On August 7, 2025, President Trump issued an Executive Order (EO 14332) titled Improving Oversight of Federal Grantmaking (EO), which significantly changes how federal agencies review, award, and monitor “discretionary grants.” The EO places greater decision-making authority in the hands of senior agency appointees and adds new conditions that may increase the risk of mid-contract grant termination.
Notably, the EO states, “it does not include programs where legislation establishes an entitlement to the funds on the part of the recipient, such as block grants; those awarded based on a statutory formula; or disaster recovery grants.”
Key Changes
The EO requires agencies to strengthen review of funding opportunity announcements and discretionary awards to ensure alignment with the administration’s policy priorities and the “national interest.” Senior appointees will now have direct oversight over whether proposed and ongoing projects meet these priorities. In reviewing grant proposals, agencies are instructed to avoid funding programs that promote certain diversity, immigration, or gender identity-related activities, and to prioritize recipients that demonstrate measurable results and fiscal efficiency.
A major change is the requirement for all discretionary grant agreements to include “termination-for-convenience clauses.” This means that an agency will have explicit authority to end a grant mid-performance if it determines that the project no longer advances agency priorities or the national interest. The EO also directs agencies to incorporate similar provisions into existing grants where legally permissible.
The EO further limits the use of grant funds for facilities and administrative costs and adds new requirements for drawdowns, including detailed justification for each request.
Implications for Grant Recipients
Organizations that receive discretionary federal grants should be mindful that political and policy alignment may now play a greater role in funding decisions and continued eligibility. This creates heightened risk for projects or programs that could be perceived as conflicting with current federal policy, such as initiatives that appear to involve “illegal discrimination.”
Programs may need to be reviewed and revised to ensure compliance. Areas of potential concern include preferential or “diverse slate” hiring requirements, use of neutral criteria as a proxy for protected characteristics, segregation in resources (except for single-sex spaces for women), reliance on diversity quotas, and exclusionary training programs.
Next Steps for Employers
Recipients should review the U.S. Department of Justice’s July 29, 2025, guidance on unlawful discrimination by federal funding recipients. The memorandum warns that certain diversity, equity, and inclusion (DEI) practices may violate federal anti-discrimination laws and that noncompliance could result in funding termination or liability under the False Claims Act. Employers must continue to follow Title VII of the Civil Rights Act requirements while also observing applicable state and local protections for covered classes.
All programs, policies, and third-party arrangements supported by federal funds should be assessed to confirm they do not involve prohibited preferential treatment or indirect proxies for protected classes. Recipients should also review their existing grant agreements for termination provisions and prepare contingency plans for alternative funding in the event of early termination. Applicants for new grants should carefully evaluate whether proposed activities or organizational policies could be viewed as inconsistent with current federal priorities and adjust descriptions or implementation strategies where needed.
Finally, organizations are encouraged to work closely with legal counsel and other stakeholders to strengthen program evaluation processes, ensure measurable outcomes are clearly documented, and be prepared to provide detailed justifications for all drawdowns.
HR Works will continue to monitor this topic and provide updates as information is made available.
