OMB Rule Proposes Significant Changes to Federal Financial Assistance Requirements Public Comment DEADLINE July 13, 2026

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June 19, 2026

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(Holland & Knight) • The Office of Management and Budget (OMB) and a group of other federal agencies recently issued a proposed rule in the Federal Register that, if finalized, would make significant changes across federal agencies related to the approval and distribution of federal grant funding. Public comments are due by July 13, 2026.

The proposed rule would revise guidance governing grants, cooperative agreements and contracts found in Title 2 of the U.S. Code of Federal Regulation and various agency regulations. Given the breadth of changes under consideration, there is a significant opportunity for recipients of federal financial assistance to submit targeted comments that clarify operational concerns and ensure that the final rule appropriately reflects statutory intent and long-standing research, development, demonstration and commercialization practices.
Holland & Knight is supporting clients in developing comment letters that are institution-specific, technically grounded and aligned with agency rulemaking priorities to maximize their impact during the notice-and-comment period and can help clients engage congressional representatives as part of the rulemaking process, potentially in the form of written letters, questions for the record, or statements for hearing or congressional records.

The Office of Management and Budget (OMB) and a number of other agencies jointly published a proposed rule in the Federal Register on May 29, 2026, titled "Federal Financial Assistance." The proposed rule makes numerous changes to the guidance governing federal financial assistance (e.g., grants, cooperative agreements, contracts) found in Title 2 of the U.S. Code of Federal Regulation (C.F.R.) and various individual agency regulations. Though some changes are ministerial in nature, a number are significant with ramifications for a wide range of federal funding recipients, including for-profit and nonprofit organizations, state and local governments, research institutions and healthcare providers, among others.

In general, the new proposed changes are described by OMB as 1) improving transparency, accountability and oversight, 2) clarifying regulatory text and 3) reducing recipient burden. The proposed rule rolls back some changes made to 2 C.F.R. Part 200 in 2024 during the final year of the previous administration and adds numerous new prohibitions and restrictions on federal financial assistance, many of which effectuate executive orders (EOs) issued by President Donald Trump. Portions of the preamble are dedicated to chronicling examples of awards made during the previous administration that the current OMB considers wasteful, contrary to or exceeding the scope of statutory authorization, or not in the public interest.

The proposed effective date is October 1, 2026, and changes would apply to new awards, as well as new incremental funding actions in connection with existing awards, on or after that date. Public comments are due by July 13, 2026.

This Holland & Knight alert discusses some of the more significant proposed changes contained in the rule, with a focus on the impact on for-profit, nonprofit, and public entities and organizations that conduct federal research, engage in federally supported demonstration or commercialization projects, and otherwise rely on federal funding to support their work.

Clarifying Regulatory Status

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A Summary of Major Changes

Federal Agency Review of Merit Proposals

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Review of Risk Posed by Applicants

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Prohibition on Promoting Disparate Impact Liability

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Statutory and National Policy Requirements

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Existing federal award recipients and subrecipients: If/when your existing awards are modified to incorporate these changes, you will need to update your existing procurement policies and practices, subrecipient agreements and contractor flowdowns, among other documents in connection with federal awards.

Termination and Suspension

The proposed rule significantly expands agency authority to terminate and suspend federal awards.

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Additional Noteworthy Proposed Changes

Prohibition on Discriminatory Event Services:

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Prohibition on Use of Federal Funds to Support Covered Foreign Collaborations:

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Cost Principles:

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Fixed Amount Awards:

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Domestic-First Framework for R&D Awards:

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Reputational Harm Provisions:

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Internal Controls:

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Procurement Changes:

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Subaward Reporting:

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Indirect Costs:

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Conflict of Interest:

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Program Planning and Design:

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Concluding Observations

If finalized as proposed, these changes would have meaningful implications for all recipients of federal financial assistance. The shift from guidance to binding regulation would elevate compliance risk and could reduce overall flexibility in interpreting and implementing federal requirements. Expanded agency discretion in merit review, risk assessment and award termination would introduce additional uncertainty into funding decisions, as new restrictions related to foreign collaborations, statutory policy requirements and the permissible use of funds could require institutions to revisit existing partnerships, internal policies and program design frameworks. In addition, the proposed rule's emphasis on alignment with administration priorities and national interest may also affect the composition of funded research portfolios, selection of large-scale demonstration and commercial projects, and the criteria used to evaluate scientific merit.

Given the breadth of changes under consideration, there is a significant opportunity for recipients of federal financial assistance to submit targeted comments that clarify operational concerns, particularly regarding the expanded termination and suspension provisions and the pre-issuance political review framework, and ensure that the final rule appropriately reflects statutory intent and long-standing research, development, demonstration and commercialization practices.

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Notes

¹ An OMB financial assistance regulation cannot override an agency regulation that is derived from a statutory requirement

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Related articles

Regulation for Federal Financial Assistance (Federal Register)
Researchers worry a Trump rule could end U.S. scientific dominance (Washington Post)
U.S. researchers outraged at proposed changes to federal grants (Science)
Science: A New Golden Age A Report to the President by Michael Kratsios (White House Office of Science and Technology Policy)

Excerpt from Washington Post: Under the proposed rule, political appointees would have more power over hundreds of billions of dollars in discretionary grant funding.

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The changes would give White House political appointees more power over hundreds of billions of dollars in discretionary grant funding, diminishing the traditional role of scientific peer reviewers.

The rule released in May would require political appointees to review grants before they’re awarded to ensure projects advance the president’s priorities. Specifically, the Trump administration opposes research for projects that “fund, promote, encourage, subsidize, or facilitate” diversity, equity and inclusion principles or “deny the biological reality of … the sex binary.”

