Trump’s First Month: What is Taking Shape in Government Contracts?
President Trump’s second term has been defined by significant policy shifts and a realignment of federal spending, which have had knock-on effects for the Government Contracts community. This article summarizes key executive orders (“EOs”) from the Trump Administration that contractors should consider when reviewing current contracts and when bidding for future procurements. We also envision several areas of impact likely to follow from priorities outlined in these early EOs and memoranda.
The Department of Government Efficiency (“DOGE”)
Passed on January 20, EO 14158 formalized the foundation of DOGE, with Elon Musk serving as the de facto head of an initiative aimed at forming an efficient government.[1] In conjunction with EO 14222, issued on February 26, DOGE is empowered to adopt IT, government-wide software, and network systems to: (a) track all funds disbursed by executive agencies for grants and contracts; and (b) implore agencies to issue guidance on identifying contracts that can be terminated or modified. These EOs also impose a 30-day freeze on government spending cards and calls for identifying real-property leases that can be terminated. DOGE is facing several legal challenges, including a lawsuit filed by a consortium of state Attorneys General challenging Musk’s work for DOGE under the U.S. Constitution’s Appointments Clause.
The Elimination of Diversity, Equity, & Inclusion (“DEI”)
EO 14151 and EO 14173, passed on January 20 and 21, eliminate DEI activities, policies, positions, and programs across all federal agencies. The orders also take steps to remove DEI from the private sector and university systems through Title VI of the 1964 Civil Rights Act, which conditions federal financial assistance on compliance with civil rights laws. For contractors, these EOs direct the termination of DEI-related requirements or trainings under federal contracts and grants; they also eliminate “equity-based” grants, terminate positions and programs related to environmental justice, and eliminate all references to DEI under the FAR and acquisition-related materials. These actions also require CO’s to remove FAR Clause 52.222-26 “Equal Opportunity”—included in all solicitations following the passage of EO 11246 in 1965—from all contracts. In tandem with the DOGE-related EOs, these shifts are likely to result in partial revisions to FAR Subpart 22 that implement the now-rescinded EO 11246.
Tariffs, Trade Agreements, and Domestic Sourcing Requirements
In several EO’s passed on February 1 (14193, 14194, and 14195), the Trump Administration announced tariffs on goods imported from Canada, Mexico, and China—25%, 25%, and 10% respectively—in response to the flow of fentanyl and opioids from each country and undocumented immigrants from Mexico. Analysts question the stickiness of the tariffs, noting that President Trump’s transactional style supports their use as leverage in bilateral negotiations. In support of this point, Trump has repeatedly lightened or delayed tariffs on Mexico and Canada, although at the time of this writing, a 25% tariff on Canadian aluminum and steel has gone into effect. Trump has also recently narrowed the application of Canadian tariffs to items not covered under the USMCA.
Tariffs are not new to Trump, nor are they unique to his administration. Although Biden removed some of the tariffs imposed by Trump in his first term, he increased others. In May 2024, the Biden Administration directed the U.S. Trade Representative to increase tariffs to target specific industries to protect the domestic production of solar panels, electric vehicles, and semiconductors from China. Biden’s use of tariffs was complimented by industrial subsidies, such as those to semiconductors through the CHIPS Act or those for EV charging stations through the Green New Deal. However, Trump’s tariffs are not—as of now—so targeted, nor do they correlate with industrial subsidies.
When situated within Trump’s America First Trade Policy directive—which addresses several priorities related to trade and procurement—the tariffs signal what will likely be a future strengthening of domestic sourcing requirements. New, stricter domestic preferences and source prohibitions may result in additional policies that decouple the defense supply chain from China, for example—and promoting investment in U.S. manufacturing. Trump will likely increase the domestic content threshold in the Buy American Act and insist on implementation of Build American, Buy American from the Bipartisan Infrastructure Bill to effectuate these goals.
Trump’s readiness to impose tariffs on allies may also spell trouble for Reciprocal Defense Procurement Agreements, which reduce barriers to participation in procurements for historical allies and provide exceptions to the Buy American and Balance of Payments Program. The change in policy could impact the applicability of the Trade Agreements Act (“TAA”) for qualifying contracts, perhaps through an increase in the dollar threshold for the Act to apply. Items under these agreements will likely be subject to duties if the new policy does not uphold existing exemptions for either end products or components from these nations, though duties or other related taxes are not currently mentioned and remain exempted. Aside from the defense sector, the federal marketplace generally could face heightened compliance requirements and, accordingly, a decrease in the usage of goods and services from Canada and Mexico.
