On February 26, 2025, President Trump signed an Executive Order on Implementing the President’s Department of Government Efficiency Cost Efficiency Initiative (“the EO”). The EO establishes significant new requirements and limitations related to new and existing “covered contracts and grants,” a term that is defined to include most types of “Federal contracts, grants, loans, and related instruments,” with exceptions for certain military and law-enforcement contracts. Among other things, the EO:
- Requires federal agencies to establish new payment tracking systems that incorporate “written justifications” for each covered contract or grant payment;
- Requires each agency to complete a review of all existing covered contracts and grants within 30 days for alignment with Administration policy, with further direction to terminate, modify, or renegotiate such covered contracts where appropriate and consistent with applicable law;
- Requires each agency to issue guidance on signing new contracts or modifying existing contracts “to promote Government efficiency and the policies of [the new] Administration,” and to refrain from entering into “new contracts” pending the publication of such guidance absent approval from the agency head on a case-by-case basis; and
- Restricts non-essential travel by federal employees, imposes a “freeze” on the use of government-issued purchase cards, and directs agencies to consider exercising termination rights in leases for government-owned property and to develop a plan for the disposition of government-owned real property that is “no longer needed.”
We have set forth below in more detail the scope and most significant takeaways from the EO.
Scope of the EO
The EO applies to “covered contracts and grants”—defined as discretionary spending through Federal contracts, grants, loans, and related instruments. The EO excludes “direct assistance to individuals; expenditures related to immigration enforcement, law enforcement, the military, public safety, and the intelligence community,” and agency heads also have discretion to exclude “other critical, acute, or emergency spending.”
In a section entitled “General Exclusions,” the EO states that it does not apply to law enforcement officers and contracts related to criminal and immigration enforcement; CBP and ICE; “the Uniformed Services,” as defined in 20 CFR 404.1330; and classified information or classified information systems. Notably, 20 CFR 404.1330 is a regulation that defines which individuals are members of the Uniformed Services, including, but not limited to, individuals enlisted, inducted, or appointed into the Air Force, Army, Coast Guard, Marine Corps, or Navy. Further, contracts and grants may otherwise be exempted from the EO, in whole or in part, by agency heads, in consultation with DOGE and the Director of OMB.
Launch of Agency-Specific Payment Tracking System
The EO requires each agency to build a “centralized technological system” to record every payment issued under the agency’s covered contracts and grants. For each payment, the system must include a “brief, written justification” by the officer who approved the payment. The EO provides that the system must include a mechanism to pause and “rapidly review” any payment lacking a written justification. Additionally, the EO states that payment justifications must be posted publicly to the extent permitted by law and deemed practicable by the agency.
The EO does not explain who will be responsible for developing the “centralized technological system” or how that system will interact with existing government payment systems and approval requirements. Similarly, the EO does not provide specific guidance on the content or level of detail for the required “brief, written justification,” nor does it specify a timeframe for completing any “rapid[] review” of a paused payment. Presumably, any payments delayed more than 30 days from the date of invoice submission will be eligible to collect interest pursuant to the federal Prompt Payment Act.
Review of Existing Contracts and Agency Contracting Policies
Within 30 days, each agency must review all existing covered contracts and grants. The agency must terminate or modify (including through renegotiation) such contracts, where appropriate and consistent with applicable law, “to reduce overall Federal spending and reallocate spending to promote efficiency and advance the policies of [the] Administration.” In conducting this review, the EO directs agencies to prioritize contracts with educational institutions and foreign entities “for waste, fraud, and abuse.” Neither “educational institutions” nor “foreign entities” is defined in the EO, and the EO does not provide an explanation for its directive to prioritize these entities. Notably, in the event of contract terminations or modifications, contractors and awardees will be entitled to pursue remedies outlined under their awards and existing regulations, including termination settlements for terminations for convenience and contract adjustments for changes and modifications.
Additionally, within 30 days, each agency also must review its contracting policies, procedures, and personnel. During this review period, no agency may enter into new contracts until it has issued guidance regarding entering or modifying contracts “to promote Government efficiency and the policies of [the] Administration.” The only exception to this limitation is if the agency head authorizes the execution of a contract on a case-by-case basis. Additionally, during the review period no agency may issue new contracting officer warrants unless the agency head determines it is necessary – a limitation that will make even harder the herculean task of accomplishing the above-described review within 30 days.
Additional Provisions
The EO imposes additional limits on federal worker expenditures, specifically by limiting non-essential travel and freezing government-issued credit cards, the latter of which are widely used to procure small-dollar supplies and materials necessary for federal operations. In addition, the EO also directs agency evaluations relating to real property, including evaluating and where appropriate exercising termination rights in leases of federally-owned real estate and developing plans for disposing property that is “no longer needed.” While these changes are less likely to directly affect the federal contracting community, their cumulative effect on the day-to-day activities of federal contracting professionals certainly will have indirect implications for contractors and their customers.
Conclusion
The EO represents a potentially major shift in the administration and performance of federal procurement contracts and financial assistance agreements, and in the near- and medium-term it raises the prospect of significant disruptions to the ordinary functioning of federal contracting processes. Given the substantial open questions about how the EO will be implemented in practice, the full impact of this action will become more clear in the coming weeks and months. For now, however, contractors and federal financial assistance recipients would be well-advised to maintain close contact with their federal counterparts and remain alert to both potential disruptions to their contracts and available remedies in each such situation. We will be closely monitoring developments in this area and advising affected parties on ensuring that their rights are fully protected.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Government Contracts practice.
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