Background

Between 2012 and 2013, OMB worked with Federal agencies to revise and streamline grants guidance to develop the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) located at 2 CFR part 200. Federal awards subject to these regulations generally include grants, cooperative agreements, direct appropriations, and other types of financial assistance.

In February 2023, OMB issued a Notice of Request for Information seeking public input for proposed revisions to the Uniform Guidance, indicating a goal to improve Federal financial assistance management, transparency, and oversight through more accessible and comprehensible guidance. Then in October 2023, OMB issued a corresponding “Guidance for Grants and Agreements” proposed rule, which has just been finalized.

Mirroring the proposed rule, OMB stated in the final rule its intention to revise 2 CFR part 200 for the purposes of:

1. incorporating statutory requirements and administration priorities;

2. reducing agency and recipient burden;

3. clarifying sections that recipients or agencies have interpreted in different ways; and

4. rewriting applicable sections in plain language, improving flow, and addressing inconsistent use of terms within the guidance.

As stated in its April 4, 2024 implementation memorandum, OMB’s revisions aim to “improve stewardship of Federal funds, promote equitable access to programs and services, reduce administrative burden for agencies, applicants, and recipients, and facilitate streamlined and effective oversight and implementation of Federal programs.”

Notes from the Preamble – Applicability

OMB made various noteworthy comments in the preamble to the final rule. For example:

1. Agency Implementation. OMB underscored its longstanding principle that “[i]n the case of individual Federal awards, the Federal agency making the award is the best source of information on agency implementation of 2 CFR and applicable agency regulations and requirements. Federal agencies are responsible for implementing the guidance for their Federal awards.” And although OMB set the government-wide effective date for October 1, 2024, the final guidance provides individual agencies flexibility to apply the final guidance to awards issued before October 1, 2024 (no earlier than 60 days after the final rule date of publication in the Federal Register). 

2. Terminology Changes and General Applicability. OMB replaced the term “non-Federal entity,” with “recipient”, “subrecipient”, or both throughout the guidance (except in the Subpart F Audit Requirements, because the Single Audit Act uses the term “non-Federal entity”). However, OMB emphasized that these terminology changes do not affect the existing application or scope of the guidance. For instance, the final rule clarifies that section 200.101 still gives Federal agencies discretion regarding whether to apply subparts A through E of part 200 to foreign public entities, foreign organizations, and for-profit entities.

2 CFR Parts 1 through 183

• Part 1 (About Title 2 of the Code of Federal Regulations and Subtitle A). OMB revised various headings to replace “Grants and Agreements” with “Federal Financial Assistance” to ensure that 2 CFR is understood as applicable beyond just grants and cooperative agreements, with some exceptions.

• Part 25 (Unique Entity Identifier and System for Award Management). OMB revised part 25 to align with authorizing statutes, including the Transparency Act and the DATA Act of 2014. OMB clarified that direct first tier subrecipients must obtain a “unique entity identifier” (UEI) but neither second tier subrecipients nor contractors under Federal awards must have a UEI. Direct first tier subrecipients are not required to complete a full SAM.gov registration. And Federal agencies may exempt foreign organizations or foreign public entities from completing full registration in SAM.gov for an award less than $500,000 that will be performed outside the United States.

• Part 170 (Reporting Subaward and Executive Compensation Information). OMB offered revisions in part 170 to improve transparency and accountability in the management of Federal awards. For example, recipients are now more clearly required to report subawards that meet or surpass the $30,000 threshold as a result of a subaward modification. Other changes included clarifying ambiguities, such as specifying that a recipient is exempt from reporting obligations where its organizational gross income is $300,000 or less in the “previous tax year.”

• Part 175 (Award Term for Trafficking in Persons). OMB aimed to align part 175 with amendments to the Trafficking Victims Protection Act (TVPA) of 2000. Prior to receiving a grant or cooperative agreement, if the estimated value of services required to be performed outside the United States exceeds $500,000, recipients must now certify that they have implemented an acceptable compliance plan to combat human trafficking. Recipients must also certify that their compliance procedures include mechanisms to “monitor, detect, and terminate any subrecipient, contractor, subcontractor, or employee of the recipient engaging” in human trafficking or other related prohibited acts. This part also now requires recipients to “immediately” inform their awarding agency and Inspector General of “credible information” received from any source alleging a human trafficking violation.

