OMB Imported The FAR's Termination-For-Convenience Doctrine Into Federal Grants And Eliminated The Appeal Rights That Came With It. The §200.340 Rewrite Means Multiyear Awards Now Carry Government-Contract Cancellation Risk Without Government-Contract Settlement Protections

The most analytically discussed change in OMB's May 29 rewrite of 2 CFR Part 200 has been the new requirement at §200.205 that senior political appointees conduct a pre-issuance review of every discretionary award before it is issued. The second-most discussed change has been the demotion of peer review's role from determinative to advisory, the prohibition on DEI-related criteria, and the restriction on awards to entities with relationships in covered foreign countries. Each of these provisions reorganizes how federal grants are awarded.

A different set of provisions, located in the rewrite's termination section at §200.340, reorganizes how federal grants are ended after they have been awarded. The provisions have received less analytical attention than the awarding-process changes, in part because the language describing them is technical and in part because their consequences become visible only at the back end of the grant lifecycle. The consequences are larger than the awarding-process changes for grant recipients with active multiyear awards, because the rewrite converts the legal nature of those awards in ways that affect the financial planning, staffing decisions, and capital commitments that depend on them.

The structural shift can be summarized in one sentence: the rewrite imports the Federal Acquisition Regulation's termination-for-convenience doctrine into federal grants without importing the FAR's accompanying termination settlement framework or recipient appeal rights. This piece works through what the FAR termination-for-convenience doctrine actually does, what §200.340 imports from it and what §200.340 does not import, why the asymmetric import matters for multiyear grant recipients, and what specific steps grant administrators and finance officers should be taking between now and the October 1 effective date to protect their organizations from the cancellation-risk-without-settlement-protection structure the rule creates.

What FAR termination for convenience actually does

The Federal Acquisition Regulation, codified at 48 CFR, governs federal procurement contracts. It includes a termination-for-convenience clause that the government has used since World War II to terminate contracts when the contracted goods or services are no longer needed, when budget constraints require curtailment, or when policy priorities change. The termination-for-convenience clause is one of the most distinctive features of federal contracts. A private commercial contract typically cannot be terminated unilaterally by one party without breach. A federal procurement contract can be — and when it is, the government's authority to terminate is treated as a sovereign prerogative rather than a contractual breach.

The doctrine has two structural components that have evolved together over decades of case law. The first is the termination authority itself: the government may terminate when it determines termination is in its interest, without proving breach, fault, or noncompliance by the contractor. The second is the termination settlement framework: when the government invokes termination for convenience, the contractor is entitled to recover its incurred costs plus a reasonable profit on the work performed, settlement expenses incurred in connection with the termination, and in some cases anticipatory profits on the unperformed portion of the contract. The settlement framework operates as the counterbalance to the broad termination authority — the government has wide latitude to terminate, but when it does, it bears the financial cost of making the contractor whole for work performed and reliance costs incurred.

The Court of Federal Claims and the Federal Circuit have developed an extensive body of case law around termination-for-convenience settlements that establishes contractor protections in significant detail. Contractors have substantive rights to recover. Contractors have procedural rights to assert claims and litigate disputes about the scope of recovery. The Disputes Act and the Contract Disputes Act provide formal mechanisms for contractor appeals when settlement amounts are disputed.

What §200.340 imports and what it does not

The May 29 rewrite imports the substantive termination authority of the FAR termination-for-convenience framework into §200.340. The proposed language permits agencies to terminate awards "in whole or in part" when the agency determines termination "is in the interest of the federal agency." The language adds, importantly, that the agency may make this determination including in situations where the award "no longer advances program goals, federal agency priorities, or the national interest as they exist at the time of the termination." This language tracks the FAR termination-for-convenience standard closely. Like the FAR standard, it does not require breach, fault, or noncompliance by the recipient. Like the FAR standard, it permits termination based on changed agency or governmental interests rather than on any failing of the contractor or recipient.

The rewrite does not import the FAR's termination settlement framework. The proposed §200.340 language explicitly states that agencies are "not required to allow for objections, hearings, and appeals related to any reasons for termination except termination for noncompliance." It does not establish a substantive right to recover incurred costs analogous to the FAR settlement framework. It does not establish procedural rights to assert claims. It does not establish a forum for adjudication of settlement disputes. The combination is asymmetric: the substantive termination authority that comes from the contract side of federal law has been imported into grants, but the settlement protection that has historically counterbalanced that authority has not.

The asymmetry is not subtle. Under the existing Uniform Guidance framework at §200.340 as it stands today, termination requires connection to either the terms and conditions of the award or to noncompliance with statute, regulation, or award conditions. Recipients have a degree of certainty that, in the absence of compliance failure, awards will run through their period of performance. Under the proposed framework, that certainty disappears. Recipients carry termination risk on the entire multi-year value of the award, terminable at any time during the period of performance, without compliance failure, and without settlement protection if termination occurs.

What this does to multiyear award financial planning

The practical effect of converting grants from instruments that run through their period of performance unless the recipient defaults into instruments that may be terminated at any time at the agency's discretion is a fundamental change in how recipients should financially plan around them. Three categories of decisions become structurally different.

