• On Friday, May 29, OMB and more than 40 federal agencies proposed sweeping changes to the administration of federal financial awards that would require pre-issuance review of discretionary awards by senior agency appointees and require that awards “demonstrably advance the President’s policy priorities.”
• The rule would prohibit or restrict federal funding related to DEI initiatives, “gender ideology,” and foreign research collaboration, and would extend existing restrictions on bilateral engagement with China to all federal assistance programs and to additional covered foreign countries and entities.
• The rule would also expand agencies’ termination and suspension authority, permitting them to end discretionary awards that no longer effectuate governmental priorities or the national interest.
• Federal funding recipients should identify affected grants and activities and consider submitting comments by the July 13, 2026 deadline; the rule’s proposed effective date is October 1, 2026, but likely legal challenges may delay implementation.

On May 29, 2026, the Office of Management and Budget (“OMB”), joined by more than 40 federal agencies, published a proposed rule that would materially change the Uniform Guidance for Federal Financial Assistance (2 C.F.R. Part 200), which governs the administration of federal financial assistance. The proposed rule would have profound effects on the evaluation and approval of federal awards. It stems from Executive Order 14332, issued in August 2025 and titled Improving Oversight of Federal Grantmaking, which set out measures to “strengthen oversight and coordination” of federal grantmaking to “ensure greater accountability for use of public funds.”

The proposed revisions would alter every stage of federal grantmaking, impacting universities and other organizations that receive federal funding. The proposal would shift decision-making authority to senior agency appointees and expand their authority to terminate federal awards. It would also impose new restrictions on grants related to diversity, equity, and inclusion (“DEI”) initiatives, “gender ideology,” and foreign research collaboration. Collectively, these changes aim to align the administration of federal grants and awards with the Trump administration’s policy priorities.

Federal Merit Review Procedures. The proposed rule would substantially reshape how federal agencies evaluate and approve discretionary awards. Agency heads would be required to designate one or more “senior appointees” to conduct—or select a designee to conduct—a pre-issuance review of all discretionary awards. The reviewer would be required to exercise independent judgment rather than “ministerially ratify[ing] or routinely defer[ring] to the recommendations of others.” Such discretionary awards must “demonstrably advance the President’s policy priorities” and must not be used to promote or facilitate (i) racial preferences; (ii) “denial by the recipient of the sex binary in humans or the notion that sex is a chosen or mutable characteristic”; (iii) “illegal immigration”; or (iv) “[a]ny other initiatives that compromise public safety or promote anti-American values.”

Agencies would also be instructed to favor organizations with lower overhead rates and to prioritize institutions committed to rigorous, reproducible scholarship over those with “historical reputation or perceived prestige.” An applicant’s “[h]istory of questionable practices” would also require consideration: the proposal instructs agencies to take into account public and verifiable information about research integrity, compliance with federal civil rights and religious liberty laws, foreign affiliations, affiliations with organizations that undermine public safety or national security, and Section 117’s foreign gift and contract reporting requirements when deciding whether to make an award. The proposed rule does not set a time limit for these considerations.

Prohibited or Restricted Awards. The proposed rule would prohibit awarding funds for the promotion of DEI policies that violate federal anti-discrimination laws, including racial preferences or their proxies. Recipients of federal funds must ensure that any subawards are not used to “fund, promote, encourage, subsidize, or facilitate” such policies. In addition, the rule would prohibit the use of federal funds to promote or support disparate-impact liability theories. The rule would bar the “fund[ing], promot[ion], encourag[ment], subsidiz[ation], or facilitat[ion]” of “gender ideology” and the “‘transition’ of a child under 19 years of age from one sex to another.” The proposed rule would also restrict the use of federal funds for voter registration activities.

The proposed rule would limit R&D awards to entities established in the United States, rather than foreign-based organizations. Absent express statutory authorization, a foreign organization would be eligible for a federal award only if a senior appointee were to find a “compelling interest” for “the agency’s mission, the administration’s priorities, and the United States.” In evaluating whether an “international element” of an R&D program or application is “warranted,” agencies would have to consider scientific necessity, unique foreign resources, enhancement of U.S. capabilities, and adequate foreign-site capacity. U.S. award recipients could still subcontract with, or make subawards to, foreign entities.

The proposed rule would also apply the Wolf Amendment—which currently prevents NASA and Office of Science and Technology Policy from using appropriated funds for bilateral engagement with China—to all federal assistance programs and to bilateral or multilateral agreements with certain countries other than China. The proposed rule would require express statutory authorization or determination that the activity poses no national security risk and is in the national interest before federal funds could be used to support collaborations with “covered foreign countr[ies] or covered foreign entit[ies].” The rule would cover countries such as China, Russia, Iran, Saudi Arabia, and North Korea, as well as entities owned or controlled by covered countries or otherwise designated as entities of concern by a federal agency.

Expanded Termination and Suspension Authority. Under the proposed rule, federal agencies could terminate discretionary awards if they determine that termination is “in the interest of the Federal agency or pass-through entity,” defined as a non-federal entity that distributes funds to other organizations to carry out federal programs, including if an award no longer effectuates “program goals, Federal agency priorities, or the national interest as they exist at the time of the termination.” Separately, a new provision would empower agencies and pass-through entities to suspend an award for up to 90 days at any time upon a determination that suspension “is in the interest of the Federal agency.”

The authors thank summer associates Sara Apelbaum and Shannon Sommers for their contributions to this publication.

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.