As we recently noted, President Trump has issued a flurry of Executive Orders (EO) since he took office. Among other things, President Trump has sought to eliminate DEI and affirmative action-based programs and has put a 90-day pause on all foreign development assistance funding. More sweepingly, on January 27, 2025, the Office of Management and Budget (OMB) issued a directive (Directive) requiring agencies to pause all funding for federal financial assistance and other relevant agency activities that may be implicated by the EOs, including financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal. Agencies have been responding to these Executive actions swiftly by issuing stop-work orders and modifying, and in some cases terminating, contracts and grants. Although the OMB Directive was ultimately rescinded on January 29, 2025, the policies contained in the Directive have not been effectively rolled back and are the subject of ongoing litigation.
On January 31, 2025, in a lawsuit filed by attorneys general in 22 states and the District of Columbia challenging the EOs and the actions of the OMB, U.S. District Judge John J. McConnell concluded that the plaintiffs in that suit are likely to succeed on their claims that the Executive’s actions violate the Constitution and statutes of the United States. In response, and needing to act “under the ‘worst case scenario’ because the breadth and ambiguity of the Executive’s action makes it impossible to do otherwise[,]” the Judge issued a temporary restraining order (Order) that blocks the federal funding freeze. This ruling has wide-ranging implications for federal contractors that have been impacted by the EOs, including those who have received stop-work orders and termination letters.
In issuing the Order, the court stated: “During the pendency of the Temporary Restraining Order, Defendants shall not pause, freeze, impede, block, cancel, or terminate Defendants’ compliance with awards and obligations to provide federal financial assistance to the States, and Defendants shall not impede the States’ access to such awards and obligations, except on the basis of the applicable authorizing statutes, regulations, and terms.” The Court went on to explain that “Defendants shall also be restrained and prohibited from reissuing, adopting, implementing, or otherwise giving effect to the OMB Directive under any other name or title or through any other Defendants (or agency supervised, administered, or controlled by any Defendant), such as the continued implementation identified by the White House Press Secretary’s statement of January 29, 2025.”
While this Order should put a temporary stop on certain aspects of Trump’s funding freeze and related EOs, it also raises many questions.
Takeaways
- Scope of the Order. While the Order blocks any suspension of federal financial assistance to the 22 states that were party to the suit, as well as the District of Columbia, it is unclear whether the Order applies to all contracts and grants impacted by the EOs.
- Operating Under a Stop Work Order. In light of the Order, contractors that have already been issued stop-work orders in response to the EOs may be able to challenge those stop-work orders. The Order also raises questions as to what types of costs may be recoverable if and when the stop-work orders are lifted.
- Dealing with a Termination for Convenience. Contractors who have had contracts terminated for convenience in response to the EOs may be able to challenge those terminations based on the Order.
- Duration of the Order. The Order remains in place until further order of the Court. In future proceedings, the Court will decide whether to convert the temporary restraining order into a preliminary injunction.
- Notice Requirement. The executive agencies involved in the lawsuit are required to provide notice of the Order to all contractors and grantees by February 3, 2025, at 9 AM.
- Agencies Remain Free to Exercise Other Discretion to Pause Awards. While the Order prevents federal funds being frozen in response to the EOs, the Court acknowledged in its ruling that agencies may exercise their own authority to pause awards or obligations, provided agencies do so purely based on their own discretion—not as a result of the OMB Directive or the EOs.
- Scope and Effect on Current Contracts. It is worth contacting your contracting officer in writing to seek clarity on the scope or effect of the Court’s Order on your current Contract, including those that have been suspended, to better understand performance expectations.
These Executive actions have caused significant upheaval for government contractors. If you have questions about this Order or President Trump’s EOs, please contact Sam Finnerty, Lauren Brier, or another member of PilieroMazza’s REAs, Claims, and Appeals or Government Contracts practice groups. Also, register here for the webinar “Government Contracts and New Mandates: Executive Orders and Cost Recovery Strategies Explained” for an in-depth discussion of the EOs and their implications for government contractors.
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