In today’s changing economic and political climate, federal grant terminations are happening more often. Agencies are reviewing existing grants to make sure they comply with current laws and serve the best interests of the country. These reviews, along with new executive orders like the March 2025 directive to cut nonessential federal programs, have led to many grants being reduced, restructured, or ended altogether.
If your organization has received a termination letter, you’re not alone. Many nonprofits are now facing sudden funding losses as agencies shift priorities and reduce spending. These letters usually explain why the grant is ending, when it takes effect, and what steps you need to take next.
For nonprofits that rely on federal support, a grant termination can be a serious disruption. But it’s important to know that the end of funding does not mean the end of your responsibilities. There are still compliance and closeout requirements you must follow—including reporting, cost management, and potentially responding to the termination decision.
This guide breaks down what to do if you receive a termination letter. It covers key rules and steps to protect your organization’s finances, reputation, and future eligibility for government funding.
1. Understand the Regulatory Framework
The closeout and termination process for grants is primarily governed by the Uniform Administrative Requirements (2 CFR Part 200, Subpart D), specifically:
- §200.340–342: Termination rights and notification requirements
- §200.343: Effects of termination
- §200.344: Closeout procedures
- §200.345: Post-closeout responsibilities
- §200.472: Allowable closeout and termination costs
In addition to these regulations, it’s essential to review the termination clause in your specific grant agreement, as this outlines the terms under which your award can be ended. Each federal agency may also have its own termination procedures and protocols, which must be followed closely to ensure full compliance throughout the closeout process.
2. Immediate Steps Upon Receiving a Termination Notice
- Review your award agreement thoroughly to understand the termination clause. Look for any agency-specific closeout guidance or previously issued conditions.
- Contact your program officer immediately to confirm timelines and obtain any supplemental closeout instructions.
- Inventory all federal grants and contracts to ensure full understanding of applicable obligations – programmatic, financial, or contractual—that may extend beyond the termination date.
- Document every action and decision you take in response, including communications with funders, internal financial planning, and stakeholder updates. This paper trail is essential for any future audit or appeal.
3. Allowable Termination and Closeout Costs
Under 2 CFR §200.472, certain costs incurred due to termination can be recovered if they meet the following criteria:
- Properly incurred prior to the effective termination date, and
- Would have been allowable if the award had continued.
More specifically, the regulation provides that costs are allowable if they are:
- Reasonable: Reflect what a prudent person would pay under similar circumstances.
- Allocable: Directly related to the terminated portion of the federal award.
- Not due to negligence or willful disregard: Costs arising from failure to act responsibly post-termination are unallowable.
Allowable termination and closeout costs include:
- Personnel: Time spent on final reporting, reconciliation, and record retention.
- Legal and Accounting: Costs for resolving obligations, finalizing records, and assisting with audits, termination and settlement of subawards.
- Disposition of Property: Costs tied to disposal or transfer of grant-funded equipment or supplies such as storage, transportation protections and disposition.
- Final Audit: If your award requires an audit, costs associated with its completion are typically allowable.
- Contract and Subaward Settlements: Including reasonable cancellation fees or partial payments for deliverables in progress.
- Administrative Closeout Costs: General overhead to complete reports, notify subrecipients, and wind down.
- Lease Obligations: Extended lease costs may be allowed if you’ve made reasonable efforts to mitigate them (e.g., subleasing, cancellation).
- Other close out costs: publication, printing and related indirect costs.
Tip: If you believe a specific cost is justifiable but not clearly addressed in §200.472, request written approval from the funding agency.
Examples of Unallowable Costs During Termination and Closeout:
- New contracts to implement program activities
- Travel unrelated to closeout
- Ongoing expenses due to negligent inaction after the termination notice
- Costs outside the award’s scope without explicit approval
4. Managing Subrecipients and Contractors
Ensure that your termination clause flows down to subrecipients and contractors. As prime recipient, you’re responsible for:
- Closing out subawards and collecting all deliverables or final reports.
- Settling subrecipient obligations: For cost-reimbursement agreements, use the same standards of allocability and reasonableness that apply to you; For fixed-price awards, pay for clearly completed deliverables.
- Including subrecipient closeout costs in your termination report and final drawdown.
Request subrecipient termination budgets early and ensure that only necessary costs are included.
5. Financial Reconciliation and Refunds
Under 2 CFR §200.344(e): “The recipient or subrecipient must promptly refund any unobligated funds… not authorized to be retained.”
That means:
- Reconcile your actual expenditures against your approved budget
- Return any unspent or disallowed funds within the agency’s deadline
- Submit all required financial, performance, and property disposition reports
Even if the termination puts your organization under pressure, completing this step is essential—and will be closely reviewed during any post-closeout audits.
6. Know Your Rights: Objections and Appeals
Federal grant recipients have specific, codified rights to object to and appeal the termination of a grant award. Under 2 CFR §200.342, recipients have the right to:
- Challenge terminations
- Submit objections and supporting documentation
- Request hearings or administrative appeals, depending on the agency’s process
7. Prepare for Post-Closeout Responsibilities
Closing out a federal grant does not mean your responsibilities end. Under 2 CFR §200.345, several obligations continue even after the final report is submitted and funds are reconciled.
These include:
- Maintaining records for the full retention period as required by §200.334–200.337
- Remaining subject to audits or monitoring, which may lead to cost disallowances and recovery of funds if issues are found
- Complying with property management rules under §200.310–200.316, including proper use, disposition, or return of equipment purchased with federal funds
- Addressing financial adjustments, such as refunds, corrections, or indirect cost rate changes
- Responding to agency inquiries or requests, including documentation for cost clarifications or property disposition
Even after closeout, the federal awarding agency can re-open or adjust the award in certain cases. That’s why it’s critical to keep thorough documentation, maintain communication with the agency, and be ready to respond if questions or audits arise.
8. Practical Tips for Your Organization
Navigating a grant termination requires careful financial and operational planning. Use the following tips to stay compliant, protect your organization’s financial health, and prepare for possible audits or reviews:
Prioritize allowable spending before the termination date
Focus on completing deliverables and wrapping up activities that are clearly within the original scope of work. Avoid starting any new initiatives that were not already approved.
Avoid incurring unallowable costs
Make every effort to cancel or reduce ongoing obligations like leases, travel, or consulting contracts.
Review and update your cost allocation plans
Ensure that any final charges to the grant are allocable, reasonable, and documented. Eliminate overlap between direct and indirect costs, and review subrecipient settlements for compliance.
Create internal systems to track closeout and post-termination costs
Separate tracking for closeout-related expenses—such as staff time for final reporting, property disposition, or audit prep—is key for documentation and future review.
Request written approval for any questionable or exceptional costs
If you’re unsure whether a specific cost is allowable under the termination terms, contact your agency program officer for clarification and obtain approval in writing.
Document everything
Keep detailed records of communications, approvals, financial adjustments, and property disposition activities. These will be critical in the event of a post-closeout audit or compliance review.
Federal grant terminations are challenging, but with careful planning and understanding of federal requirements, your organization can limit disruptions and recover all eligible costs.