Similarly, existing and future trade agreements will be closely analyzed to determine if such agreements reduce opportunities for U.S. contractors to provide goods and services for federal contracts and conflict with EO 13788, known as Buy American and Hire American.
The TAA currently allows exemptions for products from foreign countries that would be subject to the Buy American statute and other provisions to be used in federal contracts if that nation had a trade agreement with the U.S. or met other requirements. This system may change under the Trump Administration’s new policy if trade agreements are found to allow exemptions that are “disadvantage” U.S.-based companies from earning federal contracts.
Tariffs may also disrupt contractors who have put off implementing supply chain adaptability. These disadvantages might typically be addressed through economic incentives, or subsidies, for domestic production. However, the Trump Administration’s has signaled that the administration will cut subsidies. For instance, the Trump Administration has made repeated calls to end subsidies for domestic semiconductor production under the CHIPS Act, an act signed under the Biden Administration that has provided almost $53B in funding to bring semiconductor supply chains back to the U.S. and spur innovation. Although, subsidies for other industries, including timber, have been announced. While the future of the CHIPS Act and Bipartisan Infrastructure Bill remains unclear, there is increased chatter of a recession, and if the markets remain in correction territory, the Administration may need to utilize subsidies to spur domestic consumption in late 2025.
Decreased Enforcement & Regulation
EO 14179, passed on January 23, directed OMB to revise previously issued memos from the Biden Administration (e.g., M-24-10 and M-24-18) to improve the U.S.’s leadership in AI.
These Biden-era memos focused on fortifying the way federal agencies should manage their use of AI, recommending agencies designate a Chief AI Officer, remove barriers inhibiting the responsible use of AI, and requiring agencies conduct an “AI Impact Assessment” if they use “safety- or rights-impacting” AI. A “safety- or rights-impacting”AI refers to any AI model that may produce an output or serve as a basis for a decision that may impact an individual’s civil rights or liberties, or their well-being and environment. Under these memos, agencies were required to encourage agency-wide collaboration and formalize internal AI acquisition policies, procedures, and best practices to foster a competitive AI marketplace. The goal of adopting AI was to minimize AI risk and ensure these policies did not infringe on civil rights and liberties. The revocation of these memos may create uncertainty on how federal agencies should use AI in future procurements.
In an additional deregulatory push, Trump has announced changes to the Foreign Corrupt Practices Act (FCPA). EO 14209 directs the Attorney General to review guidelines and policies on investigations under the FCVPA and not initiate new investigations, while aligning investigations with Trump’s foreign policy interests. This EO’s end-goal is to issue new guidance to promote “American interests” and U.S. competitiveness abroad.
This shift away from FCPA enforcement is a striking contrast to the DOJ’s FCPA Pilot Program from the Obama administration, which allowed companies to use mitigation “credits” in exchange for cooperating and voluntarily disclosing misconduct. Instead, the existing policy discourages any investigations under the FCPA for at least the next 180-days.
It is also important to highlight that the FCPA does not ipso facto make U.S. businesses noncompetitive. The FCPA’s provisions apply to foreign companies, and enforcement patterns demonstrate FCPA investigations are not primarily performed on U.S. companies. Nevertheless, a decrease in FCPA enforcement may result in U.S. companies engaged in corrupt practices that could expose them to criminal penalties in foreign jurisdictions.
The Trump Administration’s recent EO’s and directives are a clear signal of what contractors should expect in the following months—significant changes to federal procurement that focuses on effectuating his America First policies at the expense of other statutes and regulations while abolishing preferential policies such as DEI. But these changes are not the only means through which the current administration has impacted the federal marketplace. In Part II, we analyze recent litigation before federal courts to unpack critical principles contractors should be aware of.
GovSpring is available to help contractors and companies looking to enter the federal market understand the implications of the new administration’s memoranda and executive orders. Click here to schedule a consultation or fill out our online contact form if you are in need of legal services.
This article was co-authored with Aaron Silva. Aaron is currently a third-year law student at The George Washington University Law School, with a focus in Government Procurement and International & Comparative Law.
[1] The actual administrator is Amy Gleason.