OMB's 412-Page Rewrite of 2 CFR Part 200: Inside the Biggest Federal Grants Regulatory Overhaul Since 2013 — July 13 Comment Deadline, October 1 Finalization, FY27 Implementation

The Office of Management and Budget published proposed rule 2026-10817 in the Federal Register on May 29, 2026 — a 412-page rewrite of 2 CFR Part 200, the Uniform Guidance that governs federal grants, cooperative agreements, and pass-through awards across every agency. The comment period closes Monday, July 13, 2026. OMB has stated its intent to finalize the rule by October 1, 2026 for implementation in FY 2027. This is the most extensive revision of the federal grants framework since the Uniform Guidance was established in 2013, and it will apply to approximately $1 trillion in annual federal grant disbursements.

The rule does five things at once. It institutionalizes political appointee review of every discretionary award. It expands termination-for-convenience to cover any shift in agency priorities or "national interest." It makes E-Verify mandatory for every employee and contractor working on a federal award. It prohibits funding for diversity, equity, inclusion, and accessibility policies, "gender ideology," and gender transition services for minors. And it converts the Uniform Guidance itself from guidance — historically advisory — into binding regulations enforceable as such. The conversion is in some ways the most consequential change: future grants policy can be promulgated through a single rulemaking rather than through the agency-by-agency incorporation that has slowed prior Uniform Guidance revisions.

For real-time coverage of the rule's earlier provisions, see Granted News and our prior analysis of the three federal rules quietly rewriting the fine print on every grant you hold in 2026.

What the Rule Actually Changes

Pre-issuance political appointee review. Every federal agency head must designate one or more senior appointees to review all discretionary awards before issuance. The review must confirm that each proposed award is "consistent with applicable law, federal agency priorities, and the national interest." Under current practice, scientific peer review and program officer judgment have been the binding constraints on most discretionary awards. The new rule does not eliminate peer review — but it inserts a political checkpoint after peer review and before obligation. Sarah Spreitzer of the American Council on Education has called the move historic; an analyst from the Union of Concerned Scientists characterized the approach as one that would "replace merit with loyalty to a political leader." The practical effect for applicants is that scientific merit will become necessary but no longer sufficient. Alignment with the administration's stated priorities — whatever those are at the moment of pre-issuance review — becomes the binding constraint.

Termination for convenience, expanded. The rule adds an express regulatory basis for terminating federal awards when the award "no longer effectuate[s] program goals" or "Federal agency priorities." Under current Uniform Guidance, termination authority exists but is narrowly applied: noncompliance, fraud, failure to perform. The expanded language tracks federal contract termination-for-convenience standards but goes further by tying termination to the moving target of "agency priorities." Recipients lose administrative hearing rights for these discretionary terminations — a substantial reduction in procedural protection. Brette Fishman of FI Consulting captured the shift bluntly: "The expansion of the language on discretionary terminations signals a philosophical and tonal shift from federal awarding agencies providing grant recipients with remedies for noncompliance to penalties for noncompliance." For grantees with multiyear awards, the practical effect is that every continuation, every carryover, every supplement is a discretionary decision the agency can revisit at any time without administrative recourse.

E-Verify, mandatory. Every recipient and subrecipient of federal financial assistance would be required to participate in the Department of Homeland Security's E-Verify program "to confirm the employment eligibility of employees and contractors" performing under a federal award. E-Verify enrollment is currently mandatory for federal contractors in most jurisdictions but optional for grant recipients in most states. The rule extends federal contractor E-Verify requirements to grantees and pass-through subrecipients across the board. For state agencies in jurisdictions that have legislated against E-Verify or required it only for contractors above certain thresholds, this creates a federalism conflict that will require state legislative or executive action to resolve.

DEI, gender ideology, and gender transition. Federal grants cannot be used to "fund, promote, encourage, subsidize, or facilitate": (1) diversity, equity, inclusion, and accessibility policies; (2) gender ideology; or (3) "the 'transition' of a child under 19 years of age from one sex to another." The first prohibition affects the broadest population — any grantee that maintains a DEI office, runs DEI training, or maintains DEI-related employee resource groups must either segregate that activity from federally funded operations or restructure. The second prohibition is undefined in the rule and will be litigated. The third prohibition affects pediatric gender-affirming care providers, university hospital systems, school health programs, and child welfare grantees. A developing NACo analysis raised a particularly difficult question: whether events held on county-owned property would jeopardize federal grant eligibility if sponsors violate executive orders on DEI content. The implication that grant compliance flows through real-estate use policies is a category expansion that will surprise many local governments.

Conversion to binding regulation. OMB is converting the Uniform Guidance from a guidance document into binding regulations. Under current practice, each federal agency adopts the Uniform Guidance through its own regulations — typically with limited deviation but with the formal step of agency-level rulemaking. Converting OMB's framework into binding regulation means that future revisions take effect government-wide through a single rulemaking, accelerating the pace at which policy shifts can be imposed on grantees.

