Key insights
- Shifting orders and directives affect many sectors, including education, health care, and international aid. Understanding the impacts can help you make informed decisions about operations and funding strategies.
- Understanding evolving regulations, such as the NIH’s indirect cost rate cap and the executive order on DEI programs, can help you meet federal requirements and avoid legal issues.
- Well-informed organizations can proactively engage with policy changes and leverage their strengths to effectively support their communities and achieve their goals.
Get help developing strategies for effective grants management.
Recently issued executive orders, directives, and policy shifts impacting federal grant recipients have caused much uncertainty regarding funding and operations.
As new policy notices and the related legal actions evolve, it’s important for grant recipients to adapt accordingly. A clear understanding of the current situation can help your organization develop strategies for addressing these funding changes effectively.
National Institutes of Health indirect cost notice
The National Institutes of Health (NIH) recently issued “Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates,” stating NIH is imposing a standard indirect cost rate on all grants of 15%. This notice says the cap on the indirect rate will allow grant recipients a reasonable and realistic recovery of indirect costs while helping NIH make sure grant funds are primarily used to advance its mission.
Key points of the NIH notice
- The notice states that as of February 10, an indirect cost rate cap of 15% would be in place for new and any expenses incurred on or after that date for existing grants.
- Per the notice, the 15% limit would replace previously negotiated rates with universities and research institutions.
- NIH would not be applying this cap retroactively to the initial date of issuance of current grants to institutes of higher education, although the authority to do so may exist under 45 CFR 75.414(c).
Several lawsuits have been filed.
Overview of recent executive orders
| Release Date | Source | Notice |
|---|---|---|
| January 21, 2025 | Executive order | Ending Illegal Discrimination and Restoring Merit-Based Opportunity |
| January 21, 2025 | Executive order | Reevaluating and Realigning United States Foreign Aid |
| January 24, 2025 | State Department | Additional guidance on Reevaluating and Realigning United States Foreign Aid |
| January 29, 2025 | Executive order | Expanding Educational Freedom and Opportunity for Families |
| February 7, 2025 | National Institutes of Health | Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates |
Ending Illegal Discrimination and Restoring Merit-Based Opportunity
The executive order “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” implements several modifications that could affect federal grant recipients with diversity, equity, and inclusion programming.
Key points of the executive order
- Directs the Office of Management and Budget to remove all DEI-related language from federal guidance.
- Requires all federal grantees to certify they do not run programs promoting DEI in a way that violates anti-discrimination laws.
- Calls for potential investigations into large nonprofits, universities, and associations engaged in DEI initiatives.
Some agencies have also issued directives to awardees to cease working on elements of their funded projects related to diversity, equity, inclusion, and accessibility. A lawsuit has been filed.
Reevaluating and Realigning United States Foreign Aid
Executive order “Reevaluating and Realigning United States Foreign Aid” impacts development assistance funds to foreign countries and non-governmental organizations, international organizations, and contractors — requiring a review to assess whether aid allocation is aligned with the administration’s approach to foreign policy. The State Department followed up with additional guidance.
Key points of the executive order
- Department and agency heads have responsibility for United States foreign development assistance programs to immediately pause new obligations and disbursements of development assistance funds, pending reviews of such programs.
- Program review includes evaluating programmatic efficiency and consistency with United States foreign policy and is to be conducted within 90 days of the order.
- The U.S. State Department’s additional guidance on the order’s implementation plans stated no new obligations for foreign assistance shall be made and stop-work orders are to be issued for existing foreign assistance awards.
- The secretary of state also ordered pending solicitations, requests for proposals, and grants and other requests for foreign assistance funding to be halted and the review process to be suspended.
A lawsuit has been filed.
Expanding Educational Freedom and Opportunity for Families
The executive order “Expanding Educational Freedom and Opportunity for Families” aims to enhance education by promoting school choice and educational freedom for families. Various departments — including Education, Labor, Health and Human Services, Defense, and the Interior — are directed to review and plan how their funds can further support educational choice.
Key points of the executive order
- States may be permitted to allocate federal formula funds to support K-12 educational choice initiatives.
- Discretionary grant programs are directed to prioritize educational freedom.
- Block grants are to be redefined to include supporting families who elect to attend a non-public educational institution.
- Military-connected families may receive funding to attend, among others, private faith-based schools.
- Families eligible to attend Bureau of Indian Education schools may have additional options for spending their federal funding allocation, including towards faith-based schools.
Navigating the impact of executive orders
For more information on this topic, watch our on-demand webinar about navigating federal funding uncertainty.
These orders and notices can have broad impacts on a host of organizations from nonprofits and higher education institutions to K-12 and health care and life science companies and more. Consider the following:
- Regarding NIH indirect costs, many federal grant recipients use the ability to receive a federally negotiated indirect cost rate in accordance with the cost principles found in the Uniform Guidance. It will be important for those choosing to enter into a new negotiation, whether it be a first time or renewal, to be aware of the new regulations and how to perform the new indirect cost rate calculation.
- Regarding K-12 education, the order could impact grant recipients, particularly those involved in education and family support services. It could offer broader educational options to families, including charter schools, private schools, and homeschooling resources. On the flip side, the expansion may be offset by reduced funding for other organizations.
- Regarding DEI programs, grant recipients currently maintaining these programs should review this order and be aware it includes a certification requirement. Further, grant recipients should be alert to any potential new grant conditions requiring adherence to non-discrimination laws.
- With respect to the foreign aid order, many organizations reliant on USAID funding, for example, have already changed or stopped programming due to the pause and potential cancellation of those funds. Nonprofits operating abroad face uncertainty as existing contracts are suspended and new funding opportunities are frozen.
- Overall, grant recipients will need to analyze orders and notices for any potential impacts on ongoing operations. Contingency plans, cash-flow forecasting, restructuring, and alternative revenue sources should all be reviewed.
- As various court cases play out, agencies may continue to review existing grants for compliance with these recent executive orders. Federal grantees should review and update their compliance programs to reflect an evolving landscape.
How CLA can help with federal funding challenges
By staying informed, proactively engaging with policy changes, and leveraging strengths, federal grant recipients can continue to play important roles in addressing myriad needs of their communities and supporting global development goals.
We have a team of experienced professionals digging into the new changes and can help you navigate the complexities of federal grants. Whether you need assistance in developing effective strategies to implement grant management policies and procedures, or need training on understanding compliance requirements, CLA can help you through the process.
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