On August 7, 2025, President Trump issued Executive Order 14332, “Improving Oversight of Federal Grantmaking,” (“EO 14332” or “the EO”) to “strengthen oversight and coordination of, and to streamline, agency grantmaking” and “ensure greater accountability for use of public funds.” Sec. 1. Among other things, the EO: (1) directs agencies to review discretionary funding opportunities for consistency with agency priorities; (2) provides principles for agencies to use in assessing discretionary awards; (3) directs the Office of Management and Budget (“OMB”) to revise the Uniform Guidance applicable to federal financial assistance; and (4) requires agencies to include terms and conditions in their discretionary grant agreements allowing for termination for convenience and preventing recipients from drawing down funds without prior written explanation and approval. Through these methods, EO 14332 focuses on increased political oversight of discretionary funding, ensuring broad termination for convenience rights, and limiting indirect costs. The EO arrives at the intersection of recent efforts by the Trump Administration both to cancel, terminate, or otherwise pause federal funding viewed as inconsistent with the Administration’s policy priorities and to streamline federal procurement regulations.
Reviewing New Funding Opportunities and Discretionary Grants for Consistency with Agency Priorities
Section 3(a) of the EO directs agency heads to “promptly designate a senior appointee”[1] responsible for “creating a process to review new funding opportunity announcements” and “discretionary grants”—i.e., grants that are awarded based on agency discretion, as opposed to those awarded based on statutory formulas[2] —to ensure “they are consistent with agency priorities and the national interest.” With limited exceptions, agencies are prohibited from issuing new funding opportunity announcements until this review process is complete. Sec. 3(c).
Agency senior appointees must incorporate seven items into this review process, including:
- “review and approval of agency funding opportunity announcements”;
- ensuring that funding opportunity announcements only include “such requirements as are necessary for an adequate evaluation of the application and are written in plain language” to “minimize[e] the need for legal or technical expertise in drafting an application”; and
- “interagency coordination” to “promote consistency and eliminate redundancy” by to “determine[ing] whether the subject matter…has already been addressed by another agency announcement.” Sec. 3(a)(i),(iv)-(v).
Following this initial review, senior appointees are to annually “review discretionary awards…for consistency with agency priorities and substantial progress.” Sec. 3(b). This must “include an accountability mechanism for officials responsible for selection and granting of the awards.” Id. EO 14332 does not specify what “accountability mechanism[s]” agencies should utilize but non-political agency employees may be subject to heightened scrutiny in making discretionary award decisions.
Principles for Agencies to Consider in Approving Funding Opportunity Announcements and Discretionary Awards
The EO also directs agencies to consider seven principles when “reviewing and approving funding opportunity announcements and discretionary awards, as well as in designing the review process” discussed in Section 3(a). Sec. 4(b). Among other things, these principles include that discretionary awards must:
- “demonstrably advance the President’s policy priorities”; and
- “not be used to fund, promote, encourage, subsidize, or facilitate:”
- “racial preferences or other forms of racial discrimination by the grant recipient, including activities where race or intentional proxies for race will be used as a selection criterion for employment or program participation”;
- “denial by the grant recipient of the sex binary in humans or the notion that sex is a chosen or mutable characteristic”;
- “illegal immigration;” or
- “any other initiatives that compromise public safety or promote anti-American values.”
The inclusion of terms like “promote, encourage, subsidize, or facilitate” in addition to “fund” suggests that agencies may not award federal funds to organizations engaged in the types of work listed even if such work is not itself directly funded by federal awards. Other principles include that discretionary awards should be given:
- “to institutions with lower indirect cost rates”;
- “to a broad range of recipients rather than to a select group of repeat players”; and
- based on “an institution’s commitment to rigorous, reproducible scholarship” rather than “historical reputation or perceived prestige.”
The principles also make various references to President Trump’s “Gold Standard Science.” E.g., Sec. 4(b)(vi). Taken together, these principles suggest agencies will scrutinize potential discretionary awards to ensure consistency with the President’s policy goals while minimizing indirect cost rates.
OMB Revisions to the Uniform Guidance
EO 14332 also requires the OMB Director to revise the Uniform Guidance at 2 C.F.R. Part 200 in at least three ways. First, the EO requires that the Director “streamline application requirements.” Sec. 5(a). This is consistent with other regulatory efficiency initiatives under the Second Trump Administration, including the Revolutionary FAR Overhaul and the “Department of Government Efficiency” Deregulatory Initiative.
