A New Rulebook for Federal Grantmaking: An Analysis of OMB’s Proposed “Uniform Grants Regulation”

On May 29, 2026, the Office of Management and Budget (OMB), joined by nearly every federal grantmaking agency, published a proposed rule that would dramatically alter the framework for federal grantmaking. The existing framework, codified in Chapter 2 of the Code of Federal Regulations — and long known as the “Uniform Guidance” or “2 CFR” — governs how grants, cooperative agreements, and other financial assistance are designed, awarded, administered, and audited across the federal government. OMB’s proposed rule would retool 2 CFR, making the most sweeping changes since the framework was created in 2013. The following are among the key changes announced by OMB, each of which is discussed in greater detail below:

• Reclassifies 2 CFR as a binding regulation, not guidance
• Adopts a pre-issuance review process, which requires senior political appointees to approve all discretionary grant awards before they are issued
• Adds a “termination for convenience” provision to discretionary awards, allowing an agency to terminate an award that no longer advances the agency’s or the administration’s priorities
• Pivots from fixed-amount awards to a cost-reimbursement model and expands upon unallowable costs
• Expands longstanding restrictions on “covered foreign collaborations”
• Prohibits grants from being used to “fund or promote” initiatives related to diversity, equity, and inclusion, or “gender ideology”
• Imposes various viewpoint-neutrality requirements on entities that receive federal grants

Comments on the proposed rule are due by July 13, 2026, and any changes finalized after those comments are slated to take effect at the start of the new government fiscal year on October 1, 2026. On June 12, 2026, a group of over 300 multi-sector stakeholders sent a letter to OMB requesting a 45-day extension to the comment period, but it appears unlikely that an extension will be granted.

A New Title, and Sweeping Procedural and Substantive Changes

Since 2013, 2 CFR has styled itself as “Uniform Guidance.” Now, however, OMB proposes to recast this framework as a binding “Uniform Grants Regulation,” promulgated pursuant to its statutory authorities under 31 U.S.C. §§ 503 and 6307 and in related statutes. This reframing is far from cosmetic. The proposed rule would concentrate grantmaking policy development at OMB rather than at individual agencies. And it would accelerate how quickly future policy changes would affect recipients — making future amendments effective government-wide without the existing agency-by-agency implementation process. As reflected in this proposed rule, policies can influence regulations governing the grantmaking procedures as well as the substantive requirements for recipients following award.

New Procedures for Grantmaking

The proposed rule would hardwire political alignment into the procedures that apply to grantmaking across the federal government.

Notably, the proposed rule would create a “pre-issuance review” process, in which senior political appointees must review all discretionary award proposals selected for funding to ensure they advance the president’s policy priorities and the national interest, before the grants are issued. This mandatory, political appointee review would incorporate several new criteria in addition to ensuring consistency with the president’s policy priorities, imposing benchmarks for “Gold Standard Science,” an “all else being equal” preference for applicants with lower indirect cost rates, and a direction to prioritize rigorous, reproducible scholarship over institutional prestige. In the same vein, the proposed rule would clarify that the scientific peer review process of proposed awards is only “advisory” and does not displace agency discretion — and that agencies are not obligated to issue grants merely because they published funding opportunities.

On the back end of the grantmaking process, the proposed rule would import the “termination for convenience” concept from federal procurement into federal grantmaking, confirming that an agency may terminate a grant whenever the agency concludes the grant no longer “effectuate[s] program goals, Federal agency priorities, or the national interest.” The proposed rule specifically contemplates that these priorities “may change” after a grant is issued — noting that termination can be based upon circumstances “as they exist at the time of the termination.” Importantly, the proposed rule would impose this termination provision in essentially all discretionary grants, except to the extent permitted by law and subject to program-specific statutory limits. Similarly, the proposed rule would permit an agency to temporarily suspend an award by written order for a period of up to 90 days if “a suspension is in the interest of the Federal agency.”

New Substantive Restrictions on Awards

The proposed rule would also impose new and different requirements on recipients, including in an area of significant focus — the framework, and restrictions, on funding.

For starters, the proposed rule would rework the day-to-day mechanics of grant administration, eliminating fixed-amount awards in favor of a cost-reimbursement model. According to OMB, fixed-amount awards “can limit transparency and hinder effective oversight” because, e.g., “under fixed amount awards there is no expected routine monitoring of actual costs incurred by the recipient …, and no financial reporting is required.” The proposed rule announces that cost-reimbursable awards will provide agencies with “an appropriate level of oversight on how tax dollars are spent” and “ensure that Federal dollars are not wasted on activities that may not fully support the achievement of the program outcomes.” Existing fixed-amount grants, however, would be grandfathered in under the new rule.¹ Simultaneously, the proposed rule would strongly discourage recipients from using cost-reimbursable contracts on the basis that such contracts are “inherently higher risk, as they reduce incentives for contractors to control costs, require more intensive oversight, and present greater risk of improper or excessive payments of Federal funds.”

