OMB Proposes Major Overhaul of Federal Grantmaking Rules

Action: The Office of Management and Budget (OMB) and various Federal agencies have issued a proposal to revise government-wide rules for awarding and managing Federal funding, including research grants.¹ Among other changes, the proposal would require that senior appointees (in most cases, non-career appointees) review grants before they are awarded and ensure they are consistent with applicable law, Federal agency priorities, the national interest, and the President’s policy priorities. It would also expand the list of risk criteria agencies must consider before making awards, require all awardees and subrecipients to use E-Verify for covered work, and eliminate fixed amount awards except where authorized by statute. Comments on the proposal are due by July 13. 

Trusted Insights for What’s Ahead^®

• Under current procedures, OMB provides guidance to Federal agencies under its “Guidance for Federal Financial Assistance” while agencies implement OMB’s guidance through their own rules. Once adopted, the proposal would increase OMB’s role in governing Federal funding by reclassifying its guidance as “regulation,” giving it the force of law. 
• The proposal would retain the existing requirement for agencies to maintain a “merit review process” to evaluate proposals while adding a required review by senior appointees. The proposal would also increase the government’s ability to terminate or suspend awards and directs agencies to prioritize proposals that conduct “gold standard” science as defined in an earlier Executive Order, which also directed agencies to incorporate that standard into their grantmaking and other scientific activity, including agencies’ own research.²
• The proposal would prohibit Federal funding for projects involving practices that “violate any applicable Federal anti-discrimination laws,” gender ideology, and other issues. It would also introduce new restrictions on funding for projects involving certain covered foreign entities.  
• OMB has stated that the proposal is intended to improve transparency, accountability, and oversight as well as reduce recipient administrative burden. However, some stakeholders, including universities, have expressed concern that the changes could politicize funding decisions, make funding less predictable, and reduce funding for indirect research costs.³ 
•  What this means for business: 
  • Organizations that receive or partner on Federal awards should begin evaluating whether funding could be disrupted under the revised rules.
  • The proposed termination and suspension provisions could make Federal award revenue less predictable, especially for organizations that build staffing, research infrastructure, service delivery, or capital planning around multiyear grants. Businesses, universities, health systems, nonprofits, and public-sector partners should evaluate contingency plans for paused, narrowed, or terminated awards.
  • Recipients should strengthen controls for cost allowability, subrecipient monitoring, E-Verify readiness, foreign collaboration screening, documentation of award-funded activities, and separation of Federal and non-Federal funds.