Staffing commitments. Recipients have historically hired full-time staff against multi-year awards on the assumption that the funding stream would continue through the period of performance. When awards become terminable at agency discretion without settlement protection, that assumption no longer holds. Recipients need to decide whether to continue to staff multi-year awards with permanent employees who will need severance and unemployment payments if the award is terminated mid-cycle, or whether to shift to contract or contingent staffing structures that reduce the recipient's exposure to mid-cycle terminations. The shift to contingent staffing reduces the recipient's costs in a termination scenario but increases program execution risk in the no-termination scenario.

Capital commitments. Awards that fund equipment purchases, facility renovations, or other capital investments create reliance interests that traditional grant termination law has historically protected. Under the proposed framework, a recipient that has purchased equipment or renovated facilities in reliance on a multi-year award may be unable to recover the unamortized cost of those investments if the award is terminated mid-cycle. The exposure changes the financial logic of capital commitments funded by federal awards. Recipients will need to either accelerate amortization of capital investments to match the agency-discretion-termination risk profile or to fund capital investments through non-federal sources where the funding stream is more predictable.

Subaward and contract commitments. Recipients that make subawards or enter into contracts with vendors in reliance on multi-year prime awards expose themselves to potentially significant liability if the prime award is terminated. A recipient that has obligated subaward funds to a subrecipient against future drawdowns from a federal prime award may find itself unable to honor those subaward obligations if the prime award is terminated. The recipient's options in that scenario are to absorb the subaward cost from non-federal funds or to default on the subaward obligation, with the legal consequences of either choice borne by the recipient rather than the federal agency. The structurally appropriate response is to align subaward and vendor contract terms with the termination risk of the prime award — annual rather than multi-year subaward periods, termination-for-convenience provisions in vendor contracts that mirror the federal termination provisions in the prime — to limit the cascading liability exposure.

What the absent settlement framework means in practice

The most consequential consequence of the asymmetric import is that recipients who are terminated under the new §200.340 standard have no clear legal mechanism to recover incurred costs, settlement expenses, or reliance damages. The proposed rule does not establish a settlement framework. The rule does not provide an administrative forum. The rule explicitly states that agencies are not required to provide objections, hearings, or appeals except for terminations based on noncompliance.

The absence of a settlement framework does not necessarily mean recipients have no legal remedies in a termination scenario. Recipients with terminated awards may have claims under the Tucker Act for breach of the grant agreement, claims under the Administrative Procedure Act for arbitrary and capricious agency action, and constitutional claims based on due process or takings theories. The existing case law on grant termination remedies is more limited than the case law on contract termination remedies, however, and the rule's explicit elimination of administrative appeal rights will require recipients to bring litigation in federal court if they want to challenge termination decisions. Litigation in federal court is slower, more expensive, and less predictable than the administrative settlement processes that the FAR framework provides for contractor termination claims.

For recipients without significant litigation budgets — most nonprofit and small-organization recipients — the practical effect is that termination losses will not be recoverable. The organization will absorb the cost of work performed but unreimbursed, the cost of staffing commitments made in reliance on the award, the cost of capital investments that have not been amortized, and the cost of subaward and vendor obligations that the prime award was funding. The cost cannot be planned out of through formal settlement processes; it has to be planned around through changes in the underlying operational structure.

What compliance and finance teams should do now

Three actions follow from the §200.340 rewrite.

Re-baseline multiyear award financial models on terminable-at-will assumptions. For each active multi-year federal award, model the financial scenario in which the award is terminated at the end of the current budget period rather than at the end of the period of performance. Identify the unamortized capital exposure, the staffing severance exposure, and the subaward and vendor commitment exposure. The model gives the organization a measure of the termination risk it is carrying on its current portfolio and a basis for deciding which exposures to reduce.

Shift subaward and vendor contracts to align with prime award termination risk. Existing subaward agreements and vendor contracts that obligate funds against future drawdowns from federal prime awards should be re-papered to include termination-for-convenience clauses that mirror the federal prime's termination provisions. Annual rather than multi-year subaward periods reduce the cascading liability exposure. The work is unglamorous and will not be the highest priority on most compliance teams' lists; the cost of not doing it before a termination event is potentially significant.

Submit a comment on the proposed rule before July 13. OMB has identified the comment period as closing on July 13, 2026, with the final rule intended to take effect on October 1. Comments addressing the asymmetric import of the FAR termination authority without the FAR settlement framework — particularly comments from grant recipients that describe the operational and financial consequences of the asymmetric structure — are the type of input that has been most influential in past rulemakings on the Uniform Guidance. The comment process is the formal mechanism by which the rule can be modified before it takes final effect. Recipients that wait until after October 1 to engage with the rule's structure will be doing so in a litigation rather than a rulemaking posture.

The §200.340 rewrite imports the broadest termination authority that exists anywhere in federal acquisition law into a regulatory framework that does not include the recipient protections that have historically counterbalanced that authority. The asymmetric import is the kind of structural change that has the largest consequences for the organizations least equipped to absorb them — nonprofit recipients, smaller research universities, community-based organizations — and the smallest consequences for the federal agencies that benefit from the expanded discretion. Recipients of multi-year federal awards have four months to adjust their operational structures, financial models, and subaward arrangements to the new termination risk profile before the rule takes effect.