President Trump empowered the newly established, Elon Musk‑run Department of Government Efficiency (“DOGE”) to scrutinize procurement contracts and federal financial assistance agreements in an attempt to identify spending classified as wasteful by the Administration.¹ Based on this current political and agency activity, federal government contractors and federal financial assistance recipients cannot assume that their agreements with the federal government are safe from suspension, stop-work orders and/or termination.

Since its establishment, DOGE’s systematic review of federal spending has led to many actual and anticipated/speculated suspensions, stop-work orders, and terminations. For example, DOGE scrutiny has led to mass contract terminations at the Department of Education, U.S. Agency for International Development, and Consumer Financial Protection Bureau.² In addition to mass contract terminations, the Trump Administration and DOGE are directing the General Services Administration to begin terminating leases for federal government buildings.³ Additionally, President Trump has instructed DOGE to review spending by the Department of Defense which could lead to major weapon systems reprogramming or terminations.⁴

The purpose of this Client Alert is to provide federal government contractors and federal financial assistance recipients guidance on contract risk mitigation to preserve the ability to be made whole in the event that a federal executive agency terminates or freezes an agreement. Termination settlements often involve nuanced costs claims for recovery of valuable contractor and recipient investments, employee compensation or severance expenses, substantial subcontract and subrecipient settlements, and even the application of a so-called “loss ratio” to limit contractor and recipient recovery in some instances. Additionally, contractors and recipients should consider the impact termination has on costs that will continue after termination such as leases, defined benefit pension plans, and intellectual property agreements. The aforementioned termination settlement issues can be complex and all require important legal and accounting assessments. These uncertain times call for contractors and recipients to understand their rights and contractual obligations, mitigate risks, and diligently pursue appropriate claims for cost recovery under procurement contracts and federal financial assistance agreements with federal executive agencies.

Overarching Guidance

• Carefully review the terms of current agreements with federal executive agencies. It is important to understand the type of agreement and specific terms that are included in any agreement with a federal executive agency. Understanding this information provides contractors and assistance recipients with the applicable regulatory regime and the agency’s right to freeze or terminate the agreement. Additionally, it provides contractors and assistance recipients with insight on how to properly dispute agency action or inaction regarding termination, a freeze in performance, or delays in payment.
• Document all costs associated with federal executive agency issued terminations, stop-work orders, suspensions of work, and payment delays. Detailed cost documentation is essential to recovery in the event of a termination, stop-work order, suspension of work, or payment delay. Contractors and assistance recipients must demonstrate to the contracting officer that its incurred costs were caused by a termination, stop-work order, or suspension of work and those costs were reasonable incurred. Contractors and assistance recipients put themselves in the best position to recover costs when the costs are thoroughly documented in the contractors’ or assistance recipients’ cost accounting system with a narrative supporting that the costs are reasonable and could not have been mitigated.
• Provide timely notice that the action taken is considered a stop-work order or suspension of work. Contractors and assistance recipients should immediately notify the contracting officer that it considers a stop-work order or suspension of work to have cost and/or time impacts to the agreement. This puts the contracting officer on notice that the contractor or assistance recipient is going to seek costs in the form of a claim once the stop-work order or suspension of work is lifted or the agreement is terminated.
• Follow the required statutory, administrative or judicial procedures to file a claim or appeal. Contractors and assistance recipients should analyze their agreements to determine the required claim submission process and appeals process. Contractors and assistance recipients should ensure that all required administrative remedies are exhausted or statutory requirements are met before filing a case in court or appealing a claim denial. This includes submitting a claim for a stop-work order within thirty (30) days of cancelation or expiration of the order.⁵

