The early days of the Trump administration have been highlighted by the issuance of multiple executive orders and resulting agency announcements that have significant implications for federal contractors and grant recipients. The orders aim to eliminate what the administration considers to be illegal discrimination and preferences based on diversity, equity and inclusion (DEI) policies; slow down and create further checks on federal regulatory initiatives; and reduce the size and scope of the federal government. While the full impact of these actions will not be clear for several months, it is likely we will see a $1-2 trillion reduction in the federal budget due, at least in part, to termination of contract and grants, a reduction of 20% or more of the approximately two million person federal workforce, and significant reform to federal procurement regulations. Contractors and grant recipients should be aware of these changes and how they may affect current and future awards, as well as shift obligations and potential liabilities.
Review of key executive actions
First, two of the early executive orders issued by President Trump, Executive Orders (EOs) 14151 “Ending Radical and Wasteful Government DEI Programs and Preferencing” and 14173 “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” revoked several executive orders that promoted Equal Employment Opportunity (EEO) and DEI policies for the federal workforce, federal contractors and grant recipients. While a number of requirements of the EOs were enjoined by the U.S. District Court for the District of Maryland, on March 14 that injunction was stayed by the U.S. Court of Appeals for the Fourth Circuit, allowing those initiatives to now move forward.
Among other actions, the EOs require agencies to terminate any DEI related programs, activities or requirements that may violate federal anti-discrimination laws. Importantly, EO 14173 also establishes a new requirement that all contractors and grant recipients certify that: (1) they do not operate any DEI programs that violate federal anti-discrimination laws, and (2) compliance with these laws is material to the government’s payment decisions. Finally, EO 14173 revokes the legal authority of the Office of Federal Contract Compliance Programs, which was responsible for enforcing EEO laws among federal contractors.
These EOs, particularly EO 14173, impact contractors and grant recipients in several ways. The new certification requirements heighten False Claims Act (FCA) liability risk related to DEI programs, as contractors and grant recipients must now expressly certify that they do not operate any DEI programs that violate these laws, and must agree that such compliance is material to payment, an elements of FCA liability. Additionally, it may subject contractors and other entities to increased scrutiny and enforcement actions by the Department of Justice and other agencies, which have been instructed to aggressively enforce federal civil rights laws and combat “illegal” DEI policies in the private sector. This point was exhibited when the EEOC issued letters to twenty major law firms initiating a review of their employment practices, specifically requesting information about their compliance with Title VII of the Civil Rights Act of 1964, and expressing concerns that their diversity, equity and inclusion programs may involve unlawful discrimination based on race, sex or other protected characteristics. These letters serve as an indication of what the Trump administration views as “illegal” DEI policies.
Second, EO 14222, “Implementing The President’s ‘Department Of Government Efficiency’ Cost Efficiency Initiative” also affects contractors and grant recipients. It requires agencies to review and, where appropriate and consistent with applicable law, terminate or modify existing contracts and grants to “reduce overall Federal spending and reallocate spending to promote efficiency and advance the policies” of the Trump administration. While the EO exempts from these cost cutting efforts 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,” it directs that the process “prioritize the review of funds disbursed under covered contracts and grants awarded to educational institutions and foreign entities for waste, fraud, and abuse.” EO 14222 also mandates the creation of a new IT system at each agency that tracks every payment made under contracts and grants and includes a brief, written justification for that payment from the agency employees who approved it, making them, to the maximum extent practicable and permitted by law, transparent to the public. Finally, EO 14222 orders agencies to review and update their contracting policies and procedures to enhance efficiency and pauses new contract awards until the new guidance is issued.
Third, several executive actions have focused on reducing the federal workforce and reorganizing federal agencies. These actions are already having a significant impact on contractors and grant recipients because personnel changes have disrupted contract administration activities, payment and contractually required reviews and approvals. Most importantly, EO 14210, “Implementing the President’s ‘Department of Government Efficiency’ Workforce Optimization Initiative,” requires that agencies, among other staffing actions, prepare to initiate large-scale reductions in force. These reductions in force (RIF) — which do not apply to public safety, immigration enforcement or law enforcement — will focus first on temporary employees, reemployed annuitants, offices that perform functions not mandated by statute or other law, and functions not typically designated as essential during lapses in appropriations. EO 14210 also requires that agencies submit to the Office of Management and Budget (OMB) reorganization plans.
