Trump’s Second Month: How Are Numerous Legal Challenges Impacting the Administration’s Changes to Federal Procurement?
In Part I, we analyzed how President Trump’s executive orders (“EO”) and directives defined the Administration’s stance towards federal procurement—implementing policies such as America First tariffs and what that may mean for domestic sourcing, abolishing Diversity, Equity and Inclusion (“DEI”) initiatives through contract terminations and regulatory reform, and implementing broad-scale cost cutting through the Department of Government Efficiency (“DOGE”). But, the implementation of Trump’s EO’s and directives have been met with staunch opposition and a myriad of legal challenges which leave the Government Contracts community with little clarity.
This article reviews the latest updates to key legal challenges to the Trump Administration’s EO’s and directives that contractors should be aware of in evaluating the status of their existing contracts and understanding the scope of their obligations. We also highlight litigation trends that will likely arise as a byproduct of the current legal challenges.
Federal Funding Freeze
To execute the Trump Administration’s goals outlined in the numerous EOs issued during Trump’s first week in office, the Office of Management and Budget (“OMB”) issued a memorandum on January 27 to pause all obligations and disbursements of all federal financial assistance and other activities implicated in the EOs. Although this memorandum was later revoked on January 29, President Trump clarified that the “federal funding freeze” was not wholly removed, and two legal challenges were filed to challenge this action. On January 28, the National Council for Nonprofits filed a complaint with the District Court for the District of Columbia (“D.C. District”) to prevent the implementation of the freeze. The action asserts that grant recipients have a reliance interest in the grants they received, arguing that the Memorandum was arbitrary and capricious under the Administrative Procedure Act (“APA”). In addition, the Plaintiff argues that the Memorandum wrongly conditions funding on the political viewpoints of grant recipients, noting that the portions of the memorandum prohibiting the promotion of “gender ideology”—among others—run afoul of the First Amendment.
Three days after the National Council for Nonprofits filed its request for a preliminary injunction, twenty-three states and the District of Columbia filed suit [MG1] in the District Court for the District of Rhode Island to prevent any freeze or withholding of federal funds. In this 102-page Complaint, the States Attorneys General request a Temporary Restraining Order. Of note is the Plaintiff’s reliance on Loper Bright Enterprises[1] in defense of its argument that the OMB is not entitled to judicial deference. In addition to arguing the Memo is arbitrary and capricious under the APA[2], the Plaintiffs also argue that the refusing to disburse grants authorized by Congress is a usurpation of Congressional power and an unconstitutional violation of the separation of powers.[3] The Plaintiffs also argued that amendments to the conditions of federal funding commandeer state power by imposing surprise, retroactive conditions on funds received by states.[4] Lastly, among other subsidiary arguments, the Plaintiffs argue that the memorandum constitutes a refusal to carry out the law, and thus a violation of the Constitution’s Take Care Clause.[5]
In response to these requests for preliminary injunctions, both courts granted a temporary restraining order (“TRO”) to the plaintiffs on January 31 and February 3 respectively, ordering the Trump Administration to restore the federal funding. Curiously, in the case brought by the States, the Government argued the request for a TRO was moot, since OMB formally rescinded the Memo on January 29. Even though OMB had rescinded the Memo, the Judge noted that the White House Press Secretary, Karoline Leavitt, had asserted that nothing had changed regarding the memo, even after formal recission; based on this admission in a public White House Press briefing, the Judge refused to find that the Plaintiff’s request was mooted by the formal recission of the TRO. In its decision granting the TRO, the Judge notes that OMB offered no legal authority for the unilateral executive action rescinding Congressionally authorized funds. The Judge also noted that the Plaintiffs were likely to prevail on Constitutional and other Statutory bases.
Even after the court granted the Plaintiff’s TRO in the States’ case, there was evidence that Agencies had continued to freeze federal funds, under the pretext of fighting fraud. In response to the Government’s unwillingness to abide by the TRO, the judge issued another order on February 10 clarifying his original order. This clarification reaffirmed the Trump Administration’s obligations under the original order: unfreeze frozen funding, end all funding pauses, restore withheld funds, and comply with the TRO’s text. On March 6, the Judge issued another order to extend the TRO.
As a continuing resolution was passed on March 14 to prevent a government shutdown, contractors could receive funding under their existing contracts and grants, albeit with likely delays. Nevertheless, the proceedings so far—and other recent judicial standoffs—foretell uncertainty regarding full compliance by the Administration, even as the courts announce doubts about the legal viability of unilateral funding recissions. Given the Trump Administration is expected to continue contesting both TRO’s, contractors should prepare for future pauses on funding either at a government-wide level or an agency-specific freeze.
DEI
Part I of this series outlines how EO 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”) and EO 14173 (“Ending Illegal Discrimination And
Restoring Merit-Based Opportunity”) prohibits “illegal” DEI practices across all federal agencies (e.g., DEI requirements in federal contracts and grants, DEI trainings, and removal of FAR Clause 52.222-26, the Equal Opportunity clause, from all solicitations). On February 4, four plaintiffs filed suit in the U.S. District Court for the District of Maryland, seeking a TRO on the grounds the EOs are unconstitutionally vague and restrict free speech. The Plaintiff argued that the EOs were vague, since they did not provide “fair notice of what is prohibited” and are therefore standardless and encourage discriminatory enforcement.[6] The free speech and vagueness arguments work in tandem, since the Plaintiff alleges that the absence of a clear standard for covered conduct chills constitutionally protected speech. In response, Judge Abelson granted a TRO to the plaintiffs in a February 21 order, stating in-part that both EOs provided zero guidance what policies or programs would be deemed illegal, with the DOJ also refused to clarify the directives. The Government appealed the TRO to the Fourth Circuit and sought a stay of the TRO pending appeal.[7] The Fourth Circuit found for the Government, and the opinions suggest that the order may be properly limited to conduct prohibited by “anti-discrimination law,” but may be enforced unconstitutionally. Briefs from the parties are forthcoming.
