OMB’s Proposed Grants Overhaul Raises Questions of Authority, Burden, and Flowdown Risk

The Office of Management and Budget’s proposed overhaul of federal financial-assistance regulations has generated substantial opposition from legal, industry, and congressional stakeholders. As reported by The Government Contractor, the proposal would revise title 2 of the Code of Federal Regulations, including Part 200, the Uniform Guidance governing grants, cooperative agreements, and other federal assistance. OMB presents the initiative as an effort to improve transparency, accountability, and efficiency. Critics contend, however, that several provisions may exceed OMB’s authority, increase recipient burdens, and create uncertainty for organizations operating at the intersection of grants and procurement.

The American Bar Association’s Section of Public Contract Law has urged OMB to withdraw the proposal or substantially revise it. Its concerns are both structural and operational. The Section questions whether converting portions of the Uniform Guidance into binding regulation is supported by OMB’s statutory authority. It also argues that OMB should directly address the Federal Grant and Cooperative Agreement Act, the Paperwork Reduction Act, and the Regulatory Flexibility Act, while developing a fuller record concerning implementation costs, recipient burdens, and less restrictive alternatives.

The Section also identified provisions that could increase administrative complexity, including an English-only requirement, mandatory E-Verify use by subrecipients, written justifications for payment requests, justifications for cost-reimbursement contracting, and new treatment of related-entity transactions. Its concern is not merely that compliance obligations would expand, but that they could do so without sufficient clarity regarding scope or implementation.

The Professional Services Council has focused more directly on consequences for contractors and other entities supporting grant-funded programs. Although many contractors are not direct grant recipients, they may serve as subrecipients, technical-assistance providers, research partners, evaluators, workforce-support organizations, or grants-management advisers. PSC therefore argues that OMB’s regulatory analysis should account for burdens extending beyond the prime recipient.

PSC also identified ambiguity in the proposed treatment of certain nonprofit organizations. The rule would narrow the circumstances in which nonprofits are treated similarly to for-profit entities for cost-principle purposes, using a 90-percent federal-contract funding threshold or federally funded research and development center status. PSC cautioned that the proposal does not adequately define what qualifies as a contract, how the threshold would be measured, which period would control, or how Federal Acquisition Regulation cost principles would apply.

Additional concerns involve discretionary termination and suspension, foreign-collaboration restrictions, disclosure obligations, monitoring requirements, and the distinction between subrecipients and contractors. PSC seeks clearer guardrails, predictable exceptions, and disciplined flowdown rules to avoid disrupting workforces and mission delivery. Senate Democrats have raised separate objections, arguing that the proposal would confer excessive executive discretion and impose vague conditions inconsistent with congressional funding priorities.

For federal contractors, the central lesson is that grants policy can create downstream contractual and compliance risk. Organizations supporting federally funded programs should monitor the rulemaking, determine whether they function as recipients, subrecipients, or contractors, and identify obligations that could migrate into agreements, policies, and internal controls.

FedContractPros’ FedClause360 may be useful in this context by helping contractors organize evolving flowdown obligations, distinguish procurement clauses from assistance-related terms, and flag provisions requiring legal or operational review.

Disclaimer:

This article is provided for general informational and educational purposes only. It does not constitute legal, regulatory, grants-management, procurement, or business advice. The OMB rule discussed remains proposed and may be revised, withdrawn, or finalized in a different form. Organizations should review the applicable rulemaking materials and consult qualified counsel regarding their specific circumstances.