Procurement Contracts

• What is a procurement contract? Procurement contracts are subject to the Federal Acquisition Regulation (“FAR”) when a federal executive agency⁶ makes an acquisition of supplies or services with funds appropriated by Congress.⁷ Procurement contracts may include several relevant standard clauses that would allow the agency to terminate or freeze the contract.⁸
• Termination for Convenience:⁹ Federal executive agencies are permitted to terminate nearly all procurement contracts for the convenience of the government.¹⁰ The contracting officer may terminate the entire contract or part of it if the contracting officer determines that termination is within the government’s interest.¹¹ Unless an extension is granted by the contracting officer, the contractor must submit a termination settlement proposal within one (1) year of the effective date of termination.¹² If the contractor does not submit within the one (1) year window, it loses the right to appeal under the Disputes clause.¹³ The contractor and contracting officer negotiate the termination settlement which may include reasonable profit for work completed, however, the agreed upon amount cannot exceed the total contract price as reduced by the previous payments and contract price of the non-terminated work.¹⁴ Although contracting officers have discretion to make appropriate fairness considerations and tradeoffs regarding termination settlement negotiations, the costs claimed and agreed upon in a termination settlement agreement must adhere to the cost principles and procedures in FAR part 31.¹⁵
• Stop-Work Order:¹⁶ A contracting officer may use a stop-work order to freeze a contractor’s performance on a procurement contract.¹⁷ A stop-work order is a written order from the contracting officer requiring the contractor to stop all or part of the work for ninety (90) days, or longer if the parties agree to an extension.¹⁸ The order must specifically state that it is a stop-work order and the contractor must immediately comply with the terms of the order and take reasonable steps to mitigate costs related to the work covered by the order.¹⁹ If the stop-work order is not canceled within ninety (90) days, the contracting officer either cancels the stop work order or terminates the contract.²⁰ After the stop-work order cancels or expires, the contractor has thirty (30) days to request an equitable adjustment or submit a claim for payment for costs incurred based on the stop-work order.²¹ If the contract is terminated, the contractor is entitled to reasonable costs in the termination settlement agreement process described above.²²
• Suspension of Work:²³ A contracting officer may use a suspension of work to freeze a contractor’s performance on a procurement contract.²⁴ Unlike stop-work orders, suspensions of work may suspend, delay, or interrupt all or part of the work for a period of time determined by the contracting officer.²⁵ A suspension of work order may be in writing or may occur constructively if performance of the work is suspended, delayed, or interrupted for an unreasonable period without a written order.²⁶ Contractors must exclude profit from equitable adjustments or claims for costs incurred due to suspension, delay, or interruption.²⁷If no suspension order is issued, the contractor may not seek costs incurred more than twenty (20) days before providing notice of the suspension to the contractor officer.²⁸ Therefore, it is in the contractor’s best interest to notify the contracting officer as soon as possible when it believes the contracting officer has constructively suspended the work.
• Withheld Payments: The Prompt Payment Act requires the government to pay its bills in a timely manner.²⁹ An interest penalty at the Department of Treasury rate is assessed and begins to accrue once an invoice goes unpaid for thirty (30) days.³⁰ The federal executive agency is not required to pay interest penalties if the delay in payment is due to a disagreement on payment amount or another contract compliance issue that needs to be resolved through the disputes process below.³¹ When a payment is a week or two late, contractors should notify the contracting officer that payment for work performed is past due and that the amount owed will begin to accrue interest in accordance with the Prompt Payment Act if payment is not received thirty (30) days from the invoice.
• Statutory Claims Process: The Contract Disputes Act includes a statutorily required process for resolving contract disputes with federal executive agencies.³² The statute requires contractors to submit a claim, in writing, to the contracting officer demanding payment of a sum certain within six (6) years after accrual of the claim.³³ A claim exceeding $100,000 must be certified by an individual authorized to bind the contractor.³⁴ The contracting officer generally has sixty (60) days to issue a final decision on the claim unless the contracting officer has notified the contractor within the sixty (60) days of the time that a decision will be issued.³⁵ The contracting officer’s decision is final and may be appealed to the applicable Agency Board within ninety (90) days or the U.S. Court of Federal Claims (“COFC”) within twelve (12) months.³⁶ If the contracting officer fails to issue a final decision within sixty (60) days or the notified time period, it is considered a deemed denial that the contractor may appeal to the Agency Board or COFC.³⁷

Federal Financial Assistance (Grants and Cooperative Agreements)