Efforts to eliminate DEI from procurements and grants raise several questions about the future of the 8(a) Business Development program, particularly minority- and women-owned small business set asides. These programs are not addressed by either EO EO 14151 or EO 14173. For example, 14173 rescinded programs and provisions pursuant to Executive Order 11246, signed by Lyndon Johnson in 1965, requiring non-discrimination by contractors in hiring, among other restrictions. However, women-owned small businesses, veteran owned small businesses, and minority set-asides are a function of legislation, the Small Business Act, not executive orders.[8] Although these programs may have the flavor of “DEI,” particularly under the administration’s vague definition, they are not affected.
However, the substance of some set asides have—and will continue to be—subject to litigation. For example, one element of the 8(a) Business Development Program was recently overturned in Ultima Services Corp. v. U.S. Department of Agriculture. There, the U.S. District Court for the Eastern District of Tennessee enjoined the Small Business Administration (“SBA”) from basing eligibility for their 8(a) Business Development based on the “rebuttable presumption” that individuals of certain racial groups are socially disadvantaged, stating this method would not survive strict scrutiny. As a result, the SBA issued new guidance requiring 8(a) participants relying on the “rebuttable presumption” to demonstrate their social disadvantage via a narrative and suspended new applications. Ultima has already begun to affect similar presumptions in other statutes. For example, the North District of Texas recently found that portions of the Minority Business Development Act (15 USCS § 9501) unconstitutionally rely on a race-based presumption of social disadvantage. Other challenges to 8(a) preferences may be in the pipeline, and race- and gender-based preferences could later be subject to broader reforms to the acquisition system.
U.S. Agency for International Development (“USAID”)
On January 26, the United States Department of State (“State Department”) released a statement that revealed Secretary Marco Rubio (“Secretary Rubio”) paused all U.S. foreign assistance funded through USAID per Trump’s America First policies. By February 7, USAID released a memorandum that placed all personnel on “administrative leave” worldwide. Accordingly, on March 10, Secretary Rubio announced on X the cancellation of 83% of USAID contracts and moved the remaining 17% of contracts to the State Department, effectively marking the end of USAID.
The Administration’s actions contravene a February 13 order from Judge Amir Ali of the D.C. District Court, which implemented a TRO and mandated that the Trump Administration unfreeze all disbursements of funds tied to foreign aid and cease the issuance, implementation, and enforcement of all terminations, suspensions, or stop-work orders tied to any federal foreign assistance contract, grant, or other award. This TRO was upheld by the Supreme Court in a recently released March 5 slip opinion, which implored the District Court to clarify the government’s obligations under the original TRO.
The uncertainty surrounding the status of contractors’ existing USAID contracts does pose complications in selecting which remedies are proper in this context. But, the contravention of judicial orders and involvement of individuals not federally appointed in executing the cancellation of foreign aid and USAID’s contracts (e.g., Elon Musk) could provide the potential groundworks for a termination for convenience (“T4C”) action. Plus, if FAR Clause 52.233-1 is included in a contractor’s original solicitation, they maybe be able to file a claim for the government’s failure to pay for products or services.
Law Firm Litigation
As part of effectuating EO 14147, referred to as Ending the Weaponization of the Federal Government, President Trump has so far issued three directives against law firms for their representation of Trump’s political opponents or involvement in legal challenges against Trump: Covington & Burling LLP, Perkins Coie LLP (“Perkins Coie”), and Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”). Each directive implores all “[r]elevant heads of executive departments and agencies” to revoke security clearances of individuals employed at each firm if it is against the national interest. Additionally, the directives require agency heads to disclose all federal contacts involving Perkins Coie, Paul Weiss, and entities which do business with each firm to terminate all contracts, including those under the FAR, and readjust federal spending away from these parties.
However, on March 11, Perkins Coie, represented by Williams & Connolly LLP, filed suit against the Trump Administration for, among other charges, violating the firm’s First Amendment rights to free speech, expression, and association, the Fifth Amendment’s Equal Protection and Due Process Clauses, and the right to counsel under the Sixth Amendment. The following day, District Judge Beryl A. Howell issued a TRO to enjoin the enforcement of the Perkins Coie directive.
Contractors affiliated with each law firm should take steps to prepare for a potential T4C action and, in-line with our recent article, contemplate pursuit of a legal challenge, since these terminations are targeted, unfair, and malicious. Such terminations have been subject to scrutiny by the courts.
Conclusion
The legal challenges associated with the Trump Administration’s EOs, directives, and other policies show how uncertain federal procurement policy is at the moment. It is difficult to predict trends, agency closures, or categories of contracts to be terminated. Notwithstanding the impact of these legal challenges, it is important to take a closer look at how executive agencies have sought to implement the Trump Administration’s federal procurement policies. Part III of this series will thus conclude will analyze agency-level actions taken that 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] Loper Bright Enterprises, et al. v. Raimondo, Secretary of Commerce, et al., No. 22-451, 2024 U.S. LEXIS 2882.
[2] Complaint at 29-30.
[3] Id. at 31-32.
[4] Id. at 33.
[5] Id. at 34-35; “[The President] shall take Care that the Laws be faithfully executed, and shall Commission all the Officers of the United States.” U.S. Constitution, Article II, Section 3.
[6] Williams, 553 U.S. 285, 304 (2008).
[7] The test for a stay of a lower-court order is outlined in Nken v. Holder, 556 U.S. 418.
[8] See 5 USCS § 637(d) regarding these various set-aside programs.