Second, the EO requires that the Director “further clarify and require all discretionary grants to permit termination for convenience, including when the award no longer advances agency priorities or the national interest.”[3] Sec. 5(a). The Uniform Guidance currently permits agencies to terminate an award if the award “no longer effectuates the program goals or agency priorities” but only where an agency “clearly and unambiguously specif[ies]…in the terms and conditions of the Federal award.” 2 C.F.R. § 200.340. The EO appears to direct revisions that instead require that awards permit termination for convenience. Agencies currently have adopted the Uniform Guidance, including 2 C.F.R. § 200.340, with certain agency-specific amendments that differ from Part 200. Many of these supplements contain their own bespoke termination provisions. For example, although Department of Health and Human Services has adopted 2 C.F.R. Part 200 generally, it has its own termination clause at 45 C.F.R. § 75.372 that does not include the termination for convenience language from § 200.340.
Third, the EO requires that the Director “appropriately limit the use of discretionary grant funds for costs related to facilities and administration.” Sec. 5(b). This builds upon the principle in Section 4(b)(iii) that awards should be given to institutions with lower indirect cost rates. The current Uniform Guidance provides procedures for allocating indirect costs and in most circumstances federal agencies are required to use the recipient’s negotiated indirect cost rate. 2 C.F.R. § 200.414(c)(1).
Agency Revisions to Grant Terms and Conditions
Section 6 of the EO directs agencies to review each agency’s standard grant terms and conditions within 30 days. Sec. 6(a). After which, agencies must submit to OMB a report detailing:
- whether the agency’s standard terms and conditions for discretionary awards permit termination for convenience and include the termination provisions described in 2 C.F.R. § 200.340(a) such that an award may be terminated by the agency if it “no longer effectuates the program goals or agency priorities”;
- whether the agency’s standard terms and conditions for discretionary foreign assistance awards permit termination “based on the national interest”; and
- the “approximate number of active discretionary awards at the agency, as well as the approximate percentage of funding obligated under those awards that contains termination provisions allowing for termination” for convenience.
Agencies are further required 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”;
- “revise all applicable regulations” to require such terms; and
- “incorporate these new terms into all future amendments to grant awards.”
Sec. 6(b). While the regulations in effect at the time of award generally govern a discretionary award throughout the period of performance, awards may be modified by agreement of both parties.
Section 6(c) requires agencies insert in future discretionary grant agreements, terms and conditions that:
- “prohibit recipients from directly drawing down general grant funds” without agency authorization; and
- “require grantees to provide written explanations or support, with specificity,” for each drawdown requests.
The current Uniform Guidance provides for advanced payment, rather than reimbursement, whenever the recipient maintains written procedures to minimize the time between transfer of funds and disbursement by the recipient and financial management systems that meet certain standards. 2 C.F.R. § 200.205. It is not clear how these additional requirements for affirmative authorization and written explanation fit with the Uniform Guidance’s preference for advanced payment but EO 14332 does not itself require the OMB Director to revise the Uniform Guidance to change this preference.
Covington’s Government Contracts practice will continue to monitor this and other developments impacting recipients of federal funding.
[1] A “senior appointee” is defined to include politically accountable individuals, specifically, “an individual appointed by the President, a non-career member of the Senior Executive Service, or an employee encumbering a Senior Level, Scientific and Professional, or Grade 15 position in Schedule C of the excepted service.” Sec. 2(h).
[2] More specifically, a “discretionary award” or “discretionary grant” means a grant that is a “discretionary award” as defined in 2 C.F.R. § 200.1. It excludes programs where legislation establishes a recipient’s entitlement to funds (e.g., block grants; those awarded based on a statutory formula; or disaster recovery grants). Sec. 2(d). A “grant” means any “grant agreement or grant” as defined in 2 C.F.R. § 200.1, “cooperative agreement” as defined in 2 C.F.R. § 200.1, or similar award of financial assistance, including foreign assistance awards. Sec. 2(f).
[3] This requirement is “subject to appropriate exceptions, 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).” Sec. 5(a).