OMB Proposed Rule Would Codify Trump Administration Policy Requirements for Federal Financial Assistance

If finalized, the rule would apply to all federal financial assistance and would govern new awards issued after October 1. OMB and the participating agencies are seeking comments on all aspects of the proposed rule and any reliance interests impacted by the proposed changes. The deadline for submitting comments is July 13.

Key Prohibitions on Use of Federal Award Funds

The proposed rule would fold several policies announced in executive orders (EOs), including EOs 14151, 14173, and 14281 (see related AFS analysis on federal EOs and diversity preference restrictions), and US Department of Justice (DOJ) guidance memos into revised sections under Title 2 of the Code of Federal Regulations (CFR). 

Specifically, the revised § 200.300 would prohibit the use of federal award funds to “fund, promote, encourage, subsidize, or facilitate” the following activities. 

• Unlawful DEI and DEIA Practices: DEI or DEIA policies, principles, or practices that violate any applicable federal anti-discrimination laws. This explicitly includes racial preferences or other forms of racial discrimination, including the use of race or intentional proxies for race as a selection criterion for employment or program participation. 

• Gender Ideology: Theories or ideologies that deny the biological reality of sex or the sex binary in humans or endorse or advocate for the notion that sex is a chosen or mutable characteristic, as defined in EO 14168. 

• Pediatric Gender Transition: The so-called “transition” of a child under 19 years of age from one sex to another, including “chemical and surgical mutilation” as defined in EO 14187. 

Additionally, proposed § 200.205 would provide that discretionary awards “must not be used to fund, promote, encourage, subsidize, or facilitate… Illegal immigration” or “any other initiatives that compromise public safety or promote anti-American values.”

A stated purpose of the proposed rule is to put recipients of federal funds on clear notice that practices violating federal anti-discrimination laws — even those previously viewed as consistent with prior executive branch guidance — are not allowed. 

The proposed rule does note, however, that these prohibitions apply “to the maximum extent permitted by law;” thereby acknowledging that the authorizing legislation for a particular grant or program might restrict the rule’s application. 

Prohibition of Using Federal Awards to Promote or Support Theories of Disparate-Impact Liability (New § 200.218)

In December of 2025, the DOJ issued a new rule amending the DOJ’s implementing regulations for Title VI of the Civil Rights Act of 1964 to remove enforcement for disparate impact discrimination. Furthering the Administration’s rejection of the disparate impact theory, the proposed rule would prohibit the use of federal awards to promote or support theories of disparate-impact liability based on federally protected characteristics such as race, sex, or age. Under this provision:

• Federal agencies would be required to eliminate the use of disparate-impact liability in all contexts relevant to federal awards. 

• Recipients and subrecipients must not adopt, issue, or enforce disparate-impact liability standards in administering programs or activities supported by a federal award. 

• An exception would be provided for statistical or demographic analysis for internal program evaluation or research, as long as federal award funds are not used for the analysis and the results are not applied to activities under the award. 

Protections for Faith-Based Organizations and First Amendment Rights

The proposed rule includes an explicit provision that federal agencies and pass-through entities may not discriminate against or in favor of an applicant based on the organization’s religious character, affiliation, or exercise or lack thereof. It further emphasizes that faith-based organizations are eligible to apply for federal financial assistance on the same basis as any other organization. And proposed new § 200.219 states that public entities receiving federal financial assistance and non-public entities receiving federal funds to host public forums must not discriminate based on viewpoint, content, or subject matter of speech when providing services for events, meetings, or other expressive activities. 

Transparency, Streamlining, and Burden Reduction

The proposed rule would eliminate both fixed amount awards and fixed amount subawards from 2 CFR Part 200 unless otherwise authorized by law, as OMB has concluded that these instruments limit transparency and hinder effective oversight. This change would not impact existing fixed amount awards issued prior to the effective date. 

Several provisions aim to and could in fact reduce administrative burden on recipients.

• Encouragement of multi-year awards to reduce the frequency of applications. 

• All funding opportunities must be posted on grants.gov, creating a single platform.

• Notice of Funding Opportunities must be written in plain language and should not require applicants to employ technical or legal consultants.

• Agencies, Inspectors General, and the US Government Accountability Office would be prohibited from imposing additional audits unless authorized by statute.

• Agencies must periodically review whether their programmatic requirements are unnecessary. 

However, the proposed rule would impose several new administrative obligations on recipients. 

• E-Verify Participation: Recipients and subrecipients of federal financial assistance would be required to participate in the US Department of Homeland Security’s E-Verify program to confirm the employment eligibility of all domestic employees and contractors performing work under a federal award. This would extend to grantees a requirement that has been in place for federal contractors for over a decade.

• Conflict of Interest Disclosure: Recipients would be required to disclose whether any employees who worked on the proposal or will support the resulting award were employed by the awarding federal agency within the preceding two years. 

• Prohibition on Certain Equipment: Recipients would be required to comply with prohibitions on procurement of banned Federal Acquisition Security Council-prohibited unmanned aircraft systems (drones). 

• Gold Standard Science: Applicants should commit to complying with Administration policies, procedures, and guidance respecting Gold Standard Science.

