Phase 2 Is Here: Navigating HHS's New Grant Regulations

What 2 CFR Parts 200 & 300 mean for Pass-Through Entities 

This article is Part 2 of Vander Weele Group’s 3-part Substack series on federal grant policy shifts, subrecipient monitoring, and anti-fraud internal controls. In Part 1, we examined how OMB is converting Uniform Guidance into binding regulations and what legislative delays mean for grant managers. Here in Part 2, we break down HHS’s transition to 2 CFR Part 300, the strict new 10% total budget rebudgeting threshold, and the 12 Codex provisions governing discretionary awards. In Part 3, we highlight the power of interagency fraud detection, the necessity of robust data networks, and the heightened due diligence required following FinCEN’s CTA rollback.

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A major systemic shift is reshaping federal grant administration: under the Office of Management and Budget (OMB) Notice of Proposed Rulemaking (91 FR 32198), proposed updates to Title 2 Subtitle A of the CFR would automatically become binding across agency-specific chapters, eliminating legacy delays where agency rules lagged behind federal standards.¹ State Lead Agencies, Pass-Through Entities (PTEs), and non-profit subrecipients across Early Childhood (CCDF/Head Start), the Department of Health and Human Services (HHS) Refugee Resettlement, and Maternal & Child Health programs face a double regulatory shift that would fundamentally redefine compliance, subrecipient monitoring, and anti-fraud internal controls.

We are now entering the enforcement core of this multi-year reform. In January 2026, our initial analysis of HHS’s regulatory migration highlighted a historic turning point: the sunsetting of 45 CFR Part 75 in favor of the Title 2 Uniform Guidance. That Phase 1 assessment focused on key operational guardrails—such as elevating micro-purchases to $50,000 and enforcing strict profit bans on for-profit subrecipients under 2 CFR § 300.218. 

Today, as federal grant operations align for Phase 2 implementation (effective October 1, 2025/2026 across award cycles), HHS is finalizing its transition to new grant regulations under 2 CFR Part 200. Supported by 12 agency-specific provisions codified at 2 CFR Part 300 and the newly enacted HHS Grants Policy Statement (GPS) Version 2.0, this consolidated framework officially retires 45 CFR Part 75 across all active discretionary grant awards (excluding the National Institutes of Health).^2 3 

1. Regulatory Architecture: Decoupling 45 CFR Part 75 into 2 CFR Parts 200 & 300 

For over a decade, HHS administered federal financial assistance under its codified version of the Uniform Guidance at 45 CFR Part 75. While intended to mirror 2 CFR Part 200, subtle textual differences between 45 CFR Part 75 and broader federal standards created regulatory friction, inconsistent single-audit interpretations, and administrative burdens for cross-agency grantees. 

Under the finalized rollout, HHS has fully repealed 45 CFR Part 75 and replaced it with a two-tiered statutory structure: 

• 2 CFR Part 200 (Uniform Guidance): Serves as the primary baseline for administrative requirements, cost principles, and audit requirements across all HHS discretionary grants.³ 

• 2 CFR Part 300 (HHS-Specific Regulations): Codifies exactly 12 legacy HHS-specific provisions that deviate from or supplement general Uniform Guidance. Published originally via Federal Register Notice 89 FR 80055, these regulations preserve key statutory mandates unique to HHS programs. 

Key Takeaway: The regulatory framework shifts from a monolithic HHS-specific code (45 CFR 75) to the universal federal framework (2 CFR Part 200), accented only by the narrow, targeted exceptions in 2 CFR Part 300, with looming proposed revisions to 2 CFR Part 200. 

