Key Takeaways
- Executive Order (EO) 14332 on "Improving Oversight of Federal Grantmaking" reshapes the federal discretionary grant landscape by embedding ideological oversight, performance accountability, and political alignment mechanisms into the grantmaking process.
- All federal discretionary grants and funding opportunities must now be reviewed and approved by politically appointed senior officials.
- The directive includes retroactive review of existing awards and revision of terms and conditions to allow for termination "for convenience," including termination if an award no longer effectuates the program goals or agency priorities, which could include projects currently under review or previously terminated.
- The Office of Management and Budget (OMB) must update federal financial assistance guidance to streamline applications and require termination for convenience clauses.
- The directives in the executive order inject significant political discretion and risk into the federal funding process across all federal agencies.
Applicants and recipients of federal funds have another hurdle to face under an executive order issued on August 7, 2025. In EO 14332, Improving Oversight of Federal Grantmaking, President Trump continued his march to disrupt federal funding of projects and programs that do not support his "America First" policies and those that allegedly fund "radical ideologies such as [diversity, equity, and inclusion], gender ideology, and the green new scam." The EO significantly reshapes the federal discretionary grant landscape by embedding ideological oversight, performance accountability, and political alignment mechanisms into the grantmaking process while also seeking to empower agencies to terminate or restructure awards that fall outside narrowly defined policy parameters. Of particular importance to current awardees with projects under agency review or those that have been terminated, the EO seeks retroactive review of existing awards and revisions to terms and conditions to include terminations for convenience.
Oversight Mechanisms
The EO requires any funding opportunity announcements (FOAs) and discretionary grants and awards1 to undergo mandatory review and approval by one or more politically appointed senior official to "ensure that they are consistent with agency priorities and the national interest." Senior appointees are directed to "use their independent judgment" in reviewing FOAs or discretionary awards rather than deferring to the recommendations of others. Requiring political involvement in all FOAs and grant reviews is a dramatic departure from past practice and raises significant questions of how the funding decision process will work moving forward.
Moreover, any discretionary award must "demonstrably advance the President's policy priorities" and shall not be used to fund or promote racial preferences or other forms of discrimination,2 denial of biological sex distinctions,3 illegal immigration, other initiatives deemed contrary to public safety or "promote anti-American values," or those that advance the "green new scam."4 The EO directs agencies to give preference to institutions with lower indirect cost rates5 and to ensure applicants are committed to complying with "administration policies, procedures, and guidance respecting Gold Standard Science."6
The review process must include review by a subject matter expert chosen by the agency head or designee, a review to ensure FOAs require only requirements necessary for review of the application and are written in plain language to minimize the need for legal or technical experience, interagency coordination to avoid duplication, and "pre-issuance review of discretionary awards to ensure that the awards are consistent with applicable law, agency priorities, and the national interest" that involves a senior appointee.
Termination Provisions
To bolster the policy pronouncements, the director of the OMB is directed to update the uniform guidance that governs federal financial assistance7 and other relevant guidance to streamline application requirements; require that all discretionary grants permit termination for convenience, including those in 2 CFR 200.340(a) that allow for termination "if an award no longer effectuates the program goals or agency priorities" or, in the case of a partial termination by the recipient, if the agency "determines that the remaining portion of the Federal award will not accomplish the purposes for which the Federal award was made;"8 and limit the use of discretionary grant funds for costs related to facilities and administration.
Implementation
Agency heads must, within 30 days, report to OMB on whether their agencies' grants include such termination clauses, how many active awards exist, and what proportion could be terminated under these terms. Agency heads are further directed take steps to revise terms of existing discretionary grants to permit termination for convenience or to clarify that it is permitting, including if it no longer advances agency priorities or the national interest, the justification that the administration has advanced for rescinding the majority of awards across the government. This retroactive review could be of significant concern to projects such as those terminated by the U.S. Department of Energy (DOE) because their "award no longer effectuates the program goals or agency priorities"9 or those under current review by DOE to assess whether they are consistent with the "Administration's policies and priorities and program goals and priorities."10
Agencies must ensure that future discretionary grants include these provisions and are directed to revise all applicable regulations to require such terms. Future discretionary grant agreements also must include terms and conditions that prohibit recipients from directly drawing down general grant funds for projects without affirmative agency authority and require grantees to provide written explanations or support for requests.