• Part 180 (OMB Guidelines to Agencies on Government-Wide Debarment and Suspension (Non-procurement)). OMB explained that the Interagency Suspension and Debarment Committee (ISDC) has responsibility to make major revisions to this part, and OMB’s role was therefore limited. OMB made two revisions in sections 180.635 and 180.640. These sections clarify that Federal agencies may use formal agreements to resolve an administrative action instead of debarment or suspension. At the ISDC’s direction, OMB made a few other changes focused on clarifying evidence and factors to consider for debarment and suspension.

2 CFR Part 184 Buy America Preferences for Infrastructure Projects

The final rule does not include substantive changes to part 184. OMB established part 184 during an August 2023 rulemaking (which we have previously covered). That rule standardized Build America, Buy America (BABA) requirements by adding the new regulations at 2 CFR part 184 and by amending the Uniform Guidance at 2 CFR § 200.322 to require compliance with the new regulations.

Part 184, as amended in August 2023, finalized significant domestic preference requirements to include:

• Definitions for key terms (e.g., “predominately iron or steel products,” “manufactured products,” and “construction materials”);

• Standards for determining the cost of components of manufactured products under BABA to meet the 55% cost of components threshold;

• Standards for incorporating iron or steel products into the project; and

• Provisions addressing the proposal and issuance of Buy America Waivers.

OMB’s final rule has made no substantive changes in this part and only makes minor, technical edits to align part 184 with newly revised definitions found in part 200.

Also relevant to Buy America sourcing requirements, 2 CFR § 300.322, Domestic preferences for procurements, received minor terminology updates. The regulation also now stipulates that Federal agencies providing Federal financial assistance for infrastructure projects must implement Buy America preferences set forth in 2 CFR part 184.

2 CFR Part 200

The majority of OMB’s revisions are to part 200, which focuses on pre-award and post-award requirements, including cost principles and audit requirements. Below, we outline relevant updates.

Subpart A

• Section 200.1 – Definitions. OMB made several adjustments to frequently used terms. Noteworthy changes include the following:

• Equipment. As in the proposed rule, OMB increased from $5,000 to $10,000 the threshold for determining items that are considered to be equipment.

• Supplies. The threshold for supplies also increased to $10,000.

• Cost sharing. OMB revised this term to clarify that cost sharing includes matching.

• Modified Total Direct Costs (MTDC). As proposed, the final definition increases from $25,000 to $50,000 the amount of subaward costs that are included in MTDC.

• Nonprofit organization. OMB clarified that a “nonprofit organization” as used in 2 CFR 200 is not intended to refer to an institution of higher education.

• Questioned Costs. OMB expanded the definition of “questioned costs” to include the concept of “likely questioned costs.” “Likely questioned costs” are “the auditor's best estimate of total questioned costs, not just the known questioned costs.” Although several contested adding the term “likely questioned costs”, OMB explained it is a widely used accounting term and already was referenced in previous versions of Subpart F (Audit Requirements).

• Subaward. The revised term clarifies that payments to individual and organizational beneficiaries are excluded from the definition of “subaward.”

• Termination. The new term specifies that a “[t]ermination does not include discontinuing a Federal award due to a lack of available funds.”

• Other updated terms include “Federal agency”, “Federal award date”, “financial obligations”, “improper payment”, “Indian tribe”, “intangible property”, “participant support costs”, “real property”, and “simplified acquisition threshold.” The complete list of updated definitions can be viewed in the Federal Register.

• New Terms. Based on feedback from Federal agencies and the public, OMB introduced several new terms, including the following:

• Participant. OMB added the term “participant” to capture some of the frequent demographics of participants (e.g., community members involved in outreach programs, teachers). OMB specified that its examples of participants are non-exhaustive and that specific determinations are within recipients’ discretion. However, OMB emphasized that recipients must document their policies for classifying participants using the criteria outlined in section 200.456 of the guidance.

• Prior Approval. OMB includes “prior approval” in its list of definitions to mean “written approval obtained in advance” by the Federal agency, a pass-through entity, or an authorized official. But it remains within a Federal agency’s reasonable discretion to retroactively provide prior approval under a Federal award in specific cases.

Subpart B

• 200.111 – English Language. Federal agencies are no longer required to exclusively use English in all notices, applications, and reports. OMB has now granted agencies “discretion” on when to deviate from English -- for example, when working in an “international environment.”