The rule change marks a departure from the system created in the wake of World War II, in which independent peer reviewers, experts in the field, determine whether scientific proposals are worthy of federal funding.

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The Post analyzed more than 50,000 public comments submitted to the federal government about the rule through Friday, and at least 88 percent opposed it, according to the analysis, which used artificial intelligence to classify each comment, with reporters checking a sample for accuracy. By comparison, roughly 6 percent expressed support, though the overwhelming majority of that came from a single form letter submitted more than 2,300 times.

The proposal would also give agencies the power to temporarily suspend grants or end them at any time,....

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The rule would not allow OMB to suspend or cancel disaster recovery grants or some grants awarded by Congress through law, including block grants.

The rule has moved scientific and educational organizations to lobby lawmakers on Capitol Hill, organize letter-writing campaigns and stage protests to raise awareness of the potential impact. Some 300 leading scientific organizations sent a letter to the administration requesting more time to review the proposed regulation, which they say would have a “vast” scope and impact.

“It’s going to touch every person in the United States. So we’re working very, very hard to ring the alarm,” said Colette Delawalla, founder and CEO of Stand Up for Science, which has rallied supporters to send public comments and contact their members of Congress with concerns about the proposed rule.

Delawalla said her group has estimated that 49 percent of active clinical trials that currently receive federal funding would immediately be ineligible once the rule goes into effect.

“It impacts every single discretionary dollar that gets spent by the government,” she said. “We should be flipping over tables right now. This is egregious.”

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While dozens of Democratic lawmakers have raised concerns about the proposal, last week Senate Appropriations Committee Chairwoman Susan Collins (R-Maine) also urged OMB to withdraw portions of the rule. She said the measure would “harm small and rural communities, undermine scientific and biomedical research, and conflict with Congress’ control over the federal funding process.”

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Researchers point out the change could impact not only science but also grants to states, localities and nonprofit organizations for housing, transportation and infrastructure projects.

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Multiple scientists who spoke with The Post said they’re concerned about elevating political appointees’ decisions over the professional opinion of nonpartisan peer reviewers.

Steven Farber, a biology professor at Johns Hopkins University, and one of thousands of experts who reviews research grant proposals for the National Institutes of Health, said the rigorous review process — including hours of research, discussion and blind voting — ensures that the most potentially groundbreaking projects receive funding. That process would be undermined by political appointees without scientific training making the final decision, he said.

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The proposed process would introduce a new political lens to grant-making regardless of party, creating whiplash on scientific priorities as administrations change, said Sudip Parikh, CEO of the American Association for the Advancement of Science.

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Researchers are also worried that the rule gives the administration new opportunities to pull funding mid-project.

Universities have already seen from executive orders that when grants are terminated midstream, “whole programs and laboratories shut down overnight. That will continue,” Smith, of the Association of American Universities, said. READ MORE

Excerpt from Science: Now, scientists and others are waiting to see how the administration responds to the outpouring of nearly 497,000 comments on the 412-page proposal that were submitted by the 13 July deadline. The administration has said it wants to finalize the new guidelines by 1 October.

Many research advocates reacted with alarm on 29 May when the White House Office of Management and Budget (OMB) released the proposal, which among other things would allow political appointees to review agency decisions on what science to fund, arbitrarily terminate grants, and prohibit research collaborations with China and many other countries. Science, higher education, and patient advocacy organizations quickly called on their members and allies to submit comments—and tens of thousands appear to have responded.

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At press time OMB had only posted 52,000 of the comments it received, making it impossible to assess how many commenters in the overall pool favored or opposed the changes to what is officially known as the Guidance for Federal Financial Assistance.

Individual comments opposing the changes often used strong language, however. “If I didn’t know better, I would think you guys were Chinese agents trying to destroy the American technological advantage,” wrote Joseph Savina, a retired scientist. “As a practicing physicist in the defense industry, I can confidently say that passing this rule will guarantee European and Chinese scientific and military dominance for generations,” commented Jonathan Rameau.

Higher education organizations were more polite but no less alarmed by the potential consequences of the new marching orders, often called “uniform guidance,” for federal agencies. “These changes risk undermining the predictability, stability, impartiality, and collaboration upon which America’s entire research-and-innovation system depends,” wrote the Association of American Universities (AAU), which represents 69 leading research institutions.

AAU’s 47-page comment is the longest on a proposed government action in the group’s 126-year history. Among other things, it argues that OMB does not have the authority to give political appointees the final say over which grants are funded or terminated. Congress hasn’t given OMB the power, AAU asserted, “to define which categories of scientific research may be federally funded; to restrict the international scholarly collaborations that Congress has elsewhere specifically authorized, or to make the receipt of federal research funding contingent on an institution’s adherence to contested positions about civil rights law, scientific inquiry, and arbitrary and political decisions about what is in the national interest.”

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Some backers concede the proposal—which repeatedly refers to the need to stamp out spending on “woke” initiatives, such as those meant to nurture a diverse workforce—is, in part, a political statement. “This notice … will shut down millions in federal spending on leftist mischief throughout the country,” Mike Gonzalez of the Heritage Foundation wrote recently on the organization’s website. “So of course they don’t like it.” The Heritage Foundation’s pre-election report, Project 2025, has underpinned many actions by the Trump administration, including its campaign against “woke” science.

OMB rejected pleas from members of Congress, AAU, and others to extend the comment period for several weeks or months. OMB has said the new rules would go into effect as soon as they’re finalized, and there is no indication it will give grantees time to prepare for them—AAU suggests 1 year.

Still, science advocates are hoping their outrage will put pressure on OMB to significantly revise its initial proposal—or convince Congress to intervene. READ MORE