Implications of the Order
While the asserted goal of the order is to enhance the integrity and accountability of federal grantmaking, at bottom, it inserts political discretion based on the administration's policy predilections into every stage of the funding process, which will inject risk and uncertainty into any business decision. For future applicants, the implementation of stricter oversight mechanisms and additional layers of review may slow down the grant application and approval process. Businesses considering applying for federal funding need to carefully assess their eligibility, compliance practices, and risk exposure under the new regime. Those that have already received grants must assess the risk of termination and should be aware of active litigation challenging terminations based solely on agency policy shifts.11
New applicants and federally funded companies should ensure that their DEI practices and policies are consistent with anti-discrimination laws, and they should continually evaluate the administration's novel and shifting interpretations of "illegal" DEI. Similarly, the new EO's language that recipients recognize "sex binary in humans" raises significant questions based on its ambiguity. At bottom, contractors and grant recipients must continue to carefully review and track the implementation of this executive order and subsequent relevant agency guidance.
Footnotes
1 As defined in the EO, "[t]he term "discretionary award" or "discretionary grant" means a grant that is a "discretionary award" as that term is defined in 2 CFR 200.1. It does not include programs where legislation establishes an entitlement to the funds on the part of the recipient, such as block grants; those awarded based on a statutory formula; or disaster recovery grants." Exec. Order No. 14332 at Sec. 2(d).
2 See Exec. Order No. 14151, Ending Radical and Wasteful Government DEI Programs and Preferencing (Jan. 20, 2025). Note that on July 29, 2025, Attorney General Pam Bondi issued a memorandum that "clarifies the application of federal antidiscrimination laws to programs or initiatives that may involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion ("DEI") programs," See "Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination," https://www.justice.gov/ag/media/1409486/dl?inline. Our recent alert unpacks the guidance and its implications for private sector employers.
3 See Exec. Order No. 14168, Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government (Jan. 20, 2025).
4 See Fact Sheet: President Donald J. Trump Stops Wasteful Grantmaking, https://www.whitehouse.gov/fact-sheets/2025/08/fact-sheet-president-donald-j-trump-stops-wasteful-grantmaking/.
5 U.S. Department of Energy, Energy Department Aligns Award Criteria for For-profit, Non-profit Organizations, and State and Local Governments, Saving $935 Million Annually, https://www.energy.gov/articles/energy-department-aligns-award-criteria-profit-non-profit-organizations-and-state-and (May 8, 2025) ("In three new policy memorandums, the DOE announced that it will follow best practices used by fellow grant providers and limit "indirect costs" of DOE funding to 10% for state and local governments, 15% for non-profit organizations, and 15% for for-profit companies.").
6 See Exec. Order No. 14303, Restoring Gold Standard Science (May 23, 2025) (stating that the Administration is "committed to restoring a gold standard for science to ensure that federally funded research is transparent, rigorous, and impactful, and that Federal decisions are informed by the most credible, reliable, and impartial scientific evidence available.")
7 2 CFR Part 200.
8 The order outlines certain exceptions to this directive, including "agreements entered into in furtherance of international trade agreements or those awarded by the Department of Commerce under title XCIX of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Public Law 116-283), the CHIPS Act of 2022 (Public Law 117-167), or division F of the Infrastructure Investment and Jobs Act (Public Law 117-58)."
9 U.S. Department of Energy, Secretary Wright Announces Termination of 24 Projects Generating over 3 Billion in Taxpayer Savings, https://www.energy.gov/articles/secretary-wright-announces-termination-24-projects-generating-over-3-billion-taxpayer
10 U.S. Department of Energy, Secretary Wright Announces New Policy for Increasing Accountability, Identifying Wasteful Spending of Taxpayer Dollars, https://www.energy.gov/articles/secretary-wright-announces-new-policy-increasing-accountability-identifying-wasteful
11 Multiple suits have been filed challenging this provision. See, e.g., Compl., State of New Jersey, v. U.S. Office of Management and Budget (D. MA, June 24, 2025), https://www.nj.gov/oag/newsreleases25/2025-0624_Agency-priorities-Convenience-clause-complaint.pdf (21 State Attorneys General seeking an order vacating and setting aside Defendants' decision to invoke the Clause as grounds for terminating grants based on a change in agency priorities, a permanent injunction barring Defendants from implementing or giving effect to that decision, and an order vacating and setting aside of the Clause itself as arbitrary and capricious under the Administrative Procedure Act.)
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