Cost-reimbursement, domestic content, and reputation risk. Cost-reimbursement contracts are now "strongly discouraged" and require explicit justification. Domestic content requirements expand beyond infrastructure to a broader set of grant categories. Pass-through entities must prevent subrecipients from taking actions that could "significantly damage" the government's reputation — a vague standard that will produce its own body of compliance litigation. The pass-through reputation language is novel; the current Uniform Guidance does not impose reputational stewardship duties on prime recipients.

Publication costs. Indirect cost funding for scientific journal publication is restricted unless "expressly required by statute or approved in advance by the Federal agency on a case-by-case basis." For universities and research institutions accustomed to charging open-access publication fees as a legitimate indirect cost component, this is a meaningful per-paper cost shift onto institutional funds or sponsored research overhead.

What didn't change. Notably, OMB explicitly declined to revisit the indirect cost rate negotiation system. The administration had previously pursued capping indirect cost rates at 15 percent — a policy universities successfully challenged in court and Congress. The proposed rule abandons that effort but introduces a preference: "All else being equal, preference for discretionary awards should be given to institutions with lower indirect cost rates." The practical effect of that preference language depends entirely on how agencies operationalize "all else being equal" during pre-issuance review.

Why This Rule, Why Now

OMB has articulated three goals. First, improve transparency and accountability of grant awards. Second, ensure that "basic American principles of equality and equal opportunity are upheld throughout all stages of the award making process and that unlawful discrimination is no longer permitted." Third, reduce recipient burden while clarifying the regulatory status of OMB requirements.

The administration's framing positions the rule as a removal of "woke" content from federal grantmaking combined with stronger executive oversight. Critics — including most major associations representing universities, counties, cities, and nonprofits — frame the rule as a politicization of federal grantmaking that strips procedural protections and inserts ideological tests into what has historically been a merit-based system. Both framings are simultaneously accurate. The rule does what the administration says it does, and it also does what critics say it does. The question for grantees is not which framing is correct but how to operate under a regulatory regime that has both characteristics.

The deeper context is the Trump administration's broader project of consolidating policy control over a federal grants apparatus that historically operates with substantial autonomy through scientific peer review, formula allocation, and statutory entitlement. The administration spent its first year canceling thousands of grants it deemed inconsistent with executive priorities — actions that have generated dozens of lawsuits, many of which remain pending. The proposed rule is, in part, a regulatory codification of those termination actions: a forward-looking authority designed to insulate similar future actions from the kinds of challenges courts have entertained against retroactive cancellations.

Strategy for the Comment Period

Comments close July 13. There are roughly four weeks remaining. National associations representing universities (ACE, AAU, COGR, NACUBO), counties (NACo), cities (NLC, USCM), state finance officers (GFOA), and nonprofits (Independent Sector, Council on Foundations) are all preparing coordinated comments. Individual institutions and grantees should do three things during the comment window.

One — document compliance baselines now. Emily Brock of the Government Finance Officers Association recommended that grantees address three elements in formal comments: existing administrative policies and compliance procedures, the quantified cost of pre-award assessments relative to grant benefits, and the burden of grant administration under the new regulations. The point is not to argue against the policy direction — that battle will be won or lost in litigation, not comments — but to build the administrative record on burden, cost, and operational impact that supports later challenges to specific implementation choices.

Two — preserve termination-for-convenience deferrals where possible. Grantees with multiyear awards that bridge the FY27 implementation date should document the obligations and reliance interests built up under the current regulatory regime. The proposed rule does not appear to provide grandfathering for awards issued before FY27, but a robust record of pre-rule reliance will support administrative grievance claims and litigation if discretionary terminations expand under the new authority.

Three — segregate, don't dismantle. Many grantees will respond to the DEI prohibition by dismantling their DEI infrastructure. The cleaner long-run answer is to segregate DEI activities from federal grant funding through clear accounting and operational separation. Activities that remain valuable to the institution can continue with non-federal funding. Activities that exist primarily to satisfy federal grant requirements (some of which have themselves required DEI-related components under the prior administration) will need to be restructured. The intermediate posture — wholesale dismantling — produces the worst of both worlds: institutional capacity loss without any guarantee of grant protection if the prohibition is later applied to past activity.

What This Means for FY27 Grant Budgeting

The implementation timeline matters. OMB targets a final rule by October 1, 2026 — the start of FY27. Most agencies will begin issuing FY27 awards under the new framework within weeks of the final rule. Grantees that submit applications between now and the rule's finalization should plan for the possibility that awards issued in calendar Q4 2026 and Q1 2027 carry terms reflecting the new rule, even if proposals were submitted under prior expectations. Institutions writing five-year strategic plans, capital plans, or workforce plans that depend on multiyear federal grant flows should build in scenarios reflecting both the expanded termination authority and the compliance overhead the new rule will impose. The marginal cost of compliance per federally funded employee will rise. The probability of mid-award termination will rise. Both should be priced into FY27 and FY28 budgets.

For every county budget officer, every university VP for research, every hospital CFO, every nonprofit executive director who depends on federal grant flow — the next four weeks are the comment window. The four months after that are the implementation runway. The four years after that are the regulatory regime under which federal grantmaking will operate. The Uniform Guidance was the load-bearing framework for federal grants administration for the past twelve years. Whatever replaces it in October will be the load-bearing framework for the next decade.