200.113 – Mandatory Disclosure. In a significant development, OMB revised the mandatory disclosure obligations to require an applicant, recipient, or subrecipient of a Federal award to “promptly disclose” whenever, in connection with the Federal award (including any activities or subawards thereunder), it has “credible evidence” of violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations, or the civil False Claims Act (31 U.S.C. 3729–3733). The previous requirement required disclosure of actual violations of Federal criminal law; with OMB’s revisions, the mandatory disclosure obligation more closely aligns with the Federal Acquisition Regulation (FAR) requirement for government contractors.

Subpart C

• 200.204; Appendix 1 – Notices of Funding Opportunities. OMB instructed Federal agencies to simplify Notices of Funding Opportunities (NOFOs) “in consideration of applicants with less experience applying for Federal financial assistance, such as applicants from underserved communities.” All NOFOs must now include an Executive Summary and use plain language to clearly and specifically articulate program requirements.

Subpart D – Post Federal Award Requirements

• 200.317–200.327 – Procurement Standards. OMB revised the general procurement standards to include a “board member” as an individual who could have a potential conflict of interest related to selection, award, and administration of contracts. In terms of competition requirements, OMB removed the prohibition in the Uniform Guidance on using geographic preference requirements, but emphasized that procurement must still be consistent with other applicable Federal law. For micro-purchase awards, OMB clarified that a recipient or subrecipient must maintain documents to support its conclusion when awarding micro-purchase awards without soliciting competitive price or rate quotations.

• 200.303 – Cybersecurity. Consistent with the modern information security enterprise, OMB updated its concept of grantee internal controls to require recipients and subrecipients to “[t]ake reasonable cybersecurity and other measures to safeguard information including protected personally identifiable information (PII) and other types of information.” OMB did not mandate a specific cybersecurity framework, but various funding programs and agencies may indicate a cybersecurity standard.

• 200.340 – Termination. As in the previous guidance, Federal agencies and recipients may terminate awards in certain circumstances. The final text adjusts an agency’s unilateral termination rights to clarify that a specific award term may allow an agency to terminate the award “if an award no longer effectuates the program goals or agency priorities.” The final text requires that Federal agencies and pass-through entities clearly and unambiguously include all termination provisions in the award terms and conditions. This new version may afford recipients greater transparency regarding triggers for award termination.

• 200.333 – Fixed Amount Subaward. Fixed amount subawards remain permitted, and OMB increased the threshold limit of these awards to $500,000 (up from $250,000). The increased threshold should allow prime recipients greater flexibility and efficiency to manage certain subawards, subject to prior approval to award a fixed amount subaward.

• 200.344 – Closeout. First, OMB clarified that entities are still required to submit an interim final report if they don’t have an indirect cost rate applicable to the period of performance. OMB also indicated that entities must submit a final report once the indirect cost rates have been finalized. Revised section 200.344 also grants agencies more flexibility to complete closeout procedures in a timely manner. For example, where an indirect cost rate has not been finalized and may delay closeout, the parties may now “mutually agree” to close an award based on a current or most recently negotiated rate. OMB specifies that recipients are not obligated to accept the agency proposal. OMB’s comments underscore that this revision “was not intended to grant agencies additional authorities to negotiate rates over cognizant agencies for indirect rates.” Instead, its purpose is to allow agencies to negotiate on a case-by-case basis with the overall goal of a timely closeout.

Subpart E – Cost Principles

• 200.400(g) – Policy Guide (Profit). OMB revised paragraph (g) of this section to clarify that funds remaining after a fixed amount award concludes is not considered profit. This explanation ensures there is no conflict between the use of fixed amount awards and the prohibition on profit in section 200.400(g).

• 200.414 – Indirect Costs. The final guidance includes a long-awaited increase of the de minimis rate from 10 percent to 15 percent. OMB provided that “this change would allow for a more reasonable and realistic recovery of indirect costs, particularly for new or inexperienced organizations that may not have the capacity to undergo a formal rate negotiation, but still deserve to be fully compensated for their overhead costs.” OMB made several notable comments regarding its indirect cost rate revisions.

• • OMB explained that recipients and subrecipients still have discretion to apply a rate lower than 15 percent. Moreover, OMB also clarified that, unless required by statute, awarding agencies may not compel recipients and subrecipients to adopt a de minimis rate lower than the revised 15 percent rate.

• • OMB also acknowledged that recipients and subrecipients and Federal agencies often disagree during the negotiation of indirect rates. For example, OMB noted that parties often disagree with the lengthy negotiation timeline or the actual rate that was established. Given these complications, OMB indicates in section 200.414(c)(2) that it will now serve as a resource for recipients and subrecipients during indirect rate disputes. Although OMB is now willing to participate in this process in some way, it emphasized that it will not serve as a “formal arbiter” of indirect cost rate disputes.

