OMB Proposes Overhaul to Federal Grant Rules: Moving from “Guidance” to “Regulation”
In a significant proposed update to the federal grant framework, the Office of Management and Budget (OMB) has issued a proposed rule that would revise requirements for grants, cooperative agreements, and other forms of federal financial assistance. The 108-page proposal was published in the Federal Register and, if enacted, would update the Uniform Guidance framework (2 CFR Part 200) by clarifying its status as an OMB regulation and creating a more centralized regulatory structure promoting consistency, transparency, and oversight across federal grant programs.
For nonprofit organizations, healthcare networks, and academic institutions relying on federal funding, this proposal represents a meaningful shift in the federal grant framework that has been in place for more than a decade. If finalized as proposed, organizations could face expanded compliance requirements, additional oversight mechanisms, and a more structured review process, particularly across subawards, workforce and vendor vetting requirements.
Reframing the Uniform Guidance Framework
The proposal begins with a formal rebranding. OMB proposes to refer to the new framework as the Uniform Grants Regulation (UGR), replacing the “Uniform Guidance” terminology.
This is not just a name change. The proposal clarifies that the regulatory text in 2 CFR Part 200 is an OMB-issued regulation with government-wide applicability, rather than guidance that agencies implement through their own rulemaking processes.
Historically, after the initial 2014 adoption of the Uniform Guidance, many federal agencies have implemented subsequent Uniform Guidance updates through their own regulations, policies and award terms. Under the proposed UGR framework, OMB is positioning these requirements within a more clearly defined, centralized regulatory structure, which may support greater consistency in how agencies interpret and apply them.
The Elimination of Fixed-Amount Awards
In the proposal, OMB would eliminate fixed-amount awards and subawards, citing concerns around transparency and visibility into how federal funds are used.
If the proposal is enacted, organizations may need to shift away from fixed funding arrangements toward expense based-reimbursement models that require more detailed documentation of expenditures. This change could increase administrative demands on finance teams to track direct labor and costs, allocable overhead, and support expenditure documentation.
Expanded “Termination for Convenience” Framework
The proposal also introduces expanded authority for agencies and pass-through entities to terminate awards under certain circumstances, drawing from the Federal Acquisition Regulation’s (FAR) “termination for convenience” concept.
Under this approach, awards could be terminated if they are “found to be inconsistent with program goals or agency priorities,” “or that an agency otherwise determines is no longer in the Federal Government’s interest.” For organizations navigating multi-year programs, this may introduce additional planning considerations, particularly where funding is related to long-term initiatives, staffing or capital investments.
Mandatory Operational Vetting: E-Verify and Do Not Pay
The proposal expands compliance expectations by incorporating federal verification systems into grant administration processes. These include:
- E-Verify: The Department of Homeland Security’s employment eligibility verification system
- Do Not Pay: The Department of the Treasury’s system used to screen entities and reduce improper payments
The current proposal would apply E-Verify to employees and contractors hired in or performing work under a federal award and would require Do Not Pay screening in federal and state payment processes. Organizations should evaluate how these requirements intersect with existing HR, procurement and compliance workflows.
Programmatic and Policy-Based Restrictions
The proposal introduces additional restrictions on the use of federal funds including provisions specifically addressing DEI-related activities, collaboration with covered foreign countries or entities, amongst others.
The scope and application of these provisions will depend on final rule language and agency implementation. If the proposal is passed, organizations should review program activities at a detailed level rather than relying solely on high-level summaries.
Timeline and Implementation Considerations
With the proposed rule published on May 29, 2026, the OMB has established the following timeline for feedback and potential implementation, including:
- A public comment deadline of July 13, 2026
- A proposed effective date of October 1, 2026, aligned with the start of the federal fiscal year
This timeline provides a relatively limited window for organizations to assess potential impact and determine whether to submit formal comments.
Next Steps for Nonprofit Leaders and Financial Officers
Given the scale of the proposed modifications, leadership teams may want to consider beginning a proactive risk assessment now and review:
- Existing fixed-amount awards and subawards
- Multi-year funding arrangements and dependencies
- Internal cost tracking and documentation processes
- Employment verification and vendor screening workflows
- Programs that may intersect with newly proposed restrictions
While the proposal does not change current requirements today, it signals a potential shift toward more formalized and consistently applied compliance expectations across federal grant programs.
Evaluate Your Grant Structure and Compliance Readiness
Grassi’s Nonprofit and Healthcare advisors monitor evolving federal regulatory developments to help organizations remain compliant and financially resilient. To evaluate how these proposed changes could affect your current grants, subrecipient structures or compliance processes, connect with your Grassi advisor.
