Big Changes Are On The Federal Grant Horizon

Bottom Line Up Front

On August 7, 2025, President Trump issued an executive order (EO) titled "Improving Oversight of Federal Grantmaking," which has the potential to fundamentally change the federal grant award and administration processes as we all know it. According to the White House, the EO's goal is to strengthen and improve oversight of the federal grantmaking process and put an end to the waste and mismanagement of public tax dollars. The EO aims to increase agency-level oversight and provide federal agencies with the power to more broadly restrict grant funding and terminate active grant awards.

The EO is largely directed at federal agencies in that it provides guidance related to revisions to current grantmaking protocols to ensure that federal grant awards, both active and pending, are consistent with the president's priorities and the national interests of the United States. However, the EO also establishes new standards that grant applicants must meet in order to obtain federal funds and provides for changes to current federal grant termination clauses. Organizations seeking federal grants, as well as those that have already been awarded federal grants, should familiarize themselves with these changes to avoid impacts and disruptions to federal funding sources.

Executive Order Overview

The EO does not apply to every federal grant; rather, it applies only to "discretionary awards" or "discretionary grants." Grant regulations at 2 CFR § 200.1 define these terms as "award[s] in which the Federal agency, in keeping with specific statutory authority that enables the agency to exercise judgment ('discretion'), selects the recipient or the amount of Federal funding awarded through a competitive process or based on merit of proposals."

The EO does not apply to federal grants awarded pursuant to legislation establishing an entitlement to the funds (e.g., block grants,¹ formula grants,² and disaster recovery grants). However, even with this limited scope, the EO will have a significant impact. In 2024, according to the Congressional Budget Office, the federal government awarded more than $1.8 trillion via discretionary spending, with about $1 trillion of those funds going toward nondefense programs.³ Accordingly, we anticipate that this EO will have extremely broad implications.

The EO proposes to strengthen oversight of federal grants by requiring federal agencies to:

• Designate a senior official who will be responsible for establishing and managing a formal process to review all new funding opportunity announcements and discretionary grant awards. This individual's primary responsibility will be to ensure that every grant award aligns with both the agency's priorities and the administration's interests.
• Review and approve — by one or more senior appointees or their designees — every federal grant award.
• Ensure that grant announcements are "written in plain language" so that more grant applicants have access to grant opportunities, even if the applicants do not have access to grant-writing consultants and resources.
• Identify, as related to discretionary grants supporting scientific research, at least one subject matter expert in the relevant field to participate in the grant review and award process implemented by each federal agency. This subject matter expert may be a member of the grant review panel, a program officer, or an external specialist, but they must ensure that that scientific merit and rigor are properly evaluated before the grant funds are awarded.
• Conduct annual reviews of discretionary awards. The purpose of these annual reviews is to evaluate whether projects funded by federal grant awards remain consistent with the agency's and the administration's priorities.
• Get prior approval from the designated senior appointee before issuing new funding opportunity announcements, except when required by law. This prohibition will remain until all new review processes mandated by this EO are in place.

Additionally, the EO establishes substantive criteria that all federal agencies must apply when reviewing discretionary grant awards. Federal agencies must:

• Evaluate whether discretionary grant awards demonstrably advance the administration's policy priorities. Senior appointees and their designees are required to exercise independent judgment in evaluating whether projects proposed to be funded by federal grants are in alignment with administration priorities.
• Ensure that discretionary grant funds will not be used for certain activities, including
  
  • funding, promoting, encouraging, subsidizing, or facilitating "racial preferences or other forms of racial discrimination by the grant recipient," including the use of race or proxies for race as selection criteria "for employment or program participation;"
  • supporting activities that assert that "sex is a chosen or mutable characteristic;"
  • providing support for illegal immigration; and
  • funding initiatives that compromise public safety or promote values deemed anti-American.
• Give preference to grant applicants with lower indirect cost rates.
• Prioritize, when awarding grant funds, institutions that have demonstrated a "commitment to achieving Gold Standard Science" and "rigorous, reproducible scholarship" and prioritizing measurable research quality and integrity over institutional legacy.
• Establish policies and guidance regarding scientific standards applicable to grant recipients and clear benchmarks for measuring success and progress toward relevant federal grant goals.

Finally, the EO requires the heads of federal agencies to make certain changes to grant award documents and associated terms and conditions that are applicable to grant awards. Federal agency heads must:

• Take affirmative steps to ensure that all standard terms and conditions currently have, or are altered to include, termination provisions as set forth in in 2 CFR § 200.340.
• Ensure that grant award documents and associated standard terms and conditions contain language that requires the approval of the awarding agency before a grant awardee may directly draw down general grant funds for a specific project as well as a written explanation to support, "with specificity," the "requests for each drawdown."

Takeaways

Going forward, those currently receiving or seeking federal grant funding should:

• Prepare for more scrutiny of grant applications and expect the denial of funding for applications that do not align with, support, or further the Trump administration's priorities
• Anticipate federal agencies increasingly terminating grants for convenience
• Review current indirect cost rates with the understanding that previously allowed costs may be disallowed going forward or may make a proposal less competitive
• Proactively review internal policies, trainings, and procedures related to receiving and expending federal funds to ensure compliance with terms and conditions set forth in a grant Notice of Award, award documents, and standard terms and conditions

Footnotes

1. Block grants are those that are characterized by the consolidation of funding from multiple grant programs into a single grant awarded to states or other jurisdictions for broadly defined purposes. Common functional areas for block grants include community development, social services, public health, and workforce development. ↩

2. Formula grants are distributed by the federal government mainly to state and local governments, as well as other eligible entities. Unlike discretionary grants, formula grants allocate funds based on specific formulas established by law and are awarded automatically with no competition. ↩

3. "Discretionary Spending in Fiscal Year 2024: An Infographic," Congressional Budget Office (March 20, 2025). ↩

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.