Enhanced Pre-Award Scrutiny and Risk Assessment

The proposed rule includes noteworthy changes to the award selection process and criteria. 

• Pre-Issuance Review: Under new § 200.205, senior political appointees would conduct reviews ensuring proposals are consistent with applicable law, agency priorities, and the national interest before awards are issued. 

• Expanded Risk Factors: Agencies would be allowed to consider an applicant’s financial capacity for high-dollar awards, history of “questionable practices” based on publicly available information, affiliations with organizations that violate federal law or undermine public safety, and compliance with foreign gift and contract disclosure requirements under Section 117 of the Higher Education Act.

• Additional Principles: Agencies making discretionary awards would be prohibited from using racial preferences or intentional proxies for race as a selection criterion, must give preference to institutions with lower indirect cost rates (all else being equal), and should include benchmarks for measuring success. For science awards, agencies should prioritize institutions that have demonstrated success in implementing Gold Standard Science.

Research and Development Awards

For agencies providing federal research and development (R&D) funding, the proposed rule would introduce additional requirements and eligibility limitations. 

• Agencies would be required to categorize awards as basic research, applied research, or experimental development. 

• Federal agencies would be prohibited from issuing R&D grants to foreign entities except where expressly authorized by statute or where the agency’s senior political appointee determines there is a compelling interest.

• Agencies would be required to follow a “domestic-first” R&D program design framework and may include “international elements” only if they meet certain eligibility criteria and are aligned with national priorities and security interests. 

• The proposed rule includes an entirely new § 200.220, which prohibits the obligation or expenditure of federal funds by recipients or subrecipients to support bilateral or multilateral collaborations with “covered foreign countries” or “covered foreign entities.” This prohibition applies “regardless of whether Federal funds are used for direct programmatic activities, research, technical assistance, travel, or indirect costs allocable to such collaborations.” Under this provision, exceptions would be allowed where expressly authorized by statute or approved by the agency head. 

Tightened Cost Principles

The rule would revise § 200.421 to disallow all advertising and public relations costs, with limited exceptions.

The rule also would disallow costs for participation in conferences without express agency approval and inclusion of the conference in the award terms. Approval would be restricted to conferences that serve to advance program outcomes.

The rule would also make publication costs unallowable unless such costs are expressly required by statute or approved in advance by the federal agency on a case-by-case basis and included in the terms of the award.

Changes to the Regulatory Framework

The rule would rename 2 CFR §200 from “Uniform Guidance” to “Uniform Grants Regulation,” clarifying its status as a binding OMB regulation. Additionally, because this is a joint inter-agency rulemaking, if it is finalized, future OMB amendments will have one government-wide effective date without requiring separate agency rulemakings to adopt identical requirements that already apply government-wide. Agencies would still be able to undertake their own rulemakings to adopt agency-specific adjustments as appropriate.

Compliance Consequences and Enforcement

The proposed rule makes clear that a violation would constitute a material breach of the federal award contract, for which the consequences could include:

• Temporarily withholding payments. 

• Disallowing costs. 

• Suspension or termination of the award in part or in its entirety. 

• Initiation of suspension or debarment proceedings. 

• Withholding further federal funds for the project or program. 

• Recovery of misused funds. 

Expanded Discretionary Termination and Suspension Authority

The proposed rule would also expand federal agencies’ authority to terminate or temporarily suspend awards. 

• Discretionary Termination: Agencies’ existing authority to terminate discretionary awards when the award “no longer advances agency priorities” would be clarified to mean the federal agency’s priorities, not the priorities of a state or local pass-through agency. The rule would also allow for discretionary termination if the award no longer advances the “national interest” and allow agencies to add other reasons for discretionary termination “as appropriate.” For example, the Executive Summary accompanying the proposed rule suggests that an additional reason could be that the award is no longer in “the public interest.” Recipients of terminated grants would still be entitled to a brief summary of the reason or reasons for the termination, as well as reimbursement for allowable costs incurred before the effective date of termination.

• Temporary Suspension: Agencies would have the power to issue a written order suspending an award for up to 90 days, extendable by mutual agreement. 

• Exceptions: The discretionary termination and suspension provisions would not apply to entitlement programs, block grants, formula grants, disaster recovery grants, CHIPS Act awards, Infrastructure Investment and Jobs Act awards, or awards pursuant to international trade agreements. 

In light of the breadth of the proposed rule’s discretionary termination authority, efforts by an agency under one Administration to limit discretionary grant terminations by the agency under a subsequent Administration, as the US Environmental Protection Agency sought to do in 2024, could be more difficult if the proposed rule is finalized.

Next Steps for Those Who May Be Impacted

Those that rely on or expect to apply for federal grants, cooperative agreements, or other forms of financial assistance from any federal agency should consider submitting public comments on aspects of the proposed rule that may affect your organization. In particular, affected organizations could consider submitting information about relevant funding authorization legislation that may conflict with the new rule, as well as the impact of the proposed changes as it relates to their organization’s reliance on existing policies. 

If you would like assistance in preparing and submitting a comment, please contact the ArentFox Schiff attorney you work with or any of the authors of this article.