Proposed Changes to Federal Grant Cost Principles

§ 200.401 – Application of Cost Principles: Nonprofit Exemption Narrowed

Current rules allow certain nonprofits to operate under the for-profit cost principles (48 CFR Part 31.2) rather than Subpart E, based on a list of exempt organizations maintained in Appendix VIII. The proposal makes two significant changes:

• Appendix VIII eliminated: The list of specifically exempted nonprofits is removed entirely. The prior approach was criticized for creating uncertainty and allowing agencies to informally expand exemptions.
• Exemption narrowed to an objective test: Going forward, only nonprofits that (1) receive 90% or more of their federal funding in the form of contracts (not grants), or (2) operate a Federally Funded Research and Development Center (FFRDC) may use the for-profit cost principles.

All other nonprofits, including those that may have previously relied on Appendix VIII status, must comply with Subpart E cost principles. Organizations that currently use the for-profit cost principles should verify whether they continue to qualify under the new standard.

§ 200.421 – Advertising and Public Relations: Significantly Restricted

The proposal flips the default rule: advertising and public relations costs become unallowable unless they fall within a narrow set of exceptions.

Allowable advertising costs are limited to those:

• Required by statute;
• For procurement of goods and services for the federal award;
• For disposal of scrap or surplus materials; or
• For program outreach and other purposes specifically necessary to meet award requirements.

Public relations costs are allowable only if required by statute. Any advertising or PR costs that do not directly benefit the specific federal award are unallowable. Organizations should review whether any current award budgets include marketing, communications, or outreach costs and assess whether they would survive this narrower standard.

§ 200.429 – Commencement and Convocation Costs: Extended to All Entities

The existing prohibition on commencement and convocation costs previously applied only to institutions of higher education (IHEs). The proposal extends this prohibition to all entity types, including nonprofits. If your organization hosts or participates in events that could be characterized as ceremonial or celebratory in nature, ensure such costs are not charged to federal awards.

§ 200.432 – Conferences: Prior Agency Approval Now Required

This is one of the most operationally significant proposed changes for program staff and management. Under the proposal, conference attendance costs are allowable only if:

• Participation in the conference is expressly approved by the awarding agency; and
• That approval is documented in the terms and conditions of the award.

Under current rules, conference costs are allowable if they benefit the award and are reasonable and necessary. The proposed change requires advance, documented agency approval, meaning attendance at even professionally relevant conferences cannot be charged to a federal award unless the agency has specifically authorized it in the award document. Organizations should begin tracking which awards include conference attendance authority and revisit their budget practices accordingly.

§ 200.442 – Fundraising and Investment Management: Prior Written Approval Required

Fundraising and investment management costs have long been treated as generally unallowable, with limited exceptions. The proposal formalizes and tightens this by requiring prior written approval from the federal agency even for the narrow circumstances under which such costs might be charged. Organizations should ensure these costs are never charged to federal awards without express written agency authorization.

§ 200.444 – General Costs of Government: Definition Added

A new paragraph (b) defines “general costs of government” as costs related to the general activities of executive, legislative, or judicial branches, including public safety, public information, citizenship, enrollment, or taxation, which are not tied to a specific federal award. Councils of Government (COGs) are removed from the existing scope of this section. This primarily affects governmental recipients but may also affect nonprofits operating as pass-through entities receiving funds from state or local governments.

§ 200.450 – Lobbying: Three New Prohibitions Added

The existing lobbying cost prohibitions are expanded with three new paragraphs that significantly broaden the activities considered unallowable:

• Voter registration [proposed § 200.450(c)(1)(iii)]: Federal award funds may not be used to fund voter registration campaigns, drives, or related activities.
• Issue advocacy [proposed § 200.450(c)(1)(iv)]: Federal funds may not be used for issue advocacy or public messaging that promotes or opposes a social, political, or public policy position unrelated to the statutory objectives or performance requirements of the award. This includes messaging designed to influence public attitudes on matters that are not necessary to accomplish the award’s purpose.
• State government influence [proposed § 200.450(c)(1)(v)]: Federal funds may not be used to influence the executive branch of any state government on matters unrelated to the objectives or performance requirements of the award, including attempts to affect state agency policymaking, rulemaking, or administrative actions.

These additions have broad implications for advocacy organizations and nonprofits that engage in policy education or public awareness activities. Careful attention to whether any federally funded staff time, indirect cost allocations, or direct costs touch these categories is critical.

§ 200.454 – Memberships, Subscriptions, and Professional Activities: Tightened

Allowable membership and subscription costs are restricted to those necessary to fulfill award requirements, and prior federal agency approval is now required. Costs for memberships in:

• Country clubs, and
• Organizations whose primary purpose is lobbying or issue advocacy

are explicitly identified as unallowable. Organizations with professional association memberships, trade group dues, or subscriptions to policy publications should evaluate whether those costs can be justified as necessary to fulfill specific award requirements, and begin seeking prior approval accordingly.

§ 200.455 – Organization Costs: Data System Alignment

A clarification is added requiring that data costs related to integrated data systems align with the Federal grants data standards published on Grants.gov, in support of the GREAT Act (P.L. 116-103). Organizations building or maintaining data systems supported by federal grants should ensure those systems are consistent with the published standards at grants.gov/data-standards.

§ 200.461 – Publication and Printing Costs: Unallowable Unless Approved

This proposed change has significant implications for research institutions, policy organizations, and any nonprofit that routinely charges publication costs, such as journal article processing fees, report production, or dissemination materials, to federal awards.

Under the proposal, publication costs would be unallowable by default unless:

• Expressly required by statute; or
• Approved in advance by the federal agency on a case-by-case basis.

OMB’s rationale is that publication activities are often discretionary, serve institutional or reputational interests of the recipient rather than the specific program, and lead to inconsistent charging practices. For research organizations in particular, where publication of results is a standard expectation, this change could require a wholesale revision of award budget templates and post-award charging practices. Early engagement with program officers on this topic is strongly recommended if the rule is finalized.

§ 200.467 – Selling and Marketing Costs: Explicit Prohibition Clarified

The proposal clarifies that selling and marketing costs for a recipient’s own products or services are unallowable unless expressly included in the federal award and necessary to meet award requirements. While these costs were generally unallowable under existing rules, the revision makes the prohibition more explicit and ties any exception to specific award document language.

§ 200.477 – Elective Abortion Costs: New Unallowable Category

A new selected item of cost is added to Subpart E making costs associated with elective abortions unallowable under federal awards, except as expressly authorized by Federal law. This codifies the Hyde Amendment restrictions and Executive Order 14182 (January 24, 2025) into the cost principles framework, providing uniform application across all federal financial assistance programs. Health care organizations, federally qualified health centers, and family planning providers should review this provision in the context of their specific program funding streams.