New Executive Order Imposes Stricter Federal Control Over Grant Awards

At a Glance

• On August 7, 2025, President Trump issued a new executive order that directs agencies to review all discretionary grants and their respective terms and conditions to ensure they are “consistent with agency priorities and the national interest.” 
• To “strengthen oversight and coordination of” agency grantmaking, the order directs the Office of Management and Budget (OMB) to revise the Uniform Guidance (2 C.F.R. Part 200) to streamline grant application requirements and to require all discretionary grants to permit termination for convenience going forward. 
• Agencies are also directed to limit indirect cost recovery and prohibit grant recipients from directly drawing down on general grant funds for specific projects without prior agency authorization, potentially increasing financial risk and administrative burdens for organizations receiving federal funding. Federal grant recipients should closely review the executive order and coordinate with their award officials and legal counsel to determine how their grants may be affected.

On August 7, 2025, President Trump issued a new executive order, “Improving Oversight of Federal Grantmaking,” which introduces significant changes to how federal agencies review, award and manage discretionary grants. Among other mandates, the EO directs agency heads and political appointees to undertake a sweeping review of all discretionary grants to ensure they “demonstrably advance the President’s policy priorities.”

By prioritizing the implementation of “termination for convenience” clauses, the EO builds on the administration’s prior efforts to broadly suspend and terminate grants and contracts it deems to be in conflict with administration priorities. The EO also comes on the heels of recent DOJ guidance regarding the application of federal antidiscrimination laws to diversity, equity and inclusion (DEI) programs, which included specific examples of practices considered unlawful by the administration “that could result in revocation of grant funding.” We covered the effects of the DOJ guidance in a separate client alert, including considerations for educational institutions and other recipients of federal funding.

Taken together, these actions represent the administration’s efforts to apply greater scrutiny towards federal grant activities and a structural change in how federal grants will be administered going forward. We outline below several key provisions of the EO and their anticipated impact on federal grant recipients. 

Key Provisions of the Executive Order

The EO asserts a need to “strengthen oversight and coordination of” agency grantmaking procedures to “ensure greater accountability for use of public funds more broadly.” In outlining the purpose of the directive, the EO cites federal grant support for DEI initiatives, concerns regarding the reproducibility of scientific research, substantial facilities and administrative costs paid to universities, and a lack of interagency coordination as problems that do not “improve American lives or advance American interests.” 

Appointee-Led Review Procedures

To address these items, Section 3 of the EO directs agencies to designate a senior political appointee to oversee all new funding opportunity announcements and discretionary awards going forward “to ensure that they are consistent with agency priorities and the national interest.” Agencies are further directed to implement a sweeping review process of their respective grantmaking procedures, including coordination between agencies to determine whether the subject matter of a particular funding opportunity has already been addressed by another agency announcement and, if so, whether one of the announcements should be modified or withdrawn. The EO outlines a multipart process for agencies to follow in reviewing their discretionary awards, including review by subject matter experts, pre-issuance review by grant review panels or program offices to ensure the awards are “consistent with . . . agency priorities, and the national interest,” and annual reviews by senior political appointees to review discretionary awards for substantial progress — including an “accountability mechanism for officials responsible for selection and granting of the awards.” 

Agency Considerations for Discretionary Awards

Section 4 of the EO outlines ideological and operational criteria for grant approval, specifically prohibiting discretionary awards from being used to fund or facilitate activities by grant recipients that conflict with the administration’s priorities regarding DEI initiatives, transgender policies, immigration, or “any other initiatives that compromise public safety or promote anti-American values.” These criteria are intended to serve as principles for political appointees and their designees to “apply . . . in any scoring rubrics used to assess grant proposals.” Appointees are also directed to give preference to institutions with lower indirect cost rates and to prioritize “a broad range of recipients rather than . . . a select group of repeat players” in the research space. 

Revisions to the Uniform Guidance and Termination Clauses

The directives regarding “termination for convenience” clauses in Sections 5 and 6 of the EO are particularly notable and introduce potential uncertainty for federal funding recipients. The EO directs OMB to revise the Uniform Guidance at 2 CFR Part 200 — which provides a government-wide framework for grants management — to “further clarify and require all discretionary grants to permit termination for convenience, including when the award no longer advances agency priorities or the national interest.” Although the Uniform Guidance already includes a provision permitting termination “if an award no longer effectuates the program goals or agency priorities,” this provision is currently not automatically incorporated into all federal grant awards and is only applicable where the provision is “clearly and unambiguously specif[ied]” in the terms and conditions of an award itself, imposing some limits on the government regarding termination. See 2 CFR 200.340(a)(4), (b). The addition of the termination for convenience language is especially noteworthy because, when applied to contracts, it essentially gives the government the right to terminate an agreement for any reason.

Similarly, Section 6 of the EO directs all agency heads to review their respective standard grant terms and conditions and “take steps to revise the terms and conditions of existing discretionary grants to permit immediate termination for convenience, or clarify that such termination is permitted, including if the award no longer advances agency priorities or the national interest.” Agency heads are further directed to ensure that such terms are included in all future discretionary grants and that “all applicable regulations binding on or incorporated in discretionary grant terms and conditions” are revised to require such terms. Section 6 also directs agency heads to insert terms and conditions into future grant agreements that prohibit recipients from directly drawing down general grant funds without the affirmative authorization of the agency, and require grantees to provide specific written explanations or support for requests for each drawdown.

Impact on Federal Grant Recipients

The EO represents a significant shift in federal grantmaking procedures and policy across all agencies and industry sectors. In particular, the increased scrutiny of drawdown requests, government-wide review of grants by political appointees, and the widespread implementation of termination clauses could immediately impact the ability of federal grant recipients to carry out their work. Further, the EO requirements for senior-level review and interagency coordination may delay funding opportunity announcements and complicate the application process going forward, potentially resulting in fewer federal funding opportunities in the coming weeks and months.

Grant recipients should closely review their grant portfolios and assess their exposure to new restrictions and termination risks, particularly if their applicable terms and conditions do not currently include the “termination for convenience” provisions as outlined in the EO. Organizations seeking federal funding should closely monitor funding opportunity announcements and track changes in eligibility criteria, including those related to the administration’s “Gold Standard Science” policies for scientific research awards. Organizations with higher indirect cost rates may also face difficulties in competing for federal grant awards going forward, given the preference for institutions with lower indirect cost rates articulated in the EO.

Conclusion

We will continue to review additional federal directives and monitor the implementation of the executive order across federal agencies, particularly as general terms and conditions are revised. Considering the number of grant terminations and suspensions issued across all federal agencies in recent months, grant recipients should continue to work closely with their award officials and engage with legal counsel to evaluate the status of their grants. 

For More Information

For further information, you may contact the authors.