Executive Branch Oversight of Federal Grantmaking: A New Era?

Overview

On August 7, 2025, President Trump issued an Executive Order (EO) titled “Improving Oversight of Federal Grantmaking,” which introduces sweeping reforms to the federal discretionary grantmaking process. The EO directs federal grantmaking agencies to make major changes to the long-standing process and introduces substantial uncertainty for grantees, particularly in academia, the nonprofit sector, and scientific research institutions.

This Advisory summarizes the EO’s key provisions, analyzes its departure from past federal grant practices, and outlines some strategic considerations for grant applicants and recipients.

Key Provisions of the Executive Order

1. Centralized Oversight by Political Appointees

The EO requires all federal agencies to designate senior political officials who will have the authority and responsibility to review and approve all discretionary grant opportunities. The duties of those appointees will include vetting proposed grant announcements prior to publication, ensuring alignment with agency missions and administration priorities, and coordinating with the Office of Management and Budget (OMB). This oversight will apply to new awards as well as renewals of existing grants. Peer review will still be permitted, but will no longer be determinative.

2. Ideological Criteria and Prohibited Uses

The EO requires centralized review to ensure that, whenever possible under existing law, federal funding cannot be made available for programs that use racial preferences, reject binary sex classifications, support undocumented immigration, or promote what the EO deems “anti-American values.” Instead, the EO refers to using “Gold Standard Science” — a term closely linked to the administration’s Make America Healthy Again agenda that prioritizes scientific reproducibility and low administrative cost. The EO also makes clear that the administration wants to de-emphasize the importance of institutional prestige in evaluating grant applications. The ostensible justification is to democratize the federal grantmaking process.

3. Overhead and Indirect Costs

The EO encourages senior appointees to prioritize awards for institutions with lower indirect cost (IDC) rates, which aligns with the Trump administration’s continued efforts to reduce those rates to the 15% cap required by several grantmaking agencies such as the National Institutes of Health (NIH). Additionally, it encourages agencies to avoid concentrating funding among repeat recipients and instead support a broader mix of institutions.

The EO also directs OMB to revise federal guidance in a manner that limits IDC reimbursements for administrative and facilities-related expenses, the impact of which we analyzed in a previous Advisory: Impact of Trump Administration Directives on Scientific Research in the U.S. This may significantly reduce cost recovery for institutions with higher IDC rates, an issue that is both the subject of active litigation and Congressional review through annual appropriations and authorizing legislation.

4. Grant Termination and Drawdown Controls

Federal agencies are directed to incorporate termination-for-convenience clauses in their grant agreements, report on the presence of such clauses in each agency’s standard terms and conditions, and restrict grantee access to funds unless specifically authorized. Once implemented, these changes would give agencies much greater discretion to cancel grants midstream.

5. Rhetorical Framing and Enforcement

The EO’s language is ideologically charged, referencing “radical” or “far-left” programs. Though its directives are limited by caveats, including that implementation must be “consistent with applicable law,” the EO does not purport to create enforceable rights. Moreover, the EO sets the tone for subsequent OMB guidance and potential rulemaking.

Comparison to Past Federal Grantmaking Standards

The EO represents a marked departure from bipartisan norms and established administrative procedures:¹

Historically, the traditional federal grantmaking model has emphasized objectivity, transparency, and stability. In contrast, the EO introduces a new model that centralizes authority in political appointees and frames funding decisions as a tool of cultural and political alignment.

Implications for Grant Recipients and Applicants

Grantees should anticipate the following developments:

• First, increased political scrutiny will likely affect projects touching on race, gender, immigration, or civic values, leading to potential legal challenges. Even long-standing programs may be vulnerable to reinterpretation under the EO.
• Institutions with higher IDC rates may face reduced financial viability. This may require a reevaluation of administrative structures or reallocation of internal resources.
• Overall, the stability of federal grants will be diminished as a result of the EO, a development that will be exacerbated by the current NIH practice of “front-loading” multi-year grants. Under this practice of funding a multi-year research project in a lump sum payment in year one, arguably, the NIH no longer has to build multi-year research grants into its budget, and will have less funds to grant in future years.²
• As a result of the EO, internal compliance practices will need to evolve to better align with politically defined missions and priorities, and proper documentation will become increasingly important to prepare and maintain.
• Lastly, administrative burdens will likely grow, including more stringent approval processes for fund disbursements and project renewals. This development, in turn, portends potentially long timelines for the announcement and disbursement of awards.

Key Takeaways

Current and potential federal grantees should consider:

• Conducting legal reviews of all new federal grant agreements to evaluate compliance and exposure under the EO
• Pursuing funding diversification strategies (e.g., foundation, philanthropy, industry, etc.) to limit dependency on discretionary federal grants
• Monitoring OMB and agency-level rulemaking closely and considering participation in comment periods
• Undertaking (if not already done) internal scenario planning to model how grant cancellations or funding shortfalls might affect operations
• Ensuring government relations teams are aware of proposed changes and exposure while also considering options to engage key policymakers, as needed

Conclusion

This EO introduces a politically charged and potentially administratively disruptive approach to federal grantmaking. While agencies retain some discretion in implementation, early indicators suggest a high-risk environment for certain sectors, such as higher education. Proactive internal assessments and legal review will be critical to ensure both compliance and strategic preparedness as federal grantees enter a new era of potential scarcity and oversight.

We are ready to assist potentially affected clients — such as universities, hospital systems, research organizations, and other non-governmental organizations — as well as their foundation and industry collaborators, in identifying, preparing for, and responding to this rapidly shifting legal, regulatory, enforcement, and policy landscape.

If you have any questions about the content discussed in this Advisory or would like more information, please reach out to one of the authors or any of your Arnold & Porter contacts.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.