Government Contracts Intelligence Briefing

The Office of Management and Budget (OMB) has proposed wide-ranging changes to the regulatory requirements (currently known as the “Guidance for Federal Financial Assistance”) underlying billions of dollars in grant awards annually. The proposed revisions make (and rebrand) the guidance as binding, contain new anti-diversity, equity, and inclusion (“DEI”) mandates, give the federal government broader powers to terminate grant awards, and prohibit fixed-price awards, among other things.

In the proposed regulations, OMB states its intention to adopt final regulations in time for the new fiscal year—October 1, 2026. Comments are due July 13, 2026.

Some highlighted proposed changes:

Pre-Issuance Review

All discretionary awards will now go through a pre-issuance review by a political appointee (or their designee) to ensure they “demonstrably advance the President’s policy priorities,” are not used to facilitate racial preferences, promote that sex is a chosen characteristic, or encourage illegal immigration or any other initiatives that “compromise public safety or promote anti-American values.”        

Limitations on Funding Towards Promotion of Certain Policies

Under the proposed regulations, grants may not be used to promote DEI, gender ideology, or sex transitions of children under age 19. Federal agencies and pass-through entities are also prohibited from discriminating against religious institutions.

A new section (200.218) would also prohibit using federal funds to promote or support theories of disparate-impact liability. The proposed regulation defines disparate-impact liability as “a theory under which a facially neutral policy or practice (for example, a merit-based employment policy or practice) gives rise to an automatic or near-insurmountable presumption of the existence of unlawful discrimination on the basis of federally protected characteristics (such as race or sex) where there are any differences or disparities in outcomes (for example, disproportionate effects) among different races, sexes, or similar groups.”

Prohibitions on Covered Foreign Collaborations

This new section would prohibit collaborations with certain countries or entities acting on behalf of or controlled by certain countries or entities labeled as an entity of particular concern. This would apply regardless of whether federal funds “are used for direct programmatic activities, research, technical assistance, travel, or indirect costs allocable to such collaborations.”

Chinese Telecommunications Ban Now Also Includes Certain Drones

Proposed 200.216 would maintain the ban on the procurement of certain telecommunications and video surveillance equipment consistent with Section 889 of the 2019 National Defense Authorization Act. This section now also includes a prohibition on utilizing federal funds from procuring or operating drones banned by the Federal Acquisition Security Council.

New Flexibility to Suspend or Terminate Awards

Existing grant regulations allow the federal government to terminate grants if the award “no longer effectuates the program goals or agency priorities.” Currently, there is no allowance for a suspension (which is allowable under the Federal Acquisition Regulation).

The updated grant regulations would give the federal government broader rights to terminate a grant in cases where the grant is “not in the national interest as they exist at the time of the termination.” They would also allow temporary suspensions of grants for up to 90 days (extendable by mutual agreement of the parties) when in the interest of the federal or pass-through agency. This is separate from (and in addition to) existing authority that allows for the suspension of a grant for noncompliance with statutes or regulations (or the US Constitution).

In addition, the proposed grant regulations would:

• eliminate awards in fixed amounts unless there is a specific statutory authorization;
• make costs associated with elective abortions unallowable (potentially impacting recipient medical plans);
• eliminate the need for internal controls to align with “guidance in ‘Standards for Internal Control in the Federal Government’ issued by the Comptroller General of the United States or the ‘Internal Control-Integrated Framework’ issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”;
• require participation in E-Verify for all work connected with the federal award (if within the United States);
• allow for short “Statements of Interest” to narrow the field of potential grantees; and
• prohibit awards to recipients with a “history of questionable practices” to include plagiarism, use of discredited or non-replicable studies, and activities inconsistent with federal civil rights laws or religious liberty laws.

The new grant regulations, if implemented as proposed, would remake how grant recipients qualify, receive and perform grants. Organizations should pay close attention to the implementation of these new rules and contact us if they have any questions.