Administrative – Grants – Termination

Where plaintiffs have requested a declaratory judgment regarding the “Termination Clause” in 2 C.F.R. §200.340, that request should be granted because the clause does not permit agencies to terminate grants based on program goals and agency priorities identified after grants were awarded.

“Plaintiffs — twenty states, three governors, and the District of Columbia — brought this action against Defendants U.S. Office of Management and Budget (‘OMB’), Russell Vought in his official capacity as Director of the OMB, and various grant-making Executive Branch agencies and their heads in their official capacity. This case concerns the ‘Termination Clause’ in 2 C.F.R. §200.340 (the ‘Regulation’), which was promulgated by OMB in 2020 and revised in 2024, and in parallel regulations issued by the Defendant grant-making agencies. …

“Plaintiffs move for summary judgment as to Count I of their Amended Complaint. This count seeks a declaratory judgment establishing three limits to the Termination Clause. The requested judgment would declare that the Termination Clause: (1) does not permit the withholding of congressionally appropriated funds on account of changed agency priorities; (2) cannot be invoked to terminate funding where an award’s terms and conditions do not specify that the award can be terminated pursuant to the Termination Clause; and (3) does not allow terminations based on new agency priorities that an agency identifies after granting the award. … Defendants respond that they do not challenge either of the first two requested limits and that they ‘fully agree that the government must comply with federal statutes and regulations in terminating grants.’ … Accordingly, the parties’ dispute solely concerns whether the Termination Clause allows terminations based on agency priorities that have changed after the agency has granted an award. …

“Plaintiffs contend that the Termination Clause does not authorize agencies to terminate awards based on new agency priorities not identified at the time of the award. Plaintiffs maintain that the clause instead only allows for terminations where a grant no longer can achieve the program goals and agency priorities identified when the award was first made. … Defendants disagree.

“After review of the plain language, regulatory scheme, regulatory history, the Spending Clause of the U.S. Constitution, and Defendants’ argument regarding the implementation of the President’s vision, the court agrees with Plaintiffs and finds that the Termination Clause does not permit agencies to terminate grants based on program goals and agency priorities identified after grants were awarded. …

“Accordingly, the court finds that the Termination Clause does not permit the termination of grants based on their inability to effectuate program goals and agency priorities identified after the award was made. …

“The court declares that 2 C.F.R. §200.340(a)(4) (2024) and 2 C.F.R. §200.340(a)(2) (2021) do not allow terminations of awards based on new program goals or agency priorities that an agency identifies after granting the award.”

State of New Jersey, et al. v. United States Office of Management and Budget, et al. (Lawyers Weekly No. 02-360-26) (32 pages) (Talwani, J.) (Civil Action No. 1:25-cv-11816-IT) (July 17, 2026).

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