The 12 Codex Provisions of 2 CFR Part 300 

Pass-Through Entities and Lead Agencies must update their internal control manuals, subaward agreements, and audit checklists to reflect the precise citations within 2 CFR Part 300.² 

New 2 CFR Citation	Legacy 45 CFR Citation	Substantive Scope & Statutory Focus
2 CFR § 300.106	45 CFR § 75.106	Formal Adoption of 2 CFR Part 200 standards by HHS.
2 CFR § 300.112	45 CFR § 75.112	Mandatory Conflict of Interest (COI) disclosure requirements.
2 CFR § 300.218	45 CFR § 75.216	Special provisions for commercial / for-profit grant recipients.
2 CFR § 300.219	45 CFR § 75.217	Special provisions governing awards made directly to Federal agencies.
2 CFR § 300.305	45 CFR § 75.305(a)	Specific standards for Federal advance payments to States.
2 CFR § 300.308	45 CFR § 75.308(c)(ix)	Mandatory pre-approval for clinical trial patient care expenses.
2 CFR § 300.315	45 CFR § 75.307(c)(2)	Protection of recipient patent rights on educational awards.
2 CFR § 300.414	45 CFR § 75.414(c)(1)	Strict limitations on indirect cost (F&A) rates for training grants.
2 CFR § 300.477	45 CFR § 75.476	Cost principles for Independent Research and Development (IR&D).
2 CFR § 300.478	45 CFR § 75.477	Shared responsibility payments under statutory healthcare rules.
2 CFR App. IX	45 CFR Part 75 App. IX	Hospital cost principles for research and development grants.
2 CFR § 300.300	45 CFR § 75.300	Statutory national policy requirements and non-discrimination.

2. HHS Grants Policy Statement (GPS) Version 2.0: Deep-Dive Impact 

In tandem with the transition to 2 CFR Parts 200 and 300, HHS issued its revised HHS Grants Policy Statement (GPS) Version 2.0.⁴ Applicable to all discretionary awards, funding actions, supplements, and competing/non-competing continuations, GPS v2.0 introduces operational shifts that directly affect grant managers and compliance officers: 

A. Strict 10% Rebudgeting Threshold & Mandatory Prior Approval 

Under legacy practice, grantees often possessed broad flexibility to transfer funds across direct cost categories up to 25% of total approved direct costs. Under HHS GPS Section 3.1.2.2 and 2 CFR § 200.308(i), this landscape has fundamentally contracted. ^3 4 

When the Federal share of an award exceeds the Simplified Acquisition Threshold ($250,000), cumulative transfers among direct cost categories or cost-share adjustments that are expected to exceed 10% of the total budget (including cost share) require mandatory prior written approval from the Grants Management Officer (GMO). 

What This Looks Like in Practice: 

Consider a state child welfare grant with a total budget of $2,000,000 (comprising a $1.6M federal share and a $400,000 state match). Under the 10% rule, the maximum cumulative amount the grantee can transfer across direct cost categories without written GMO approval is $200,000. 

If cumulative shifts across personnel, contractual, or equipment lines reach $200,001 without prior approval, the entire overage becomes an unallowable expenditure—triggering immediate audit findings and potential clawbacks. Furthermore, moving funds into a direct cost category that was not included in the original approved workplan automatically constitutes a Change in Scope under 2 CFR § 200.308(b), requiring prior approval regardless of dollar magnitude.³ 

B. Termination for Convenience & Agency Priorities 

One of the most significant legal shifts within GPS v2.0 is the explicit alignment with 2 CFR § 200.340(a)(4). HHS expanded its authority to unilaterally terminate awards, in whole or in part, if an award "no longer effectuates the program goals or agency priorities."³ 

Crucially, termination determinations executed under this specific priority clause are classified as non-appealable administrative decisions. PTEs passing funds through to subrecipients must immediately update their subaward termination clauses. If a federal agency terminates a prime award due to shifting federal priorities, the PTE must have back-to-back contractual protections to terminate the subaward without incurring liabilities from subrecipients. 

C. Executive Level II Salary Cap Extension to Indirect Costs 

Historically, the statutory Executive Level II salary cap applied primarily as a direct charge limitation on grant-funded personnel. Under GPS v2.0, HHS clarified that the Executive Level II salary cap applies to both direct and indirect costs.³ When computing facilities and administrative or indirect cost recovery rates, institutional salary amounts exceeding Executive Level II must be removed from the direct cost base prior to applying federally negotiated indirect cost percentages. 

