Key Takeaways:
- The U.S. Office of Management and Budget has proposed significant revisions to the 2 CFR Part 200, commonly known as the Uniform Guidance, which governs federal financial assistance, including federal grants, cooperative agreements, and certain cost reimbursement contracts.
- The proposed changes would expand federal oversight, adopt new and modified restrictions on the use of federal funds, increase payment documentation and subrecipient monitoring requirements, and introduce new compliance and cybersecurity obligations for recipients and subrecipients.
- State and local governments should begin evaluating the potential impact now, as a final rule could become effective as early as October 1, 2026.
—
If your organization utilizes federal financial assistance (e.g., grants, cooperative agreements, rent-free use of facilities, food for school programs) to supplement or otherwise support programs, projects, and initiatives such as infrastructure, public safety, transportation, housing, social services, or other critical programs, the U.S. Office of Management and Budget’s (OMB’s) proposed changes to the Uniform Guidance warrant your attention and prompt action.
On May 29, 2026, OMB published a proposed rule that would substantially revise the federal framework governing grants, cooperative agreements, and other forms of federal financial assistance. The proposal represents one of the most extensive updates to federal grant and award regulations since the Uniform Guidance was first introduced in 2013. Public comments are due by July 13, 2026, and OMB has indicated that the final rule is planned for issuance, full adoption, and implementation by October 1, 2026 — the start of the federal fiscal year.
While the rule is still undergoing public comment and review, the scope of the proposed revisions makes it important to begin evaluating how the changes could affect your organization’s cash flows, indirect cost rate calculations, contracting, grant administration, compliance activities, internal controls, and oversight responsibilities.
A Fundamental Shift in Federal Grants Management
One of the most notable aspects of the proposal is that OMB would transform the Uniform Guidance into the “Uniform Grants Regulation” (UGR).
Although this may appear to be a minor naming change, the revision would establish a tone, expectation, and understanding that the Uniform Guidance is not general guidance adopted by individual federal agencies, but rather a binding government-wide regulation with independent authority. Through this update, the federal government is signaling both its expectation for compliance and, in conjunction, establishing a basis for stronger enforcement.
Proposed Changes Anticipated to Have the Most Significant Impacts
The proposal spans hundreds of revisions, but several changes could have particularly significant operational implications if you receive, administer, or pass through federal funding.
Expanded Federal Oversight of Grant Awards
The proposal would require senior political appointees to review discretionary awards prior to issuance and would place greater emphasis on alignment with agency priorities and the national interest.
For organizations pursuing competitive federal funding opportunities, this could result in:
- Longer proposal and application evaluation timelines
- Increased uncertainty during the award process
- Greater potential for funding decisions to change late in the application cycle
Expanded Authority to Suspend or Terminate Awards
The proposed rule would broaden federal agencies’ authority to suspend or terminate awards that are determined to no longer align with program objectives, agency priorities, or the national interest. Further, OMB incorporated additional language that requires pass-through entities to consult with federal agencies if and when a subrecipient takes an action that may harm the reputation of the pass-through entity or the federal government. The outcome of the consultation may include instruction from the federal government to the pass-through entity to terminate the applicable subaward.
For entities managing multi-year programs, the proposed changes create additional uncertainty around funding continuity and reinforce the importance of contingency planning.
Increased Documentation for Payments and Reimbursements
OMB has proposed eliminating fixed-amount awards and subawards while introducing a requirement for recipients and subrecipients to provide justifications and documentation supporting each payment request, including drawdowns for advances.
If adopted, your organization may need to:
- Shift more programs toward cost-reimbursement models to ease the potential burden of justifying advance payment requests
- Enhance supporting documentation for expenditures
- Re-evaluate cash flow assumptions associated with grant-funded programs to incorporate consideration of potentially longer payment timelines
Enhanced Subrecipient Monitoring Requirements
If your organization serves as a pass-through entity, the proposal could significantly expand your responsibilities for monitoring subrecipients and documenting compliance throughout the funding chain.
The proposed revisions would strengthen expectations pertaining to subrecipient-contractor determinations, oversight activities, and ongoing monitoring of downstream recipients. They would also place additional emphasis on identifying and addressing activities that could create compliance or reputational risks. Specifically, internal organizations, subsidiaries, and other related entities receiving transfers of federal funds (e.g., funding distributed from one government department to another under the same chief executive) would have to be assessed for subrecipient-contractor status and, if determined to be a subrecipient, subjected to the same compliance and reporting requirements.
As a result, you may need to devote additional resources to subrecipient oversight, monitoring, and documentation.
New Compliance and Internal Control Expectations
The proposed revisions continue OMB’s emphasis on strong internal controls while introducing additional requirements in several areas, including:
- Cybersecurity and protection of sensitive information
- Safeguarding confidential business information
- Conflict-of-interest disclosures involving certain former federal employees
- E-Verify program participation
- Expanded mandatory disclosure requirements
- Documentation of compliance activities and oversight procedures
These changes reinforce the growing expectation that recipients not only maintain policies and procedures but also demonstrate that controls are operating effectively.
Changes to Allowable Costs and Procurement Practices
The proposal includes revisions affecting cost allowability and procurement requirements, including additional scrutiny around certain conference, publication, advertising, public relations, travel, and lobbying-related costs. It also expands restrictions related to certain telecommunications, video surveillance, and unmanned aircraft purchases and other federally prohibited expenditures.
If these provisions are finalized, you may need to revisit procurement policies, approval workflows, vendor vetting procedures, grant expenditure review processes, written allowability procedures, and fringe benefit and indirect cost methodologies.
Why This Matters for Government Audits and Compliance
Historically, Uniform Guidance compliance has focused heavily on documenting adherence to administrative requirements and allowable costs.
The proposed revisions suggest a broader compliance framework that places greater emphasis on risk management, oversight, internal controls, and policy compliance throughout the grant lifecycle.
Areas likely to receive increased scrutiny include:
- Pre-award risk assessments
- Internal controls over federal programs
- Subrecipient monitoring
- Cybersecurity safeguards
- Documentation supporting payment requests
- Award administration and closeout activities
As a result, you may need to strengthen coordination among finance, grants management, procurement, legal, information technology, and program operations teams.
What Your Organization Should Be Doing Now
Although the rule is still in the preliminary stage, waiting for the final version could leave you with limited time to prepare if OMB follows its proposed implementation timeline.
Now is a good time to conduct a gap analysis by comparing the proposed requirements to your current:
- Grant policies and procedures
- Internal control frameworks
- Subrecipient monitoring practices
- Procurement processes
- Cybersecurity and data protection controls
- Training programs
This exercise can help you identify potential compliance gaps, prioritize implementation efforts, and respond more efficiently once the final rule is released.
You should also evaluate whether participating in the public comment process would be beneficial, particularly if specific provisions could create operational, financial, or compliance challenges for your organization.
Looking Ahead
At this stage, the proposal remains subject to public comment, and some provisions may change before the final rule is issued. Historically, final regulations often contain revisions based on stakeholder feedback, although major structural changes frequently remain intact.
What is already clear is that OMB is proposing a significant shift in how federal financial assistance is administered and monitored. If your organization depends on federal funding, understanding the proposed changes now can help reduce implementation challenges later.
How MGO Can Help
Our dedicated State and Local Government team helps public sector organizations navigate evolving federal grant requirements and prepare for regulatory change. We can help you conduct a gap analysis of your current grant policies, procedures, internal controls, and subrecipient monitoring practices to identify potential compliance risks and implementation needs.
Contact MGO today to learn how we can help your organization prepare for the proposed Uniform Guidance changes and strengthen its federal grants compliance framework.