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OMB Issues Final Rule to Update Guidance for Federal Grants, Agreements, and Financial Assistance

The White House Office of Management and Budget published a final rule to update its regulations at Title 2, Subtitle A of the Code of Federal Regulation (CFR) (currently titled “Office of Management and Budget Guidance for Grants and Agreements”). Alongside the final rule, OMB also released Memorandum M-24-11 (“Reducing Burden in the Administration of Federal Financial Assistance”) to provide guidance for federal agencies in implementing the final rule. Among other things, M-24-11 directs federal agencies to implement the final rule’s revisions by October 1, 2024 and to provide additional tools to strengthen and streamline the administration of federal grants and financial assistance. This rule and related guidance only apply to federal grants and financial assistance. They do not apply to federal contracts. Federal financial assistance means assistance that non-federal entities receive or administer in the form of: (1) Grants; (2) Cooperative agreements; (3) Non-cash contributions or donations of property (including donated surplus property); (4) Direct appropriations; and (5) Food commodities. It does not include: (1) Loans; (2) Loan Guarantees; (3) Interest subsidies; and (4) Insurance.

Subtitle A provides OMB guidance to federal agencies that helps ensure consistent and uniform government-wide policies and procedures for management of financial assistance from federal agencies. Through this final rule, OMB is implementing updates to a number of relevant elements of Subtitle A. Overall, OMB states that it is finalizing revisions to the “Uniform Guidance” to: (1) incorporate statutory requirements and administration priorities; (2) reduce agency and recipient burden; (3) clarify sections that recipients or agencies have interpreted in different ways; and (4) rewrite applicable sections in plain language, improve flow, and address inconsistent use of terms.

Of particular interest, the final rule also revises 2 CFR 200.318 to clarify that recipients/subrecipients must consider contractors’ “proper classification of employees” under the Fair Labor Standards Act (in addition to integrity, past performance record, etc.) when conducting a procurement transaction. The final rule includes a series of additional labor-related provisions at 2 CFR 200 that are noteworthy. Most prominently, the final rule revises 2 CFR 200.318 (“General procurement standards”), which outlines requirements for procurement transactions under a federal award or subaward. OMB is adding a new paragraph to Section 200.318 explicitly stating that the procurement standards do not prohibit recipients or subrecipients from: (1) using project labor agreements or similar forms of pre-hire collective bargaining agreements; (2) requiring construction contractors to use hiring preferences or goals for people residing in high-poverty areas, “disadvantaged communities” (as defined by the Justice40 Initiative OMB Memorandum M-21-28), or high-unemployment census tracts within a region no smaller than the county where a federally funded construction project is located; (3) requiring a contractor to use hiring preferences or goals for individuals with barriers to employment, including women and people from underserved communities; (4) using agreements intended to ensure uninterrupted delivery of services; (5) using agreements intended to ensure community benefits; or (6) offering employees of a predecessor contractor rights of first refusal under a new contract. OMB makes clear that agencies may allow recipients and subrecipients to utilize these practices if consistent with the U.S. Constitution, applicable federal statutes and regulations, the objectives and purposes of the applicable federal financial assistance program, and related requirements. 

Separately, the final rule revises 2 CFR 200.319 (“Competition”), which generally provides that procurement transactions under a federal award must be conducted in a manner that provides full and open competition. In addition to removing an existing prohibition on using geographic preference requirements (noting that any geographic preferences used under a federal award must be consistent with governing law outside of part 200), OMB is adding a provision to clarify that recipients/subrecipients are generally not prohibited from developing written procedures for procurement transactions that incorporate a scoring mechanism that rewards bidders that commit to “specific numbers and types of U.S. jobs, minimum compensation, benefits, on-the-job-training for employees making work or products providing services on a contract, and other worker protections.” The final rule similarly does not prohibit recipients/subrecipients from making inquiries of bidders about these subjects and assessing the responses.

Additional labor-related elements of the final rule include: (1) revisions to 2 CFR 200.455 (“Organization costs”) to clarify that any costs associated with either persuading or dissuading employees from collective bargaining and related activities are not allowable under federal awards; and (2) revisions to 2 CFR 200.204 (“Notices of funding opportunities”) to expressly encourage federal agencies to make every effort to identify in a “Notice of Funding Opportunity” all eligible applicants – “for example, different types of nonprofit organizations such as labor unions.”

The effective date for the final rule is October 1, 2024.OMB notes that federal agencies may elect to apply the final guidance to federal awards issued prior to October 1, 2024, but they are not required to do so.

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