- The new EO contemplates new administrative delays in federal contract and grant awards and payments.
- Each payment under covered contracts and grants would be subject to a new “written justification” requirement or pause in payment.
- Ongoing contracts and grants would be subject to a new 30-day review for consistency with Administration policies—prioritizing contracts and grants to educational institutions and foreign entities—that could lead to termination or modification.
- New awards would be delayed pending rollout of new agency procedures.
- Additional changes would constrain federal agency travel, credit card and real property expenditures.
I. The EO’s Key Provisions
A. Purpose
The EO states that its purpose is to “commence[] a transformation in Federal spending on contracts, grants, and loans to ensure Government spending is transparent and Government employees are accountable to the American public.”
B. Affected Contracts and Grants
The EO broadly defines “covered contracts and grants” to include all “discretionary spending through Federal contracts, grants, loans, and related instruments.”
There are, however, three categories of exemptions. First, the EO exempts contracts and grants involving “direct assistance to individuals; expenditures related to immigration enforcement, law enforcement, the military, public safety, and the intelligence community; and other critical, acute, or emergency spending, as determined by the relevant Agency Head.” Second, law enforcement officers, U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, the uniformed services, and contracts and grants related to enforcement of federal criminal law, immigration law, and classified information and information systems are exempt from all of the EO’s provisions. Third, agency heads, in consultation with the agency’s Department of Government Efficiency (“DOGE”) team lead and the director of the Office of Management and Budget (“OMB”), may issue waivers to exempt specific grants and contracts from the EO’s requirements.
C. Key Provisions
The EO directs agencies to implement several new administrative steps in the existing federal grant and contracting mechanisms.
First, the EO directs each agency to “build a centralized technological system” that tracks every payment made pursuant to a covered contract or grant. Within this centralized system, each proposed payment must be supported by a “brief, written justification” from the approving agency employee, which must be made available publicly “to the maximum extent deemed practicable by the Agency Head” and permitted by law. Significantly, the “centralized technological system” must “include a mechanism for the Agency Head to pause and rapidly review any payment for which the approving employee has not submitted a brief, written justification.”
Second, agency heads, in consultation with the agency’s DOGE team lead, must “review all existing covered contracts and grants and, where appropriate and consistent with applicable law, terminate or modify (including through renegotiation) such covered contracts and grants to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of [the] Administration.” This review process must begin immediately for existing contracts and grants and must be completed within 30 days of the order. The EO explicitly prioritizes review of funds to “educational institutions and foreign entities for waste, fraud, and abuse.”
Third, agency heads are instructed to “conduct a comprehensive review of each agency’s contracting policies, procedures, and personnel” within 30 days of the order. Prior to entering into new contracts, each agency head shall issue revised guidance on “signing new contracts or modifying existing contracts” to promote efficiency and Administration policies.
Fourth, the EO addresses several sources of agency expenditures related to personnel and real property. The EO aims to track and reduce federally funded travel for “conferences or other non-essential purposes” and requires a public written justification for such travel. It also directs that “all credit cards held by agency employees shall be treated as frozen for 30 days from the date of this [EO],” subject to certain exceptions. The EO also instructs agencies to catalog all real property within their control and develop a plan “for the disposition of Government-owned real property which has been deemed by the agency as no longer needed.”
II. Implications for Contractors and Financial Assistance Recipients
The EO prescribes significant new bureaucratic steps for the existing federal grant and contracting regimes, which are already governed by complex substantive and procedural requirements mandated by statutes and regulations.
The practical effects of the EO will depend on whether and how it is implemented and administered, but it appears likely to have significant near-term implications for federal contractors and grantees. The added bureaucratic steps appear likely to impose new delays in what were previously routine grant and contract payments as agencies attempt to prepare thousands of written payment justifications and “pause and rapidly review” payments that lack this justification. Contracts and grants may be terminated or modified after the anticipated 30-day review of thousands of existing grants and contracts, potentially impeding performance and payment. Educational institutions and foreign entities may be most exposed, given the EO’s explicit prioritization of those entities. The level of disruption may vary among different agencies and programs.
Agencies’ implementation of the EO will raise many questions, including:
- How would the planned payment justifications affect the existing authority of each agency’s contracting and grants officers to approve or deny contract and grant payments?
- How will prime awardees be squeezed between obligations to subcontractors and subrecipients while government payments are subjected to new delays in disbursement?
- How might new prepayment steps be implemented in accordance with the Prompt Payment Act,1 which generally requires agencies to pay contractor invoices within 30 days of receipt, with the government accruing interest liability for late payments?
- Will the EO implicate the Impoundment Control Act, which constrains the authority of executive agencies to withhold expenditures of congressionally appropriated funds?
- How will the planned written justifications be administered in accordance with privacy, confidentiality and due process protections for contractors and grantees? (For example, government assertions about contractor performance are made through the existing Contractor Performance Assessment Reporting System, which affords contractors rights to contest agencies’ statements.2)
- How will agencies interpret the scope of the exemptions? For example, which Defense Department contracts might fall within the “military” and “uniformed services” exemptions?
- How will the new administrative steps coexist with existing audit, investigation and enforcement procedures designed to detect and prevent improper payments?
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WilmerHale’s Government Contracts Practice and Administrative Law Transition Task Force are closely monitoring the Trump Administration’s attempts to change federal grant and contracting systems. As the new EO is implemented and interpreted over the coming weeks and months, WilmerHale can help clients navigate the implications for federal grants and contracts.
