The Rules of Federal Grants Are Being Rewritten: OMB's 2 CFR Part 200 Overhaul, the July 13 Comment Deadline, and What Every Recipient Must Do Before October 1

Most of what we publish at Granted is about a single opportunity — a deadline, a dollar figure, a cost-share formula. This is different. On May 29, 2026, the Office of Management and Budget, joined by 41 other executive departments and agencies, issued a notice of proposed rulemaking that would rewrite 2 CFR Part 200 — the Uniform Guidance that governs how virtually every federal grant in the country is awarded, spent, monitored, and closed out. If you receive federal money, or intend to, this rule reaches your organization regardless of which agency funds you. The public comment period closes today, July 13, 2026. OMB has proposed a final-rule effective date of October 1, 2026, applying to new FY2027 awards.

This is the definitive breakdown of what the proposal actually does, where the exposure is concentrated, and the compliance posture recipients should adopt now — before the rule is final and before the next award arrives with unfamiliar terms buried in the boilerplate.

Why the Uniform Guidance matters more than any single grant

2 CFR Part 200 is the connective tissue of federal grantmaking. It is the reason a university, a city government, a rural health clinic, and a national nonprofit all follow broadly the same rules on allowable costs, indirect-cost recovery, procurement, audits, and closeout. When a specific program's Notice of Funding Opportunity is silent on a question, the Uniform Guidance is the default. Change Part 200 and you change the terms of hundreds of thousands of live and future awards at once. That is what makes this NPRM structurally different from a policy shift at any one agency: it is a systemwide reset of the operating rules, negotiated once and inherited everywhere.

The proposal is built on three stated objectives — improve transparency and oversight of taxpayer dollars, clarify OMB's requirements as binding regulation rather than guidance, and reduce recipient burden. In practice, the most consequential provisions do the opposite of that last goal, adding process and risk at both the front and back end of the award lifecycle.

Change one: political review before every discretionary award

The headline provision is a new pre-issuance review requirement under proposed § 200.205. Agency heads must designate one or more senior political appointees to review every discretionary award before it is made, applying enumerated principles that include whether the award "demonstrably advances the President's policy priorities," whether it avoids impermissible uses of funds, and whether it is legally compliant.

The structural shift here is subtle but large. Under the current system, competitive merit review by subject-matter experts is the decisive step. Under the proposal, peer-review recommendations become advisory, and a political appointee exercises "independent judgment" over the final decision. For applicants, this means a technically excellent proposal that scores well on the merits can still be declined at a stage that is not governed by the published evaluation criteria and is not visible in the review feedback. It introduces a second gate that most applicants cannot see, model, or appeal.

Change two: termination "in the interest of the agency"

The second major change rewrites termination authority. The proposal would let an agency — or a pass-through entity — terminate an award if it determines termination is "in the interest of the agency," including when the award "does not effectuate program goals" or no longer advances agency priorities. This borrows the "termination for convenience" logic long familiar in federal procurement contracts and imports it into the grants world, where it has not traditionally lived.

Critically, this discretionary termination is distinct from termination for cause. The proposal narrows appeal rights: the administrative appeal process under §§ 200.341–200.342 would remain available for terminations based on noncompliance, but not for these new interest-of-the-agency terminations, leaving recipients only the far heavier path of judicial review. A companion 90-day suspension authority is also added — widely read as a response to courts that blocked earlier abrupt termination attempts. For a grantee, the practical meaning is that the money you were awarded is more contingent than it used to be. A multi-year award is no longer a durable commitment you can staff and plan against with full confidence; it is a commitment that can be unwound mid-stream for reasons outside the noncompliance framework.

Change three: new compliance mandates on recipients

Layered on top are affirmative obligations that touch operations, not just paperwork:

• E-Verify participation for employees and contractors working under a federal award.
• Conflict-of-interest disclosures covering prior federal employment, generally within a two-year lookback.
• Payment justifications describing the purpose and supporting work behind each drawdown request, rather than simple periodic draws.
• Domestic records storage for electronic files, a provision widely read as discouraging offshore cloud hosting.
• Foreign-affiliation screening, with collaboration involving covered countries requiring agency-head approval.

Each of these is administrable, but collectively they raise the fixed cost of holding a federal award — and that cost lands hardest on small and rural recipients without dedicated grants-compliance staff. Education officials commenting on the rule have flagged exactly this: new requirements to justify individual expenses in writing, plus additional verification layers before states can pass funds to districts, strain organizations that are already thin. Some have urged separating durable formula funding from discretionary grants that could be "subject to immediate termination at any time."

Change four: activity prohibitions and indirect costs

The proposal would codify a set of activity prohibitions as binding award conditions: federal funds could not be used to fund, promote, or facilitate diversity, equity, inclusion, and accessibility policies; "gender ideology"; the medical transition of minors; disparate-impact liability theories; or certain abortion-related costs. Several previously lived in executive orders; the rule would convert them into enforceable grant terms whose violation can trigger the new termination authority. Other newly disfavored costs include certain conference and professional-development travel and recruitment advertising.

On indirect costs, the proposal stops short of restructuring negotiated rates but establishes a preference for lower-cost institutions and restricts the use of indirect funds for publications and some international activities. Research universities, which recover substantial indirect costs, should read this as a directional signal even where the immediate mechanics are unchanged.

What recipients should do before October 1

The comment window closes today, but the compliance work is just beginning. A defensible posture for the months ahead:

1. Map your award portfolio against the new prohibitions. Identify any activity, subaward, or budget line that touches a newly restricted category and model what a mid-stream termination would cost in staffing and services.
2. Stand up the operational plumbing now — E-Verify enrollment, conflict-of-interest attestation processes, per-drawdown justification templates, and a domestic records-storage plan.
3. Audit internal controls, cost allocation, and procurement against a tighter oversight regime and expanded risk assessment.
4. Separate durable from contingent funding in your own budgeting: treat discretionary awards as more cancellable than before, and avoid staffing permanent positions solely against them.
5. Read new award terms line by line. The Uniform Guidance is the default, but agency NOFOs will begin incorporating these conditions explicitly. The boilerplate is where the risk now lives.

The through-line is that federal funding is becoming more discretionary at the point of award and less durable after it — reviewed by appointees before it is granted and terminable on broad grounds after. That does not make federal grants a bad bet; they remain the largest and most mission-aligned capital available to most organizations. It makes them a bet that has to be underwritten more carefully, with contingency planning that assumes the award can move. For the strategy behind that underwriting — how to build a diversified funder mix so no single terminable award is load-bearing — Granted's funder database and matching tools are built for exactly this environment.

This analysis is informational and not legal advice; consult grants counsel on how the final rule applies to your specific awards.