• 200.414(a) – Indirect Costs, Facilities and Administration Costs. OMB made a few adjustments to the way the term “facilities and administration” (“F&A”) is used. The Uniform Guidance previously featured “F&A” after the word “indirect” when discussing “indirect cost” and “indirect cost rate.” OMB decided to remove the term to clarify that “F&A” is not generally interchangeable with the term “indirect” in the context of negotiated indirect cost rates. Several institutions of higher education (IHEs) expressed concern with eliminating the term in relation to negotiated indirect cost rates and noted that the term is “necessary” and has widespread use within their community. In response, OMB stated that the current policy where IHEs classify their indirect costs into these two categories still applies. In other words, removing “F&A” from part 200 will not affect the use of the term “F&A” by IHEs.

• 200.419 – Cost Accounting Standards (DS-2). This section has been revised to exclude DS-2-related references. Accordingly, IHEs that don’t meet the CAS-covered contract threshold no longer have a DS-2 requirement. Those institutions that do meet the threshold would work with their cognizant agency to determine whether a DS-2 is required.

• 200.431 – Compensation & Fringe Benefits. OMB incorporated some of the feedback received during the public comment period and greatly scaled back some of its proposed revisions, particularly those concerning pension plan costs and post-retirement health. Notably, this section includes a new policy related to unused leave. When an institution uses the cash basis of accounting, “the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment and must be allocated as a general administrative expense to all activities.” (emphasis added).

• 200.431 – Severance Pay to Foreign Nationals. OMB clarified the allowability of severance payments to foreign nationals employed outside the United States. Where these payments are required under foreign law, a Federal agency is no longer required to expressly approve such payments.

• 200.458 – Pre-award Costs. This section remains largely unchanged. One notable change from the proposed rule is that approval for pre-award costs must receive written approval, but not necessarily “prior” written approval. OMB removed “prior” from the final text to eliminate any unintended policy changes but still emphasizes pre-award costs necessitate written approval.

Subpart F – Audit Requirements – General

• 200.501 – Audit Requirements. In this section, OMB raised the single audit threshold from $750,000 to $1,000,000. OMB reasoned that raising the threshold aligns with its goals to reduce agency and recipient burden.

• 200.514 – Standards and Scope of Audit. This section involves revisions to financial statement policies and audit compliance procedures. As one commenter highlighted, the Uniform Guidance did not establish a basis of accounting for an auditee’s financial statements. OMB agreed with that feedback and revised the section to allow auditees to use a “special purpose framework such as cash, modified cash, or regulatory as required by State law” to prepare financial statements. And the new requirement mandates that compliance testing consist of “tests of transactions or other auditing procedures” that will allow auditors to sufficiently determine an auditee’s level of compliance.

Closing thoughts

• Other Transaction Agreements. OMB explained that it did not incorporate Other Transaction Agreements (OTAs) into the guidance. Because of the unique nature of OTAs, OMB reasoned that individual agencies are best positioned to provide clarity on the applicability of the guidance to OTAs. As we know from experience, agencies routinely reference requirements and principles from Federal financial assistance regulations when negotiating and issuing OTAs.

• Key Personnel. Although the proposed rule included a definition for the term “key personnel”, OMB opted not to include it in the final guidance. OMB received several comments that its definition was confusing or unclear. Rather than align the definition with the term referenced in National Security Presidential Memorandum (NSPM-33) guidance, as some commenters suggested, OMB removed the term altogether without much explanation. However, OMB clarifies in section 200.308(f)(2), that in the context of that section, key personnel include “employees and contractors.”

• 200.411(d) – Adjustments (to F&A cost rates). Despite interest from the research community, OMB did not address current problems involving the treatment of indirect salaries exceeding the NIH salary limitation.

The final rule takes effect October 1, 2024. Each awarding agency must still implement the final rule, and recipients will watch closely to gauge the consistency of implementation across the government. As noted above, agencies may elect to apply the final guidance to Federal awards issued prior to October 1; however, if they do so, the effective date of the guidance must be no earlier than 60 days after the Final Rule’s publication in the Federal Register – no earlier than June 21, 2024.

We encourage all interested parties to review the guidance and familiarize themselves with the changes referenced above. We are available to answer any questions related to regulations governing Federal financial assistance.

Authored by William Ferreira, Will Crawford, and Lauren Colantonio.