Overview
Since the inauguration of US President Donald Trump on January 20, 2025, many companies that hold or support Federal contracts, grants, and other awards have received so-called “stop work orders” or other directives to cease certain activities in connection with their Federal work. Federal agencies have issued many of these orders and directives to prime contractors and recipients. In turn, those prime contractors and recipients have passed them onto subcontractors and subrecipients, among others.
In Depth
On January 31 and February 3, 2025, Federal district courts in Rhode Island and the District of Columbia simplified the playbook for responding to many of these stop work orders. On January 31, the US District Court for Rhode Island issued a Temporary Restraining Order (the Rhode Island TRO) in a lawsuit filed by 23 state attorneys general challenging a January 27, 2025, memorandum issued by the Office of Management and Budget (OMB) pausing all disbursements and obligations under Federal grants, cooperative agreements, and other Federal financial assistance subject to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards at 2 C.F.R. Part 200 (the Uniform Guidance).
The Rhode Island TRO directs that President Trump, OMB, and various Federal agencies named as defendants in the lawsuit “shall not pause, freeze, impede, block, cancel, or terminate [the Government’s] compliance with awards and obligations to provide federal financial assistance to the States,” and “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 ordered the defendants’ lawyers to provide written notice of the TRO to all “agencies and their employees, contractors, and grantees” and to file a copy of the notice with the Court. In a filing on February 3, the defendants’ lawyers confirmed that written notice had been sent to the referenced parties on January 31, 2025, and filed a copy of that notice with the Court (the Government’s notice).
The Rhode Island District Court found that the state attorneys general were likely to succeed on their claims that the pause in disbursements exceeds the executive branch’s authority under the US Constitution and applicable statutes. The Court ruled:
The Executive’s action unilaterally suspends the payment of federal funds to the States and others simply by choosing to do so, no matter the authorizing or appropriating statute, the regulatory regime, or the terms of the grant itself. The Executive cites no legal authority allowing it to do so; indeed, no federal law would authorize the Executive’s unilateral action here.
Although OMB had rescinded its January 27 memorandum on January 29, the Rhode Island District Court found that “the alleged rescission of the OMB Directive was in name only and may have been issued simply to defeat the jurisdiction of the courts. The substantive effect of the directive carries on.”
On February 3, the US District Court for the District of Columbia issued a similar injunction (the DC TRO) in a lawsuit filed by several coalitions of nonprofit organizations. Although the Trump administration had already interpreted the Rhode Island TRO as applying to “all awards or obligations – not just those involving the Plaintiff States,” the DC TRO enjoins the implementation of the January 27 memorandum “to the maximum extent provided for by Federal Rule of Civil Procedure 65(d)(2) and 5 U.S.C. §§ 705 and 706,” the latter of which has been interpreted to authorize injunctions without party limitation. And whereas the Rhode Island TRO prohibited the Government from “imped[ing] the States’ access to awards and obligations,” the DC TRO directs the Government “to release any disbursements on open awards that were paused” because of OMB’s January 27 memorandum.
Based on the Rhode Island and DC TROs, companies that received a stop work order invoking any of the executive orders issued by the Trump administration since January 20 should immediately seek clarification from the agency that issued the order on (1) whether and to what extend the order remains in effect, and (2) the legal basis for giving any effect to the order in the wake of the Rhode Island and DC TROs. Companies that plan to resume operations that were previously stopped or suspended should advise agencies of their plans, and companies that have identified cost impacts and disruptions from the stop work orders should advise agencies of those impacts and disruptions to the best of their ability. Companies should direct the attention of the agency that issued the order to the Rhode Island and DC TROs, as well as the Government’s notice to agencies regarding the Rhode Island TRO, which states, “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.” Although the Government’s notice was required to be disseminated to all Government “employees, contractors, and grantees by Monday, February 3, 2025, at 9 a.m.,” many companies that received stop work orders have yet to receive this notice. Companies should also follow up on all outstanding payment requests and demand payment for any amounts due. As noted above, the DC TRO expressly directs the Government “to release any disbursements on open awards that were paused” because of OMB’s January 27 memorandum.
The Rhode Island and DC TROs arguably are limited to awards of Federal financial assistance under the Uniform Guidance, as those awards were the subject of the since-rescinded January 27 OMB memorandum that triggered the lawsuits. As such, the Rhode Island and DC TROs arguably do not directly enjoin pauses in disbursements resulting from stop work orders issued under procurement contracts subject to the Federal Acquisition Regulation (FAR) at 48 C.F.R. Parts 1-52. Although much of the reasoning behind the Rhode Island and DC TROs should also condemn similar stop work orders issued under the clause at FAR 52.242-15, Stop Work Order, companies should be aware of substantial differences between the FAR and the Uniform Guidance in this area.
Unlike the FAR, the Uniform Guidance generally does not provide for a broad right to terminate grants, cooperative agreements, and other awards for the Government’s convenience. Rather, 2 C.F.R. 200.340(a)(4) contemplates that a Federal award may be terminated “pursuant to the terms and conditions of the Federal Award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.” The Uniform Guidance does not contemplate stop work orders or suspensions of performance at all, although some agency supplements to the Uniform Guidance do, with reference to similar language to Section 200.340. Regardless, the “program goals” and “agency priorities” referenced in Section 200.340(a)(4) are the goals and priorities established for the program at the time the grant was awarded. The regulatory history of this provision does not indicate that it was intended to provide the Government with a vehicle to unilaterally terminate – or suspend – grants because the Government no longer wishes to achieve those goals and priorities. Moreover, Section 200.340, by its terms, does not give the Government any rights, and instead directs the parties to a grant to the “terms and conditions of the Federal Award.” Individual awards may not address terminations for anything other than nonperformance or may include termination provisions that more closely resemble FAR termination for convenience clauses.
Although the FAR provides Government agencies with a broad right to terminate contracts for the Government’s convenience, and although the FAR specifically allows the Government to stop work under a contract, the reasoning in the Rhode Island and DC TROs calls into question stop work orders issued under procurement contracts as well. Contractors that received stop work orders invoking the Trump administration’s executive orders should seek to clarify the status of those orders following the TROs. Contractors seeking to recommence performance under a stopped contract can also submit a claim under the Contract Disputes Act seeking a declaration that the stop work order is unlawful. Such a claim may be a prerequisite to further judicial review for FAR-based contracts, particularly if the contracting agency does not provide the requested clarification.
NEXT STEPS
Although the Rhode Island and DC TROs should trigger the rescission of many stop work orders issued since the inauguration, more stop work orders are likely to come. The Government’s notice to agencies regarding the Rhode Island TRO emphasizes 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 Memo or the President’s Executive Orders – and provided the pause complies with all notice and procedural requirements in the award, agreement, or other instrument relating to such a pause.”
For companies holding grants, cooperative agreements, and other awards under the Uniform Guidance, we have prepared a checklist to help companies digest and respond to stop work orders invoking the Trump administration’s executive orders, as well as stop work orders that attempt to navigate the Rhode Island and DC TROs. Companies receiving stop work orders under the FAR will spend substantially less time determining the source and scope of the government’s rights under the contract than companies receiving stop work orders ceasing performance of awards under the Uniform Guidance and can more easily determine whether to dispute a stop work order and proceed accordingly.
McDermott’s Government Contracts Group can assist contractors and recipients in navigating this evolving landscape. For more information, reach out to the authors of this article or your regular McDermott lawyer(s).
