It is probably an understatement to say that the presidential transition has caught the U.S. Agency for International Development and its community of contractors and recipients by surprise. Between a first-of-its-kind agency-wide pause of foreign assistance programs to the apparent effort to dismantle the agency and transfer its functions to the State Department of, officials, contractors and recipients have experienced a head-spinning few weeks.
On President Donald Trump’s first day, he issued an executive order aimed at pausing all foreign assistance programs for 90 days (the Foreign Assistance Pause EO). Although the pause can be shortened if approved by the Secretary of State or his designee in conjunction with the director of the Office of Management and Budget, Secretary Marco Rubio has thus far provided only a modest exception for “life-saving humanitarian assistance.”
On Jan. 27, USAID’s Senior Procurement Executive Jami Rodgers issued a notice on USAID’s implementation of the Foreign Assistance Pause EO. The notice stated that USAID “is pausing all new obligations of funding, and sub-obligations of funding under Development Objective Agreements (DOAGs), pending a review of foreign assistance programs funded by USAID.” The notice directed contracting officers to immediately issue stop-work orders or suspend existing awards. Following a review, contracting officers will follow up with contractors and recipients by communicating decisions about whether an award will be continued, modified or terminated. Most, if not all, USAID contractors and recipients have received stop work orders or suspension notices.
Validity of the Foreign Assistance Pause EO
There are questions about the President’s authority to require the en masse issuance of stop work orders during a short-term review of foreign assistance programs at the beginning of a new administration. Recently, a separate pause in disbursements under federal grants, loans and other non-foreign financial assistance programs have come under legal scrutiny with a federal court in Rhode Island issuing an injunction to un-pause the pause of such awards under OMB Memorandum M-25-13. The injunction required the government to distribute it to all of its contractors by Feb. 3, and some of our clients did receive that notice.
The temporary injunction issued by the court regarding OMB Memorandum M-25-13 did not expressly mention or apply to the Foreign Assistance Pause EO, but the notice issued to contractors may suggest otherwise. The notice describes the temporary injunction as applying to all EOs issued by the President since his inauguration on Jan. 20: “Federal agencies cannot pause, freeze, impede, block, cancel or terminate any awards or obligations on the basis of the OMB memo, or on the basis of the President’s recently issued executive orders.” As of this writing, USAID has not clarified its position regarding whether the temporary injunction impacts the Foreign Assistance Pause EO.
It is plausible that a USAID contractor or recipient has standing to assert that the en masse issuance of stop work orders directing the immediate suspension of all contracts and award supporting Foreign Assistance Programs is arbitrary and capricious and an abuse of discretion under the Administrative Procedure Act, 4 U.S.C. 706. There are far less disruptive and less costly means of reviewing foreign assistance programs, and it is unclear what options were considered by the administration before issuing its EO on Jan. 20. As with the temporary injunction issued to prevent federal agencies from complying with the general pause of grants and loans under OMB Memo M-25-13, it is possible a federal court would conclude that USAID has acted arbitrarily and capriciously by relying exclusively on the Executive Order rather than exercising its own discretion.
Considerations for contractors and recipients
Since that time, the new administration has taken more direct actions against USAID. USAID is responsible for distributing more than $50 billion across the world consistent with the United States’ geopolitical interests. The administration is seeking to merge USAID into the State Department, cut off existing solicitations for new contracts and grants, terminate awards, and disallow payments for work already performed. There are also individuals not employed by or appointed to the federal government asserting authority over it and its functions. Anyone negatively impacted by the actions of unauthorized individuals may seek redress in an appropriate court.
No matter the current situation, it is important to note that there still exists a robust body of laws, regulations and legal precedent that give legal protections to companies that support USAID. While not legal advice, below are some common situations and potential remedies (some of which have short time limits):
Failure to pay
Under most circumstances, the government has an absolute obligation to pay for goods and services it received and accepted. In most instances, failure to pay can be remedied by filing a claim with the contracting officer under Federal Acquisition Regulation (FAR) 52.233-1. If the contracting officer denies the claim or does not respond within 60 days, the contractor has the right to seek relief at the appropriate Board of Contract Appeals or the Court of Federal Claims (COFC). The government would also be responsible for interest under FAR 52.232-25.