In accordance with a February 26, 2025 OMB Memorandum, the first phase of these agency RIF and reorganization plans (ARRP) were due on March 13 and come after early retirement and buyout options were offered to almost the entire federal workforce. The second phase is due on April 14. These massive reductions in the federal workforce, which will likely rival the approximately 400,000-person reduction under President Clinton, may create a demand for contractors to fill the gaps left by the reduced federal workforce.
Fourth, a January 20, 2025 Presidential Memorandum titled “Regulatory Freeze Pending Review” imposed a freeze on any new or pending rules or regulations until they are reviewed and approved by the new agency heads appointed by the President. It also allows for the postponement, withdrawal or reconsideration of any rules or regulations that have been published or issued but have not taken effect. The order applies to any rule or regulatory action that promulgates or is expected to lead to the promulgation of a final rule or regulation, as well as any guidance document that sets forth a policy or interpretation of a statutory or regulatory issue.
Budget cuts and acquisition pauses
In addition to the executive orders, the Trump administration has also announced several budget cuts and acquisition pauses that impact federal contractors and grant recipients. For example, the secretary of Defense has issued a directive to reduce the Department of Defense budget by 8% every year over the next five years, which may affect the availability and allocation of funds for defense contracts and grants. Similarly, the General Services Administration has asked agency senior procurement executives to review their consulting contracts with the 10 companies that the administration deemed the highest paid, which may affect their contracts and grants for consulting services and products. Finally, the Office of Personnel Management has halted its procurement operations after a complete reduction in force in its Office of Procurement Operations.
What lies ahead
These actions in the early days of the Trump administration have signaled a clear shift in the direction and priorities of the federal government, which could have lasting impacts on the contracting and grant industries. As the administration’s policies and efforts to implement the EOs and cuts summarized above take shape, contractors and grant recipients should be aware of the following byproducts:
- Increased enforcement of the FCA, especially against contractors and grant recipients that violate federal anti-discrimination laws or operate illegal DEI programs;
- Increased litigation and regulatory action against contractors and grant recipients that engage in “illegal” DEI policies or practices, or that fail to comply with federal civil rights laws;
- More frequent termination of grants and contracts, particularly those in areas focused on DEI initiatives, climate change and foreign aid;
- Potential reform of procurement regulations; and
- More aggressive negotiating positions and demands by contracting agencies in light of fewer contracting dollars and a reduced federal workforce.
Preparations and actions contractors can take
In consideration of these developments, contractors and grant recipients can take some proactive and prudent steps to protect their interests, such as:
- Reviewing existing contracts, solicitations and grants for any DEI-related provisions, requirements or programs, and ensuring that they do not violate any federal anti-discrimination laws or the EO on ending illegal discrimination and restoring merit-based opportunity;
- Documenting communications, costs and impacts related to any changes, modifications, suspensions, or terminations that may be directed by the government under the EOs, budget cuts and acquisition pauses to support requests for equitable adjustment, claims or termination settlement proposals;
- Maintaining open communication and collaboration with subcontractors, suppliers and partners, and ensuring that the subcontracts include appropriate flow-down provisions allowing for responses to changes, modifications, suspensions or terminations that may affect subcontracts or supply agreements; and
- Seeking legal advice from a government contracts professionals regarding changes, modifications, suspensions or terminations that may affect contracts or grants.
The Trump administration’s EOs have created an uncertain environment for federal contractors and grant recipients. While many of these executive actions are currently being litigated, and in some circumstances enjoined, it is critical that contractors and grant recipients stay informed and vigilant of the resulting changes, take proactive steps to protect their interests, and ensure continued compliance with the federal laws and regulations.
Richard Arnholt, member, and Adam Briscoe, associate, are attorneys in the Washington, D.C.-based Government Contracts Practice at the law firm Bass, Berry & Sims PLC.
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