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Funding Interrupted: Navigating Grant Terminations in a Shifting Federal Landscape
By Sarah Legner, CGMS, and Ashley Swain, JD, HORNE

The August 2025 Grants Management webinar, Funding Interrupted: Navigating Grant Terminations in a Shifting Federal Landscape, addressed one of the most pressing issues in today’s federal funding environment: the increasing frequency of grant terminations and the evolving rules that govern them. The session provided a detailed overview of the regulatory requirements under the Uniform Guidance, recent policy changes, and strategies for grantees to remain resilient amid uncertainty. Missed the live presentation? Access the recording here.

Understanding Federal Grant Terminations
 
At the foundation of the discussion was an overview of how federal grants may be terminated and the regulations around grant terminations under 2 CFR 200.340-345. Grants may end in three primary ways:

  • For Cause – A funding agency unilaterally ends a grant due to noncompliance.
  • By Mutual Agreement – Both parties consent to end the grant under agreed terms.
  • For Convenience – A federal agency discontinues the award due to shifting priorities or funding changes.

Termination provisions must be clearly defined in grant agreements and passed down to subrecipients and contractors. Grantees also carry specific responsibilities during and after termination, including closeout procedures, returning unobligated funds, and managing property and records. Importantly, certain costs, such as personnel termination expenses or unrecoverable activity costs, may be allowable under 2 CFR 200.472 if they are reasonable and not due to negligence.
 
Recent Policy Shifts Impacting Terminations
 
The federal landscape has shifted considerably in 2025, reshaping how terminations are handled and what grantees must prepare for. Two key developments are:

  1. The One Big Beautiful Bill Act (OBBBA)
    This legislation introduced faster termination timelines, expanded discretionary authority for agencies, and added new reporting and justification requirements. While the provisions increase transparency and oversight, they also require grantees to adapt quickly when awards are reduced or discontinued. OBBBA also established enhanced protections for grantees, including clearer appeals pathways and stronger expectations for contingency planning.

  2. Executive Order on Improving Oversight of Federal Grantmaking
    Issued on August 7, 2025, this Executive Order (EO) requires annual reviews of discretionary awards, limits the use of these funds for administrative costs, and directs OMB to update the Uniform Guidance. Notably, the EO allows agencies to terminate discretionary grants “for convenience” if they no longer align with national priorities, signaling greater volatility for many programs. Agencies are now encouraged to incorporate termination clauses into current and future agreements, making it even more important for recipients to read the fine print of their awards.

Strategies for Navigating Terminations
 
Preparedness and agility are key in managing grant terminations. Grantees are advised to:

  • Closely monitor federal funding notices and guidance for early signs of changing priorities.
  • Maintain thorough documentation of policies, expenditures, and performance reports to support compliance and potential appeals.
  • Establish internal communication protocols to ensure quick, coordinated responses to termination notices.
  • Build risk mitigation and contingency plans into every program, including diversifying funding sources and strengthening relationships with state and local partners.

Additionally, communication is key. Upon receiving a termination notice, grantees should immediately clarify scope and requirements with the awarding agency, notify all subrecipients and contractors, and document every interaction and cost incurred. Appeals processes differ by agency, but preserving rights through timely documentation and legal consultation is essential.
 
Key Takeaways

  1. Federal policy changes have expanded agency authority to terminate grants more quickly and for broader reasons, requiring grantees to stay alert to shifting political and budget priorities.

  2. Thorough documentation, clear communication, and contingency planning are critical tools for navigating unexpected terminations and safeguarding allowable costs.

  3. Grantees must proactively prepare by building risk mitigation protocols, monitoring federal guidance, and understanding appeals processes to remain resilient in today’s volatile funding environment.

In the current federal climate, we see that grant terminations are no longer rare exceptions but a growing feature of the federal funding landscape. With new legislation and executive directives reshaping the rules, grantees face greater uncertainty, but also greater opportunity to strengthen internal systems, ensure compliance, and build resilience. By focusing on preparedness, documentation, and communication, organizations can position themselves to navigate terminations effectively and continue advancing their missions despite federal shifts.