How to Respond to Federal Grant Suspension or Termination
In the world of grants management, few topics spark as much anxiety as noncompliance and termination. Whether you’re a seasoned grant professional or just beginning your journey, understanding what happens when things go wrong is critical. The consequences of noncompliance don’t just affect one project — they can jeopardize your organization’s reputation, future funding, and long-term sustainability.
In this article, we’ll unpack what 2 CFR 200, Sections 339 through 343 say about noncompliance, termination, notifications, appeals, and the financial impacts of suspension or termination. More importantly, we’ll explore what you can do to stay compliant and protect your organization.
1. What Happens When You’re Out of Compliance
According to 2 CFR 200.339, when a recipient or subrecipient fails to meet the requirements of a federal award — whether due to missing regulations, statutes, or specific award conditions — the federal agency or pass-through entity has several options.
Initially, they may impose specific conditions on your grant to correct the issue. But if the problem persists, the situation can escalate quickly. The agency may:
Temporarily withhold payments until corrective actions are taken
Disallow costs related to the noncompliance
Suspend or terminate the award (in whole or in part)
Initiate suspension or debarment proceedings
Withhold future awards or continuation funding
Pursue other legal remedies available under federal law
These measures can be severe. A single unresolved compliance issue can halt funding, damage your organization’s credibility, and even prevent you from applying for future grants. That’s why maintaining internal controls and strict adherence to terms and conditions is your best defense.
2. Understanding Termination (2 CFR 200.340)
Termination represents the final step when compliance issues cannot be resolved. According to the regulation, termination may occur in several ways:
By the federal agency or pass-through entity due to noncompliance
By mutual agreement between both parties
By the recipient’s written request to terminate
Or by the agency itself if the project no longer aligns with program goals or priorities
In all cases, the agency must send a formal termination notice. This notice must include:
The reason for termination
The effective date
The portion of the award being terminated
If the termination is due to noncompliance, the agency must also report it in SAM.gov, where it will remain visible for five years. Other federal agencies are required to review this record when evaluating future funding requests that exceed the simplified acquisition threshold.
This means that a single instance of termination can follow your organization for years, impacting your ability to compete for future awards. However, you can add comments in SAM.gov to provide your side of the story a small but important step in managing your organization’s reputation.
3. Notification, Objections, and Appeals (2 CFR 200.341–342)
While the termination process can feel intimidating, it’s not one-sided. Federal agencies are required to follow procedural fairness and provide clear, written procedures for handling objections, hearings, and appeals.
As a recipient, you have the right to:
Receive a written notice explaining why your grant was terminated
Understand the effective date and scope of the termination
Submit objections or an appeal
Provide supporting evidence to defend your organization
Agencies cannot simply terminate an award without due process. This means that timely communication, documentation, and organized recordkeeping can make a significant difference in the appeal process.
4. The Financial Impact: Suspension and Termination (2 CFR 200.343)
Once a grant is suspended or terminated, the financial rules become strict. Any costs incurred during the suspension or after termination are typically unallowable, unless specifically authorized in writing by the agency.
There are only two exceptions:
Costs incurred before suspension or termination that were not made in anticipation of it may still be allowable.
Costs that would normally be allowable during award closeout may be permitted, depending on the agency’s authorization.
In practice, this means that when your grant is suspended or terminated, the clock stops. Continuing to spend funds — even on legitimate project activities — can lead to disallowed costs and potential repayment of funds to the federal government.
Understanding the terms of your suspension or termination notice is vital to avoid financial losses and ensure compliance during closeout.
5. How to Protect Your Organization
Navigating the complexities of federal compliance can be daunting, but prevention is always better than remediation. Here are three key takeaways for every grant professional:
1. Know the Risks
Noncompliance doesn’t just lead to unallowable costs — it can result in termination, five years of public reporting in SAM.gov, and long-term funding challenges. Awareness is the first step toward prevention.
2. Act Quickly
If your organization receives a notice of noncompliance or termination, don’t delay. Respond promptly, identify corrective actions, and engage with the agency’s grant officer. Early communication can often prevent escalation.
3. Prioritize Prevention
Develop and maintain strong internal controls. Regularly train your staff, document policies and procedures, and foster open communication between departments. These proactive measures form the foundation of compliance and resilience.
Final Thoughts
Grant management is not just about securing funds — it’s about stewardship, accountability, and trust. Each federal dollar comes with a responsibility to uphold transparency and integrity. By understanding the rules under 2 CFR 200.339–343, you empower your organization to navigate challenges confidently and avoid the costly consequences of noncompliance.
As Jasmine Marchande, president of Marchandeic Consulting, reminds us:
“Grants management isn’t about just going after the money. It’s about protecting your organization, the communities you serve, and the trust they’ve placed in you.”
Stay informed. Stay compliant. And keep building the systems that make your mission sustainable.
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