D. Mandatory Civil Rights & Title IX Certifications 

GPS v2.0 elevates non-discrimination certifications to a universal award condition. All recipients and subrecipients administering educational or training programs subject to Title IX must formally certify compliance with revised federal civil rights standards as a prerequisite for fund disbursement.³ Subrecipient risk assessments must now verify that subrecipients maintain active, written civil rights and COI policies. 

E. Pre-Issuance Merit Review & Senior Appointee Oversight (2 CFR §§ 200.204–206) 

Proposed revisions to Title 2 Subtitle A introduce a structural checkpoint to federal award selections before funds ever leave federal agencies. Under proposed 2 CFR § 200.205: 

• Senior Appointee Oversight: Peer review evaluations are officially classified as advisory functions. Senior agency appointees (or their designees) are granted final authority to review and approve proposals selected for funding to verify alignment with statutory mandates, agency priorities, and broader national policy goals. 

• Enhanced Risk & Organizational Screening (2 CFR § 200.206): Pre-award risk reviews now extend beyond standard financial audits. Agencies are authorized to evaluate an applicant's history of questionable practices, capacity to manage high-dollar awards, compliance with statutory foreign disclosure rules (e.g., Higher Education Act Section 117), and organizational affiliations. 

Impact on Pass-Through Entities: State Lead Agencies must anticipate heightened federal scrutiny on workplan alignment and organizational risk during prime award selections, requiring PTEs to mirror these elevated risk and merit review standards when evaluating subrecipients under 2 CFR § 200.332. 

3. The Pass-Through Entity (PTE) Mandate: Subrecipient Risk & Internal Controls 

For State Lead Agencies managing Early Childhood (CCDF/Head Start), HHS Refugee Resettlement, and Public Health programs, the shift to 2 CFR 200 and 2 CFR 300 places accountability directly on the PTE under 2 CFR § 200.332. 

The Oversight Imperative: Federal agencies no longer accept passive desk reviews of financial reports as sufficient subrecipient monitoring. State Lead Agencies are strictly accountable for detecting subrecipient non-compliance, unauthorized budget shifts, vendor fraud, and failure to achieve the objectives of the federally funded program. 

Actionable Compliance Checklist for Lead Agencies and PTEs 

1. Re-Baseline Subaward Agreements: Immediately purge references to 45 CFR Part 75 in all subaward templates, grant agreements, and policy manuals. Replace them with explicit citations to 2 CFR Part 200, 2 CFR Part 300, and HHS GPS v2.0. 

2. Implement Automated 10% Rebudgeting Controls: Configure enterprise grant management portals (and subrecipient reporting tools) to flag cumulative line-item budget transfers when they approach 8% of total approved budgets, blocking disbursements at 10% pending formal GMO approval. 

3. Upgrade Subrecipient Merit Review & Risk-Scoring Models: Revise pre-award selection matrices under 2 CFR § 200.206 and § 200.332. Evaluation protocols must assess not only financial viability but also subrecipient capacity for high-dollar awards, prior-approval tracking, Executive Level II salary cap compliance, and Conflict of Interest disclosures under 2 CFR § 300.112. 

4. Institute Physical Vendor Verification & On-Site Inspections: Deploy physical verification and programmatic field inspections for high-risk subrecipients, facility upgrades, and equipment procurements exceeding the updated $10,000 threshold (2 CFR § 200.313). Physical verification prevents vendor fraud and confirms equipment is held in trust per 2 CFR § 200.316.^{1 2} 

5. Standardize GrantSolutions & EHB Portal Workflows: Ensure all prior approval requests, and budget modifications are formally submitted through federal portals (e.g., GrantSolutions or HRSA Electronic Handbooks). Informal email confirmations from federal program officers do not satisfy the legal standard for GMO written prior approval.³ 

