The Trump administration’s en masse terminations for the government’s convenience-as-a-budget-cutting tactic may constitute contract breaches, thereby entitling contractors to lost profits.
In recent weeks, the second Trump administration has begun en masse terminations of federal contracts for the government’s convenience-as-a-budget-cutting tactic. Contractors with the U.S. Agency for International Development have been most affected by this tactic, where the vast majority of the agency’s contracts have been terminated.
Recognizing that Congress authorizes funding of federal contracts and grants, several contractors and grant performers have challenged the administration’s en masse contract terminations as violations of the Impoundment Control Act, which requires congressional approval for an administration to impound (not spend) congressional appropriations. The U.S. District Court in the District of Columbia recently issued a temporary restraining order (TRO) to enjoin the agency from “issuing, implementing, enforcing, or otherwise giving effect to terminations […] in connection with any contract […] that was in existence as of January 19, 2025.” The court, however, included an exception to this TRO for the agency “taking action to enforce the terms of particular contracts, including with respect to expirations, modifications, or terminations pursuant to contractual provisions.” Because federal contracts have standard provisions allowing the government to terminate a contract for the government’s convenience, the Court’s exception effectively rendered the TRO meaningless. The government made this point in response to a contempt motion, where the government asserted that the TRO did not apply to contracts terminated for the government’s convenience.
Notwithstanding this result, en masse contract terminations may be a breach of contract under certain circumstances. Although contracting officers have wide latitude to terminate a contract for the government’s convenience, the latitude is not unlimited. It is well established that such terminations are a breach of the contract if the contracting officer abuses her/his discretion or acts in bad faith. See e.g., Krygoski Constr. Co. v. United States, 94 F.3d 1537, 1541 (Fed. Cir. 1996).
Challenges of a termination for convenience based on bad faith (i.e., done to harm the contractor) are usually unsuccessful because it requires a very difficult standard of proof (“well-nigh irrefragable” proof). Federal courts have, however, found that contracting officers abuse their discretion when they fail to exercise independent business judgment in terminating a contract. See e.g., N. Star Alaska Hous. Corp. v. United States, 76 Fed. Cl. 158, 209 (2007). In TigerSwan, Inc. v. United States, 118 Fed. Cl. 447, 453 (2014), the U.S. Court of Federal Claims found that “the contracting officer’s failure to make an independent decision weighs in favor of finding an abuse of discretion,” and that such a failure also means that “the contracting officer’s reasons for termination are not entitled to the deference typically afforded to contracting officer decisions.”
Because the Trump administration has executed the en masse terminations of USAID contracts under broad policy considerations, the terminations lack contracting officer business judgment required to sustain terminations for convenience. Accordingly, contractors and grantees impacted by such terminations should consider a challenge based on contracting officer abuse of discretion. Contractors who successfully challenge such terminations under the Contract Disputes Act could recover what they expected to receive under the contract, including lost profits. Krygoski Constr. Co. v. United States, 94 F.3d at 1545.
[View source.]
