President Trump issued an Executive Order (“EO”) on August 7 that overhauls the federal grantmaking process. Titled “Improving Oversight of Federal Grantmaking,” the EO identifies deficiencies in the federal government’s current approach to issuing discretionary grants. The EO criticizes some existing federal grants as an “offensive waste of tax dollars” and promoting “anti-American ideologies,” and contends grants have been issued to “organizations that actively work against American interests abroad.” It also identifies defects in the grant approval process, noting that drafting grant applications is “notoriously complex” and therefore too costly for smaller institutions. The EO seeks to align federal grants with the Administration’s policy preferences and give the Administration greater control to select grant recipients. Here are the relevant highlights and takeaways:

The EO expands the federal government’s ability to terminate grants.

A core feature of the EO is requiring all discretionary grants, current and future, to include termination for convenience clauses. Discretionary grants are those where an agency exercises its own judgment to select both the funding amount and the grantee, such as by basing award on the merits of grant applications via a competitive process. Historically, discretionary grants have not included termination for convenience clauses. For example, the Uniform Guidance, 2 C.F.R. § 200, does not include a provision that permits the federal government to terminate a discretionary grant at its leisure. This is in contrast to typical federal contracts, which invariably include termination for convenience provisions, such as FAR 52.249-2.

While the Uniform Guidance does permit termination in specific circumstances (see, for example, 2 C.F.R. § 200.340), those provisions do not provide the government the unilateral right to terminate discretionary grants at will. This fact has hamstrung the Administration’s recent efforts to terminate discretionary grants that support causes or policies with which the Administration disagrees. For example, multiple federal courts have ruled the Administration cannot rely on 2 C.F.R. § 200.340 to terminate existing grants, concluding that the provision “does not create a default ability by the federal government to terminate an award over the award recipient’s objection, whenever an agency determines its priorities have changed.”[1]

The EO ostensibly seeks to overcome that limitation on the federal government’s ability to terminate discretionary grants. It requires all agencies, within 30 days, 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.” It also commands the Director of the Office of Management and Budget to revise the Uniform Guidance to “require all discretionary grants to permit termination for convenience.”

The EO thus compels a marked shift in the federal government’s ability to control discretionary grants, by giving the government an “out” at any point during the life of the award. This potentially sows uncertainty into grantees’ business operations and their willingness to invest in business units bolstered by federal funds.

The EO emphasizes termination of grants that are not in the “national interest.”

As discussed above, the EO gives the federal government sweeping authority to terminate discretionary grants at will, including if any grants are contrary to the “national interest.” While the EO does not define “national interest,” it tips the Administration’s hand about what is likely not in the national interest. The EO prohibits discretionary awards that fund, promote, encourage, or subsidize “racial preferences or other forms of racial discrimination,” “denial by the grant recipient of the sex binary in humans or the notion that sex is a chosen or mutable characteristic,” and “illegal immigration.” By prohibiting future grants based on those criteria, the Administration likely deems existing grants meeting any of those criteria as not in the “national interest” and subject to immediate termination for the government’s convenience.

Notably, the EO prohibits discretionary awards that fund or facilitate “racial preferences or other forms of racial discrimination by the grant recipient” and “denial by the grant recipient of the sex binary in humans.” These restrictions appear to address the employment practices of the grant recipient, rather than the substance or topic of the grant. These requirements are related to the Administration’s challenges to “illegal DEI,” which we have discussed here. But it is unclear, for example, whether this EO prohibits grants to grantees that accommodate transgender or non-binary individuals.

The EO centralizes the grant approval process.

The EO also makes changes to the federal government’s grant review and approval process. It directs agency heads to designate a senior appointee to create a process to review funding announcements and outgoing discretionary grants “to ensure that they are consistent with agency priorities and the national interest.” This review process must, among other things, ensure that funding opportunities are reviewed by subject-matter experts and written in plain language to minimize “the need for legal or technical expertise” in drafting a grant application.

The review process must also include a “pre-issuance review of discretionary awards to ensure that the awards are consistent with applicable law, agency priorities, and the national interest.” This review must ensure discretionary awards “demonstrably advance the President’s policy priorities,” where applicable. Furthermore, as already referenced, the pre-issuance review must confirm the grant does not fund, promote, encourage, subsidize, or facilitate “racial preferences or other forms of racial discrimination by the grant recipient,” “denial by the grant recipient of the sex binary in humans,” “illegal immigration,” or “other initiatives that compromise public safety or promote anti-American values.”

These provisions ensure the Administration has more oversight into how the federal government spends federal funds on discretionary grants.

The EO attempts to expand the number of grant recipients.

The EO also emphasizes “discretionary grants should be given to a broad range of recipients rather than to a select group of repeat players.” It also requires that “preference for discretionary awards should be given to institutions with lower indirect rates.” These provisions potentially expand the universe of institutions that can receive federal grants, such as smaller, less renowned institutions. Indeed, the EO emphasizes that agencies should “prioritize an institution’s commitment to rigorous, reproducible scholarship over its historical reputation or perceived prestige.”

Takeaways

• Federal grantees should expect the government to seek to add termination for convenience provisions to their awards. Grantees should confer with legal counsel before agreeing to any modifications.
•  Applicants should review their employment practices to assess whether they adopt “racial preferences” or “denial . . . of the sex binary in humans.” Consider conferring with counsel to review employment practices.
• Large institutions with frequent federal grants and higher indirect rates should be prepared to address those now-obstacles under the EO. In contrast, smaller institutions who have few federal grants and lower indirect rates should consider highlighting these features in any federal grant applications.

[1] Metro. Trans. Auth. v. Duffy, 2025 WL 1513369 at *28 (S.D.N.Y. May 28, 2025); see also Climate United Fund v. Citibank, N.A., 778 F. Supp. 3d 90, 115 (D.D.C. 2025) (holding 2 C.F.R. § 200.340 does not permit EPA to terminate grants).