4. Summary Matrix: Evolution of HHS Grant Regulations 

Compliance Vector	Legacy Standard (45 CFR 75)	Current/Proposed Binding Standard (2 CFR 200 / 300 / GPS v2.0)
Governing Regulation	45 CFR Part 75 (HHS-specific code)	2 CFR Part 200 (Uniform Guidance) + 2 CFR Part 300 (12 Deviations)
Rebudgeting Flexibility	25% threshold across direct costs	Strict 10% threshold of total budget (incl. match) for prior approval
Micro-Purchase Limit	$10,000 standard limit	$50,000 standard limit (Phase 1 adoption preserved)
Equipment Threshold	$5,000 per unit threshold	$10,000 per unit threshold (2 CFR § 200.313)
Award Termination	Standard cause / mutual agreement	Unilateral termination if award fails to effectuate agency priorities
Executive Salary Cap	Applied primarily to direct cost payroll	Enforced across both direct charges and indirect cost base calculations
Merit Review & Pre-Award Selection	Advisory peer review scores drove award selections with standard risk reviews	Senior appointee oversight of merit selections (2 CFR § 200.205); expanded risk evaluation of high-dollar capacity and compliance histories (2 CFR § 200.206)

The Key Takeaway: 

The sunsetting of 45 CFR Part 75 and full implementation of 2 CFR Parts 200 and 300, and HHS GPS v2.0 marks an end to passive compliance. For PTEs and State Lead Agencies, compliance can no longer be treated as an end-of-year post-audit review. Under binding federal regulations, monitoring is pre-award, real-time, and field-verified. 

Crucially, proposed updates to 2 CFR Part 200 (2 CFR §§ 200.204–206) signal a major front-end shift in how federal funds are awarded. The expansion of pre-issuance merit review mandates introduces political appointee screening to ensure grant applications align with agency priorities, statutory compliance, and risk thresholds before awards are issued. PTEs must prepare for heightened pre-award scrutiny on subrecipient risk, organizational integrity, and workplan scope. Agencies that fail to modernize subaward contracts, automate budget controls, and perform physical vendor/subrecipient inspections leave themselves exposed to single-audit findings, forced clawbacks, and, in the worst case, loss of future federal funding. 

Partner with Vander Weele Group to Secure Your Grant Architecture 

Transitioning your state agency, university, or non-profit system to full compliance with 2 CFR Parts 200 and 300 need not be burdensome with specialized oversight, deep regulatory knowledge, and boots-on-the-ground inspection capabilities. Vander Weele Group helps Lead Agencies and PTEs bridge the gap between complex federal directives and operational reality. 

How We Can Assist Your Organization Today: 

• Policy & Subaward Realignment: Reviewing and updating state grant templates, administrative rules, and subrecipient grant agreements to align with 2 CFR 300 and GPS v2.0 mandates. 

• 2 CFR Part 200 Subrecipient Risk Scoring & Monitoring: Designing customized, automated risk-assessment frameworks that meet mandatory federal standards under 2 CFR § 200.332. 

• On-Site Programmatic Inspections & Vendor Verification: Conducting independent physical facility inspections, vendor verifications, and equipment inventory tracking to prevent ghost vendor fraud and ensure project milestone integrity. 

• Internal Control & Anti-Fraud Audits: Conducting comprehensive reviews of your pre-award approval workflows, prior-approval tracking systems, and indirect cost calculation bases. 

Prepare for upcoming compliance deadlines before federal auditors arrive. 

Get in touch: Contact our Senior Grant Oversight Team today at info@vanderweelegroup.com or visit VanderWeeleGroup.com to schedule a strategic compliance diagnostic.

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¹ Administration for Children and Families (ACF): Standard Award Terms and Conditions & Binding Title 2 Directives (OMB Proposed Rule 91 FR 32198)

² U.S. Department of Health and Human Services: Health and Human Services Adoption of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 89 Fed. Reg. 80055 (codified at 2 CFR Part 300 and repealing 45 CFR Part 75)

³ Health Resources and Services Administration (HRSA): Grants Frequently Asked Questions: Adoption of 2 CFR 200 and 2 CFR 300

⁴ U.S. Department of Health and Human Services: HHS Grants Policy Statement Version 2.0 and Grant Policies/Regulations Repository