Cancelling solicitations
While the government must generally award a contract once a solicitation is issued, agencies, under limited circumstances, are able to cancel solicitations, if it is in the best interest of the government, as stated in FAR 15.503(b). In some cases, FAR 15.206(e) allows a contracting officer to cancel a solicitation and reissue another if the government’s needs have changed. The appropriate provision will be dependent on the type of work being solicitated and under all circumstances, the contractor can file a protest and seek injunctive relief to prevent the cancellation. Alternatively, a contractor may be entitled to its bid and proposal costs if an opportunity is canceled after bids were due. 4 C.F.R. 21.8; 28 U.S.C. 1491(b)(2).
Stop work orders
Under FAR 52.242-15, the government may issue a stop-work order halting work on a contract for up to 90 days. At the 90-day mark, the parties can agree to an extension of the order, the work must resume, or the contract must be terminated. If it is terminated for convenience, the contractor is entitled to the costs it would generally be entitled to in addition to increased costs because of the order. If work resumes at some point, the contractor would likewise be entitled to a contract adjustment to account for its increased (or decreased) costs.
Terminations for convenience
The government, in some circumstances, can terminate work for its convenience. Doing so, however, is not without consequence. Terminations for convenience under FAR 52.249-1 through 52.249-7 or 52.212-4 (for commercial supplies or services) allow for a contractor’s costs and profit on work performed to date and potentially even the cost for legal counsel and accountants.
Wholesale pauses on contracts or financial assistance
The above common situations are issues contractors have faced since the government started buying goods and services. Unique to the current administration, however, is the wholesale effort to terminate contracts and grants. One federal court has already weighed in, stating —among other things — that the executive branch violated the Administrative Procedures Act (APA) by unilaterally suspending payments of federal funds. From the decision: “[t]he Executive Branch has a duty to align federal spending and action with the will of the people as expressed through congressional appropriations.” The administration’s arguments that it had authority to do so under the Impoundment Control Act of 1974 was also found to be unavailing because the Executive Branch had not made the ask of Congress and Congress did not pass an appropriate resolution supporting the ask. This case provides a roadmap for future litigants seeking to challenge the President’s actions, specifically under the APA and here, with respect to USAID.
Transferring USAID’s functions to State
It appears the President may be attempting to unilaterally transfer the functions of USAID to the Department of State without any Congressional action. It is unclear whether he has the legal authority to take this drastic action. USAID was established following the passage of the Foreign Assistance Act in 1961 and the Foreign Affairs Reform and Restructuring Act of 1998 made USAID an independent agency within the executive branch of government. On Dec. 30, 1998, USAID was reorganized in accordance with a reorganization plan transmitted by the President to Congress pursuant to 22 U.S.C. 6601. The 1998 Act provided that the reorganization plan could have provided for the future abolition of USAID and the transfer of all its functions to the State Department. However, then-President Bill Clinton expressly declined this option, stating that “Effective April 1, 1999, [USAID] shall continue as an independent establishment in the Executive Branch. Because the time provided by Congress under the 1998 Act to modify or revise the reorganization plan expired in 1999 (see 22 U.S.C. 6601(e)), it does not appear that President Trump has authority to transfer the functions of USAID to State without a new act of Congress. 22 U.S.C. 6563(a) states that USAID is an agency “within the Executive branch of government” as described in 5 U.S.C. 104, unless abolished pursuant to President Clinton’s reorganization plan. Because the time for amending the reorganization plan authorized by the 1998 Act expired when it became effective in 1999, there are legitimate questions about President Trump’s authority to act without congressional action.
Should the government try to officially fold USAID into the State Department, interested parties may seek to stop the executive branch from acting contrary to USAID’s statutory grant of independence. It is possible that grant recipients, employees and contractors who would be adversely impacted by such a move could assert that they have standing to bring such a lawsuit. Whether those arguments would be ultimately successful is dependent on a complex set of legal considerations.
No matter the situations faced by those impacted by recent moves aimed at USAID and other agencies by the Trump administration, there are well-worn paths found in long standing regulations, statutes and case law that allow for remedies, whether through injunctive relief or monetary. Sometimes the deadlines are short, so those negatively impacted should act without delay.
David Black and Eric Crusius are partners with the law firm Holland and Knight.
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