New Administration Outlook: How Your Organization Can Adapt to Federal Grant Uncertainty

Practical steps for organizations that rely on federal funding that may be "paused," suspended, or terminated amid shifting OMB guidance

This past week, the Trump Administration issued and then rescinded its January 27, 2025, OMB memorandum that temporarily paused federal agency grants, loans, and other financial assistance programs. In the supplemental guidance to the memorandum, the Administration explained that this pause was necessary because: "To act as faithful stewards of taxpayer money, new administrations must review federal programs to ensure that they are being executed in accordance with the law and the new President's policies."

Despite the rescission, the Administration made clear that "[t]the Executive Orders issued by the President on funding reviews remain in full force and effect and will be rigorously implemented by all agencies and departments." As such, there remains the possibility, if not likelihood, that the Administration will continue to press forward with its efforts to end federal funding of programs implicated by the president's recent Executive Orders. These efforts include ending "DEI, the green new deal, and the funding of nongovernmental organizations that the Administration believes undermine the national interest."

Take Practical Steps Now

Organizations facing the suspension, termination, or the "pausing" of federal grant funding can and should take practical steps now so that they are better positioned to recover reasonable and allowable costs arising from and relating to such agency actions and, more generally, survive the uncertainty of what will undoubtedly be significant policy changes. Among these steps, organizations should:

1. Contact your federal agency program or grant manager/administrator in writing and request an immediate status update with respect to your grant. The OMB memorandum indicated that federal grant programs "implicated by the President's Executive Orders" were subject to a "pause." Whatever this term may have meant or may mean in future directives from the Administration, until and unless you receive a direction, and preferably a written direction, from your cognizant grant administrator, the performance obligations of the grant remain in place. For this reason, if there is any doubt regarding the status of your grant, it is a good idea to state affirmatively to your grant administrator that you will continue performance until you are directed otherwise.
2. Review the terms of your grant including its changes, delay, suspension, and termination provisions. The Uniform Guidance provides that a federal agency or pass through entity may terminate a grant "if an award no longer effectuates program goals or agency priorities." 2 CFR § 200.340(a)(4). But every grant and award is different, and each award may have unique terms regarding these entitlement granting clauses that would affect your rights, entitlement, and ability to challenge agency action.
3. Consider how termination or suspension of your grant will affect your organization both in the short- and long-term. You may have hired employees whose work in whole or in part was intended to serve the grant. You may have executed subrecipient agreements or subcontracts to provide goods or services in support of the grant (more on this below). You may have purchased equipment, materials, or even real property in support of the grant. There are certain costs that you may have incurred that you may not be able to mitigate, e.g., do you have employment contracts, and do they contain severance provisions? Taking stock of and thinking broadly regarding the consequences of a suspension or termination will better prepare you to respond to and absorb the impact of such events, if and when the time comes.
4. Anticipate, identify, and document costs that will arise from and relate to any suspension and termination, and be prepared to code or track such costs contemporaneously and separately. Also be prepared to mitigate ongoing costs and potential damages as reasonable and appropriate. Review your subaward and subcontract agreements, including any potentially applicable termination, suspension, or rescission clauses. And coordinate with HR to identify and plan for impact of a suspension or termination upon your employees intended to perform work in support of the grant.
5. Notify your grant subrecipients and subcontractors that although times are uncertain and change may be coming, work on the grant should continue. Among other things, this type of communication will reassure and provide confidence to your grant team members that you are actively communicating with the Agency and that communication regarding changes in status will be clear and swift. In the event your grant is, in fact, suspended or terminated, be prepared to provide immediate notice to your subrecipients and subcontractors directing them to stop work, identify costs to which they claim entitlement arising from and relating to any suspension or termination, and reasonably mitigate ongoing costs and potential damages.
6. Continue monitoring your grants funding situation and keep open lines of communication with your grant manager/administrator as Administration policies are implemented.

The Administration is executing its agenda at a pace and in a manner that is unprecedented. It is safe to say that government contractors and grant recipients will be forced to navigate uncharted waters for some time to come.

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