• What is federal financial assistance? Subparts A through F of 2 C.F.R. § 200 apply to federal executive agencies making federal awards to non-governmental entities.³⁸ Federal financial assistance generally consists of grants and cooperative agreements. See 2 C.F.R. § 200.1 (definition of federal financial assistance). Grants and cooperative agreements are legal instruments between a federal executive agency and a recipient to carry out a public purpose authorized by law instead of acquiring supplies or services through a procurement contract. See 31 U.S.C. §§ 6304–05. The difference between a grant and cooperative agreement is that a grant does not anticipate substantial involvement of the agency to carry out the activity in the agreement while a cooperative agreement does anticipate agency involvement. See id.
• Terminations and Suspensions:³⁹ Grant officers can only terminate a federal financial assistance award for convenience if the terms and conditions of the award permit termination for convenience and the “award no longer effectuates the program goals or agency priorities.”⁴⁰ Costs associated with a termination or suspension are only allowable if the federal executive agency expressly authorizes them in the notice of termination or notice of suspension.⁴¹ Notwithstanding the previous sentence, suspension costs or post-termination costs are allowable if:
  • The costs result from financial obligations which were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and (b) The costs would be allowable if the Federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect.⁴²

Recipients are generally entitled to termination settlement costs that it could not discontinue after the termination date.⁴³

• Administrative Appeal Process: Federal executive agencies are required to maintain written objections, hearings, and appeals processes.⁴⁴ Recipients should request the written process if it is not included within the federal financial assistance award. Depending on a review of the appeals process, recipients may be required to exhaust all administrative remedies before filing a complaint in district court alleging that the agency violated the Administrative Procedure Act.⁴⁵

Conclusion

As evidenced above, there are many factors that contractors and assistance recipients should consider to put themselves in the best position possible to recover costs incurred due to the Trump Administration’s direction to terminate or freeze federal executive agency spending. Although agency reactions to the Trump Administration and DOGE cost cutting directives may be unpredictable, contractors and assistance recipients should put themselves in the best position possible to be made whole by completely understanding their rights and requirements to recover costs under agreements with federal executive agencies.

