New Oversight Rules Reshape Discretionary Federal Funding

According to an article by Laura Smith Morton and Christopher Wilkinson of Perkins Coie LLP, Executive Order 14332, “Improving Oversight of Federal Grantmaking,” significantly alters the process of awarding and monitoring discretionary federal funding. Issued on August 7, 2025, it requires all discretionary grants and funding opportunities to undergo review and approval by politically appointed senior officials, thereby embedding ideological and policy alignment directly into the funding process.

The order applies retroactively, authorizing agencies to revise existing grant terms and terminate awards “for convenience” if projects no longer align with agency priorities or administration goals. This includes projects currently under review, as well as those previously terminated. The Office of Management and Budget (OMB) has been directed to update federal financial assistance guidance to standardize termination clauses, limit use of funds for facilities and administration, and streamline application requirements.

Beyond procedural changes, the EO directs agencies to restrict discretionary federal funding for programs tied to diversity, equity, and inclusion initiatives, gender identity issues, or environmental policies deemed inconsistent with administration priorities. Agencies must also favor institutions with lower indirect cost rates and enforce compliance with so-called “Gold Standard Science” requirements.

For compliance officers and grant recipients, these developments introduce substantial uncertainty. Applicants must now navigate additional political and administrative hurdles, while existing awardees face heightened termination risks. 

As Morton and Wilkinson emphasize, the EO injects political discretion into every stage of the grant process. Organizations should closely monitor agency implementation, reassess their compliance practices, and evaluate litigation risks associated with shifting federal priorities.