Overview
On August 7, 2025, the White House issued an executive order (EO) titled “Improving Oversight of Federal Grantmaking.” The EO calls for significant changes to the process of making and administering grants, cooperative agreements, loans, loan guarantees, and other awards of Federal financial assistance:
- Sections 3 and 4 of the EO requires “senior appointees” or their designees to review and approve awards and funding opportunity announcements (FOAs) to ensure alignment with the president’s policy priorities
- Section 4 of the EO further requires that awarding agencies establish a preference for “institutions with lower indirect cost rates”
- Section 5 of the EO directs changes to the Uniform Guidance at 2 C.F.R. Part 200 to “clarify and require all discretionary grants to permit termination for convenience,” and Section 6 requires awarding agencies to ensure that their standard grant terms and conditions permit termination for convenience
In Depth
The impact of the EO on current and prospective recipients of Federal awards will be significant. The most immediate impact of the EO will likely be further delay to many new awards as the Office of Management and Budget (OMB) and awarding agencies review and modify applicable rules, terms, and conditions as directed by the EO.
Moreover, requiring senior appointees or their designees to review and approve new awards and FOAs will likely create bottlenecks that will further delay both the issuance of FOAs and the issuance of awards against those FOAs. The EO requires these officials to “use their independent judgment” in reviewing all new awards and apply the seven principles outlined in the EO in all assessments of grant proposals. These principles are consistent with many other EOs, as an attempt to limit any grants not perceived to be consistent with the president’s policy priorities including an open rejection of grants which promote or facilitate “racial preferences,” “illegal immigration,” or “denial of the sex binary in humans.”
The EO’s provisions on indirect cost rates and terminations for convenience will likely be even more important. Several agencies have sought to cap indirect cost rates at 15%, which is the current “de minimis” rate at 2 C.F.R. 200.414(f). At least one agency – the US Department of Energy – has gone further and mandated a 15% indirect cost rate that is inclusive of fringe expenses, eliminating the ability of recipients to apply the de minimis rate to a modified total direct cost base that includes fringe expenses. See Policy Flash 2025-27, Adjusting Department of Energy Financial Assistance Policy for For-Profit Organizations’ Financial Assistance Awards (May 8, 2025). The EO arguably supersedes these efforts, instructing agencies to apply a set of “principles” when making awards, one of which is: “All else being equal, preference for discretionary awards should be given to institutions with lower indirect cost rates.” This principle contemplates that recipients will compete for new awards based, in part, on their proposed indirect rates, which is entirely inconsistent with agency attempts to mandate a single rate for all recipients.
In our view, the most significant aspect of the EO is the direction to revise the Uniform Guidance to provide for “terminations for convenience.” The phrase “termination for convenience” is a term of art used in procurements under the Federal Acquisition Regulation (FAR). That phrase, however, is not used in the Uniform Guidance in connection with the termination of grants. An example of language permitting termination for convenience is FAR 52.249-1, Termination for Convenience of the Government (Fixed Price) (Short Form), which states: “The Contracting Officer, by written notice, may terminate this contract, in whole or in part, when it is in the Government’s interest.”
The Uniform Guidance, by contrast, allows for termination of a Federal award “pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.” 2 C.F.R. 200.340(a)(4). Agencies across the Federal Government have invoked this provision to terminate grants en masse based on the agencies’ conclusion that the terminated grants do not effectuate the new administration’s priorities. These agencies have effectively treated Section 200.340(a)(4) as establishing a broad right to terminate for convenience. The language of Section 200.340(a)(4), however, imposes at least three limitations on the Government’s right to terminate:
- The “terms and conditions of the Federal award” must provide for termination, and this limitation arguably is not satisfied by generic cross references to the Uniform Guidance
- The ability to terminate has to otherwise be “authorized by law”
- The Government must determine that the award “no longer effectuates the program goals or agency priorities”
With respect to the third limitation, the text and history of Section 200.340(a)(4) arguably only allow an agency to terminate a grant when the grant no longer effectuates the program goals or agency priorities at the time the grant was issued and that the grant was intended to effectuate, and does not permit the Government to change its priorities and goals and then terminate a grant on the basis of those changed priorities and goals.
The EO, of course, does not concede any of these points. Instead, Section 5(a) of the EO directs OMB to “revise the Uniform Guidance and other relevant guidance to . . . clarify and require all discretionary grants to permit termination for convenience, including when the award no longer advances agency priorities or the national interest.” And Section 6(b) directs agencies to “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.”
By acknowledging that the Uniform Guidance and agency terms and conditions require “clarification,” however, the new EO actually supports the many recipients that are challenging the termination of their grants under Section 200.340(a)(4). Grant instruments are almost always drafted by the Government, and, as the EO recognizes, are usually based on standard agency terms and conditions. Under established principles of contract interpretation, ambiguities in terms and conditions drafted by the Government are resolved against the Government. See, e.g., Metric Constructors, Inc. v. NASA, 169 F.3d 747, 751 (Fed. Cir. 1999). The EO’s acknowledgment that current rules, terms, and conditions require clarification arguably is an acknowledgement that those rules, terms, and conditions are, at best, ambiguous. That acknowledgment, in turn, arguably precludes the Government from relying on its expansive interpretation of those terms under existing awards and instead requires courts to adopt the narrower interpretation of the recipients.
McDermott Will & Schulte’s Government Contracts Group can assist recipients in navigating the impact of the EO and the various changes that it directs to existing rules, terms, and conditions. For more information, reach out to the authors or your regular McDermott Will & Schulte lawyer(s).