1. See Exec. Order No. 14158, 90 Fed. Reg. 8439 (Jan. 29, 2025) (establishing DOGE).↩
2. See Zach Montague & Dana Goldstein, Musk Team Announces Millions in Cuts to Education Dept. Amid Legal Pushback, N.Y. TIMES (Feb. 11, 2025), https://www.nytimes.com/2025/02/11/us/politics/musk-doge-education-data.html; Melissa Quinn, Judge orders Trump administration to temporarily restore funding for foreign assistance programs, CBS News (Feb. 13, 2025), https://www.cbsnews.com/news/judge-blocks-trump-administration-from-canceling-foreign-aid-awards-in-place-before-his-inauguration/ (“At least 230 USAID grants and contracts have been terminated or been subject to stop-work orders”); Evan Weinberger, CFPB Cuts Over $100 Million in Contracts Amid DOGE Probe, BLOOMBERG L. (Feb. 11, 2025), https://news.bloomberglaw.com/us-law-week/cfpb-cancels-more-than-100-million-in-contracts-amid-doge-probe.↩
3. See Meg Kinnard & Joshua Goodman, Trump and Musk demand termination of federal office leases through General Services Administration, AP NEWS (Feb. 4, 2025), https://apnews.com/article/trump-musk-gsa-terminate-office-leases-f8faac5e2038722f705587c8dd21ab26. ↩
4. See Jon Harper, Trump directs Elon Musk and DOGE to review Pentagon spending, DEFENSESCOOP (Feb. 7, 2025), https://defensescoop.com/2025/02/07/trump-directs-elon-musk-doge-review-pentagon-dod-spending/.↩
5. See FAR 52.242-15(b)(2).↩
6. Certain federal executive agencies are not subject to the FAR and have been granted statutory exceptions to establish separate acquisition systems. See, e.g., Department of Transportation and Related Agencies Appropriations Act of 1996, Pub. L. No. 104-50, § 348, 109 Stat. 460-61 (1995) (directing establishment and implementation of Federal Aviation Administration acquisition system); 39 U.S.C. § 410 (public contracts laws and the FAR do not apply to the U.S. Postal Service).↩
7. See FAR 1.104 (“The FAR applies to all acquisitions as defined in part 2 . . . .”); FAR 2.101 (An acquisition is “the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease . . . .”).↩
8. See, e.g., FAR 52.242-15 (Stop-Work Order); FAR 52.242-14 (Suspension of Work); FAR 52.249-2 (Termination for Convenience of the Government (Fixed-Price)).↩
9. The following is a list of all the termination for convenience clauses: (1) FAR 52.249-1, Termination for Convenience of the Government (Fixed-Price) (Short Form); (2) FAR 52.249-2, Termination for Convenience of the Government (Fixed-Price); (3) FAR 52.249-3, Termination for Convenience of the Government (Dismantling, Demolition, or Removal of Improvements; (4) FAR 52.249-4, Termination for Convenience of the Government (Services) (Short Form); (5) FAR 52.249-5, Termination for Convenience of the Government (Services); (6) FAR 52.249-6, Termination (Cost-Reimbursement); (7) FAR 52.249-7, Termination (Fixed-Price Architect-Engineer); and (8) FAR 52.212-4(l), Contract Terms and Conditions—Commercial Products and Commercial Services↩
10. See FAR 49.502(a) (termination clause not required in fixed-price contracts that do not exceed the simplified acquisition threshold).↩
11. See FAR 52.249-2(a).↩
12. See FAR 52.249-2(e).↩
13. See FAR 52.249-2(j).↩
14. See FAR 52.249-2(f).↩
15. See FAR 52.249-2(i).↩
16. The stop-work order clause is required in contracts for supplies, services, and research and development. See FAR 42.1305(b).↩
17. See FAR 52.242-15.↩
18. See FAR 52.242-15(a).↩
19. See id. ↩
20. See id. ↩
21. See FAR 52.242-15(b).↩
22. See FAR 52.242-15(c).↩
23. The suspension of work clause is only required in fixed-price construction and architect-engineer contracts. See FAR 42.1305(a).↩
24. See FAR 52.242-14.↩
25. See FAR 52.242-14(a).↩
26. See FAR 52.242-14(b).↩
27. See id.↩
28. See FAR 52.242-14(c).↩
29. See 31 U.S.C. § 3902(a); see also FAR 52.232-25.↩
30. See 31 U.S.C. § 3902(e); see also FAR 52.232-25(a)(4).↩
31. See FAR 52.232-25(a)(5)(ii). ↩
32. See 41 U.S.C. §§ 7101–7109.↩
33. See 41 U.S.C. § 7103(a); FAR 52.233-1(c)–(d).↩
34. See 41 U.S.C. § 7103(b).↩
35. See 41 U.S.C. § 7103(f).↩
36. See 41 U.S.C. §§ 7103(g), 7104(a)–(b).↩
37. See 41 U.S.C. §§ 7103(f)(5).↩
38. See 2 C.F.R. § 200.101.↩
39. 2 C.F.R. § 200 does not discuss stop-work orders, however, a federal executive agency may include a stop-work order clause in its federal financial assistance award.↩
40. 2 C.F.R. § 200.340(a)(4).↩
41. See 2 C.F.R. § 200.343↩
42. See id.↩
43. See 2 C.F.R. § 200.472 (these generally allowable costs include: (1) rental costs under unexpired leases; (2) accounting, legal, clerical costs reasonably necessary for preparation of the settlement claims; (3) termination and settlement of subawards; and (4) reasonable storage and transportation costs).↩
44. See 2 C.F.R. § 200.342.↩
45. See 5 U.S.C. §§ 704–706; see also Darby v. Cisneros, 509 U.S. 137 (1993) (holding that exhaustion of available administrative remedies is only required before seeking judicial review if exhaustion is expressly required by statute or when the agency requires appeal by rule). ↩