The proposed rule would impose additional restrictions, including expanding costs that would be unallowable for recovery. Some of these categories are discussed further below. It bears noting here that while lobbying was already an unallowable cost under 2 CFR, the proposed rule would expand upon the definition of what qualifies, to include additional activities. Additionally, recipients that transfer federal funds among related entities may be required to review and classify those transfers as either a subaward or contract, to “ensure accountability and transparency in circumstances involving related parties and prevent circumvention of Federal reporting requirements.” All reimbursement requests would have to be justified against specific grant activities, and federal agencies would have to review the U.S. Department of the Treasury’s “Do Not Pay” system before disbursing federal payments, while states would have to conduct pre-payment eligibility checks through Do Not Pay or an alternative screening process.

Despite earlier expectations that OMB might use this rulemaking to limit indirect cost rates for research grants, OMB has not proposed changes to “the indirect cost rate negotiation system” in this rulemaking. OMB explains that it determined not to propose these changes due to legislative directives in Fiscal Year 2026 appropriations that prohibit agencies from developing, modifying, or implementing changes to negotiated indirect cost rates. OMB notes, however, that it “may consider issuing a request for information on this topic in the future,” and also proposes that preference for discretionary awards should be given to those with lower indirect cost rates “all else being equal,” as part of the pre-issuance review process.

The proposed rule also would attach a new set of policy-related conditions to each grant.

First, “to the maximum extent permitted by law,” federal grants could not be used to “fund, promote, encourage, subsidize, or facilitate” diversity, equity, and inclusion (DEI) policies, principles, or practices that OMB characterizes as violating applicable federal anti-discrimination law; “gender ideology” as defined in Executive Order 14168; or the sex “transition” of minors under the age of 19. The proposed rule ties the anti-DEI provision to “governing legal standards under applicable anti-discrimination laws as interpreted in light of controlling Supreme Court precedent,” and would prohibit “activities where race or intentional proxies for race will be used as a selection criterion for employment or program participation.” Relatedly, the proposed rule would bar recipients from using grants to promote or support theories of disparate-impact liability, implementing Executive Order 14281. These conditions would starkly contrast with the existing grantmaking framework, which advises agencies to build equity considerations into federal grantmaking.

The proposed rule would impose several other substantive requirements on federal grantmaking, too. The updated risk review process would allow agencies to evaluate a grant applicant’s “questionable practices or poor financial management,” compliance with foreign gift-and-contract disclosure requirements, and affiliations with organizations that undermine national security or public safety, violate federal law, or advocate for the overthrow of the United States government. Relatedly, the proposed rule would impose restrictions on grant recipients’ ability to interact with covered foreign countries and entities. This prohibition on the use of federal funds for covered foreign collaborations would extend the long-standing “Wolf Amendment” restrictions across the federal government. Moreover, under the proposed rule, recipients would have to use the U.S. Department of Homeland Security’s “E-Verify” for employees and contractors hired in or performing work in the United States under a federal award.

The proposed rule would prohibit any public entity grant recipient from discriminating “on the basis of the viewpoint, content, or subject matter of speech — including on the basis of political, ideological, or religious affiliation or perspective — in providing services for events, meetings, or other expressive activities.” This prohibition would apply regardless of whether the grant directly funds the event, so long as the event “occurs on property or facilities under the control of the public entity.” For non-public recipients, the proposed rule would apply the viewpoint-neutrality requirement only to activities within the scope of a federal award, and the proposal states that the rule should not be construed to require non-public entities to make property, facilities, or services available in a way that violates their First Amendment rights or compels association outside the federal program. 

Litigation Risks and Next Steps

The proposed rule has vulnerabilities that could prompt litigation if and when it is finalized. At the threshold, it is not obvious that OMB has the requisite statutory authority to impose binding regulations — rather than guidance — governing federal grantmaking, or at least not statutory authority covering all of the sweeping new procedural and substantive mandates the proposed rule would impose. Indeed, the recent federal district court decision in National Council of Nonprofits v. OMB implies that 31 U.S.C. § 503 — the statute upon which OMB primarily relies — does not vest OMB with the authority to promulgate this government-wide regulation. Additionally, at least as applied to some agencies’ grantmaking processes, this proposed rule may be unlawful: as the federal district court decision in American Council of Learned Societies v. NEH suggests, this proposed rule might conflict with certain grantmaking statutes that require the consideration of factors that this proposed rule would prohibit as DEI-related.

