The Office of Management and Budget has proposed significant changes to the federal rules that govern how most grants and other financial assistance are awarded, managed, and reviewed.
Although the rule has not been finalized, organizations that receive federal funding, manage pass-through awards, or support federally funded work should begin evaluating the potential impact.
Because the proposal includes legal, contractual, and regulatory issues, organizations should consult legal counsel regarding public comments, award terms, contract language, and rights related to suspension or termination.
Key Takeaways:
- Potential impact areas: Compliance, reporting, documentation, internal controls, reimbursement processes, and award management.
- Who may be affected: Organizations that receive federal funds directly, participate in pass-through funding arrangements, or work on federally funded projects. While research universities, academic medical centers, scientific associations, and public-health organizations would be most impacted, the proposed changes could also be especially relevant to other industries reliant on federal grants including:
- Nonprofit organizations
- Local governments
- Telecommunications and broadband providers
- Electric utilities and water utilities
- Architecture and engineering firms
- Important dates: Public comments are due July 13, 2026, and OMB has proposed an effective date of October 1, 2026.
Five Proposed Changes to Monitor
The proposed changes would revise the federal framework that governs grants, cooperative agreements, and other forms of federal financial assistance. OMB states that the proposal is intended to improve transparency, accountability, and oversight for federal awards. The five key areas to watch include:
- Greater emphasis on award purpose and federal priorities
- The proposed rule would place additional emphasis on whether awards align with statutory requirements, program goals, agency priorities, and federal interests. Spencer Fane notes that the proposal could significantly alter how discretionary awards are reviewed, administered, and terminated.
- For recipients, this means program descriptions, budgets, reports, and supporting documentation should clearly connect funded activities to the stated purpose of the award.
- Expanded termination and suspension authority
- One of the most significant areas to monitor is proposed authority for federal agencies and pass-through entities to suspend or terminate awards. The proposal would allow termination when an award no longer supports program goals, agency priorities, or the national interest, and would also introduce a temporary suspension mechanism.
- Organizations should review award terms and related contracts to understand how a suspension or termination could affect staffing, vendor commitments, project costs, unpaid invoices, and closeout obligations.
- Potential changes to fixed amount awards
- The proposal would eliminate fixed amount awards as a permissible award type unless otherwise authorized by statute. Recipients and subrecipients currently using or planning to use fixed amount awards may need to evaluate whether future funding could shift toward cost-reimbursement structures.
- A shift toward cost-reimbursement may require more detailed documentation for labor, materials, indirect costs, overhead, contractor costs, and reimbursement requests.
- Increased focus on subaward reporting
- The proposed rule includes increased attention on subaward reporting and pass-through oversight. Recipients would be required to confirm in performance reports that subawards were reported on SAM.gov, and that failure to report subawards could become a basis for termination.
- Organizations that pass funds to subrecipients, affiliates, subsidiaries, or project partners should confirm their reporting processes are accurate, timely, and supported by complete records.
- Cost principles, procurement, and communications
- The proposal also includes changes to cost principles and procurement requirements. Areas to review include advertising and public relations, conference attendance, publications, lobbying, membership costs, domestic preference, and procurement practices.
- This may be particularly important for organizations with federally funded public outreach, community engagement, reports, events, publications, or contractor-supported communications.
Seven practical steps to take now
Organizations do not need to wait for a final rule to begin preparing. A practical first step is to identify where federal funding currently supports operations, programs, capital projects, or client work.
Organizations should consider the following actions:
- Inventory federal funding relationships: Include direct awards, pass-through awards, subawards, pending applications, anticipated renewals, and expected incremental funding.
- Understand specific impacts by Industry: The changes will have different impacts on each industry. Leaders should understand and plan for how the changes could impact their enterprise specifically. Check the below section for potential impacts for nonprofits [link to below section], telecommunications [link to below section] and architects and engineers [link to below section].
- Identify timing considerations: Flag awards or funding actions that may occur on or after October 1, 2026, if the final rule follows the proposed effective date.
- Review documentation practices: Evaluate cost allocation, timekeeping, procurement, subrecipient monitoring, SAM.gov reporting, reimbursement support, internal controls, and record retention.
- Assess contract language: For organizations working downstream from a federal award, review whether federal requirements flow into vendor, contractor, or subconsultant agreements.
- Evaluate cash flow and reimbursement processes: Consider whether existing accounting systems and approval workflows can support more detailed cost documentation and reimbursement requests.
- Consider submitting comments: Organizations that may be significantly affected should evaluate whether to submit comments before the July 13, 2026 deadline. Comments are often most useful when they identify a specific regulatory section, explain the operational concern, and provide practical examples.
Industry Perspective
Below are specific considerations for different industries and organizations.
Nonprofit & Local Governments Nonprofits and local governments should evaluate how the proposed changes could affect current awards, pending applications, pass-through funding, subrecipient relationships, and program operations. Specific considerations may include:
- Inventory current and anticipated federal funding
- Align grant documentation with award purpose
- Review subrecipient monitoring processes
- Evaluate reimbursement and cash flow needs
- Assess internal controls and audit readiness
- Review termination and suspension language
For more information contact:
- Bobby LaCour, Partner, Nonprofit
- Jessica Luther-Haynes, Senior Manager, Local Governments
Telecommunications, Broadband, Utility Organizations
Providers should evaluate the proposed rule through both a compliance lens and a project management lens. Federal funding tied to broadband deployment, rural connectivity, infrastructure upgrades, network expansion, and related community investment may involve complex reporting and documentation requirements.
Specific considerations may include:
- Review grant and loan agreements
- Prepare for more detailed cost documentation
- Evaluate vendor and subcontractor requirements
- Review project milestones and reporting calendars
- Connect project narratives to program outcomes
- Review termination and suspension language
For more information contact: Amy Fenerty, Partner, Communications + Utilities
Architecture and Engineering
Architecture and engineering firms may be affected even if they are not the direct federal award recipient. Many firms support projects funded through federal grants to state agencies, local governments, utilities, nonprofits, transportation authorities, housing organizations, broadband providers, and other entities.
In these cases, federal requirements may flow through the client contract rather than the federal award itself. Contract review, cost documentation, and project records may become increasingly important.
Specific considerations may include:
- Identify federally funded projects
- Review contract flowdown requirements
- Strengthen documentation for reimbursable costs
- Evaluate subcontractor and subconsultant obligations
- Review public-facing project costs
- Review termination and suspension language
For more information contact: Diana Strassmaier, Partner, Architects + Engineers
This article is for informational purposes only and should not be considered legal advice. Organizations should consult legal counsel regarding the proposed rule, public comments, award terms, and contract-specific obligations.
