposed by agencies for the drawing down of funds, grant recipients should prepare themselves for further procedural hurdles and delays that may stem from agencies' implementation of the specific authorization directive of the president's EO.
Given the inherent uncertainty in how the president's directives will be implemented, Venable will continue to monitor this and any relevant agency guidance to help advise clients and prepare them for this new landscape. If you have questions about the EO you'd like to discuss, contact one of the authors, or anyone from our Government Contracts team.