Second, the proposed rule, if finalized, could face significant challenges under the First Amendment. To start, because the proposed rule’s anti-DEI section would restrict funding access based on viewpoint, the rule may run afoul of the Supreme Court’s government-funding cases requiring viewpoint neutrality, like Rosenberger v. Rector & Visitors and Legal Services Corp. v. Velazquez. Recently, in Rhode Island Latino Arts v. NEA, a federal district court determined the National Endowment for the Arts’ analogous restriction on grant funding for projects deemed to promote “gender ideology” violated the First Amendment and the Administrative Procedure Act. Moreover, the proposed rule may also face a First Amendment challenge because it prohibits certain grant recipients from engaging in viewpoint discrimination. These recipients may argue that this rule violates the First Amendment’s prohibitions on compelled speech and association, as the Supreme Court has articulated in cases like Hurley v. Irish-American Gay, Lesbian, and Bisexual Group of Boston.

Third and relatedly, the proposed rule may face an unconstitutional conditions challenge because it would limit recipients’ ability to engage in constitutional activities, even when those activities are not funded by the grant. This vulnerability may be exacerbated by the proposed rule’s discretionary-termination provision and its pivot to a cost-reimbursement, rather than a fixed-amount, payment model.

In addition to potential legal challenges, members of Congress have attempted to block the proposed rule. On June 9, 2026, House Appropriations Committee Ranking Member Rosa DeLauro (D-CT) offered an amendment during the consideration of the Fiscal Year 2027 Labor, Health and Human Services, Education, and Related Agencies Appropriations Bill, which aimed to block funding to carry out the proposed rule. While the amendment did not advance, it remains possible that lawmakers will continue to explore legislative avenues, including the ongoing appropriations process, to address the proposed rule.

Particular Implications for Research Universities

Research universities that depend on federal grants warrant particular attention, because several provisions could reshape both how research is funded and which institutions receive funding. By design, the pre-issuance review would elevate senior appointees’ assessment of “agency priorities” and the “national interest” over scientific merit, and the proposed rule expressly relegates peer review to an advisory role rather than a binding one. As a result, awards once driven largely by peer-reviewed scientific merit could increasingly turn on policy and ideological considerations. The pre-issuance criteria barring awards that “fund, promote, encourage, subsidize, or facilitate” racial preferences or the “denial of the sex binary,” together with the separate prohibitions on DEI, “gender ideology,” and disparate-impact theories, could have a chilling effect on certain lines of inquiry — including demographic-, race-, and sex-based research. At the same time, the rule’s “all else being equal” preference for institutions with lower indirect cost rates, its direction to favor a “broad range of recipients” over an institution’s “historical reputation or perceived prestige,” and its instruction that funding notices let applicants “compete and succeed against institutions that have historically received consecutive awards” could redirect research dollars away from universities that have long received the largest shares of federal research funding.

Research universities may also be most impacted by changes to allowable costs that bear directly on day-to-day research operations. Under the proposed rule, publication costs — including page charges, article-processing charges, and open-access fees — generally would be unallowable absent a specific statutory requirement or advance, case-by-case agency approval; attendance at conferences would be allowable only where expressly approved in the award’s terms and conditions; and subscriptions to professional, academic, and technical periodicals would become unallowable. Other provisions of particular salience to research institutions include a “domestic-first framework” for international research collaborations, the extension of the “Wolf Amendment” restrictions, and a new E-Verify requirement for those hired in or performing work in the United States under a federal award.

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In light of the sweeping changes proposed in the “Uniform Grants Regulation,” current and prospective recipients should consider the practical disruptions that could arise if some or all of the proposed rule goes into effect, especially — though not exclusively — in those areas noted above. In particular, research universities, nonprofit organizations, and state and local governments should assess their exposure now to consider whether to weigh in during the comment window, which closes July 13, 2026.

Arnold & Porter is closely monitoring this proposed rulemaking and the Trump administration’s other policies governing federal funding, as well as related litigation. Our cross-disciplinary team — which includes a former OMB Senior Counsel, many alumni from grantmaking agencies, our legislative and public policy team, and attorneys with expertise in government contracting — is advising clients in real time regarding the evolving landscape of federal grantmaking and has extensive experience helping entities file comments on proposed rules, assess the effects of new rules on their operations, and litigate when necessary. If you have questions, please reach out to one of the authors of this post or your regular Arnold & Porter contact. 

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Blog post 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.