On January 20, 2025, President Trump signed the executive order, Ending Radical and Wasteful Government DEI Programs and Preferencing (DEI Executive Order), putting an end to diversity, equity, and inclusion (DEI) programs within the federal government. Given the DEI Executive Order and the potential impact it may have on current federal contracts, PilieroMazza put together the following key steps for federal contractors who received and/or expect to receive termination-related directives from their customers, as well as ways to improve their ability to recover costs.
In accordance with the DEI Executive Order, “the Director of the Office of Management and Budget (OMB), assisted by the Attorney General and the Director of the Office of Personnel Management (OPM), shall coordinate the termination of all discriminatory programs, including illegal DEI and “diversity, equity, inclusion, and accessibility” (DEIA) mandates, policies, programs, preferences, and activities in the Federal Government, under whatever name they appear.” The order gives agency and department heads sixty days (from January 20, 2025) to terminate to the maximum extent allowed by law, all DEI, DEIA, and “environmental justice” offices and positions, all “equity action plans,” “equity” actions, initiatives, or programs, “equity-related” grants or contracts; and “all DEI or DEIA performance requirements for employees, contractors, or grantees.”
This broad directive has already raised significant concerns amongst the federal contracting community as stop work orders and termination notices have begun to roll out from various agencies seeking either the cessation of DEI-related federal programs and contracts or full or partial termination of small and large business contracts, even if remotely related to DEI or DEIA performance requirements.
A. Determine whether the Executive Order is likely to impact your entire contract and reach out to your Contracting Officer.
It is imperative to understand whether certain contract line items, performance requirements, and/or statements of work incorporated in your contract are strictly unrelated to DEI or DEIA performance requirements. If portions of your contract are readily distinguishable from the programs directly targeted by the Executive Order, it may be beneficial to reach out to your contracting officer to discuss a partial stop work and/or partial termination for convenience to avoid a full stop work or eventual termination of your contract.
B. Communicate with your subcontractors.
Stay in contact with subcontractors, review your agreements as necessary to understand any “stop work” or “termination” terms, and give subcontractors clear instructions on how to proceed (or not) on contract performance once ceased. If the Contracting Officer orders a work stoppage or termination, make sure the subcontractor is not performing on the contract; otherwise, you will owe the subcontractor for amounts you will not be able to recover from the government.
C. Document all costs and expenses.
Document all costs incurred in connection with a stop work or termination, including wind-down of work, labor costs, and attorneys’ fees. You should also document all communications with contracting officers, employees, teaming partners, and vendors, as well as all cessation of work-related actions. Both the Stop-Work Order and Termination for Convenience clauses, to the extent incorporated into your contract, may provide a vehicle for recovering your costs. However, the ability to recover will be affected by advance preparation and documentation of your costs.
D. Mitigate costs.
In determining whether to grant adjustments for costs resulting from a stop work or termination, judges analyze whether contractors took steps to mitigate losses. You can mitigate costs by developing an alternative work plan for employees, such as reassigning them to other projects. As a last resort, you may need to furlough or lay off employees. Bear in mind that depending on the size of the layoff, federal and/or state WARN requirements may apply.
E. Address outstanding issues ASAP.
To the extent possible, take steps now to settle outstanding issues with the customer, such as approval of deliverables, payment of invoices, and issuance of modifications.
F. Prepare a Termination for Convenience proposal.
After a termination for convenience, you and the agency will need to settle what you are still owed under the contract. This typically occurs through a negotiated agreement where you submit a settlement proposal that the government can either accept, counter, or deny. Understanding what you are entitled to recover is crucial in putting together your settlement proposal, as certain contract types, i.e., firm-fixed-price vs. commercial items, require certain forms of proposal submission.
G. Potential challenges to a Termination for Convenience.
Although not impossible, it is difficult to challenge a termination for convenience. To successfully do so, there needs to be a showing of bad faith or a clear abuse of discretion on the part of the Contracting Officer. This is especially difficult given the presumption that government officials act in good faith. Because of this, settlement negotiations are even more important when your contract is terminated for convenience. If you cannot reach an agreement with the Contracting Officer, you may be able to appeal the decision to the appropriate contract appeals board or Court of Federal Claims.
If your contract has recently been issued a stop-work order or terminated due to the Executive Order, or if you are concerned that it may be terminated, PilieroMazza attorneys are available to assist with preparing responses and handling any appeals. For more information, please contact Lauren Brier, Sarah Nash, or another member of the Firm’s REAs, Claims, and Appeals, Labor & Employment, or Government Contracts practice groups.
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