Bottom Line Up Front
The Department of Defense (DoD) is moving forward with eliminating Diversity Equity and Inclusion (DEI) programs under Executive Order Ending Radical and Wasteful Government DEI Programs and Preferencing, dated January 20, 2025, and the U.S. Office of Personnel and Management (OPM) memorandum Initial Guidance Regarding DEIA Executive Orders dated January 21, 2025. On January 28, 2025, the Office of the Under Secretary of Defense signed a memorandum to the Secretaries of the Military Departments, the Chair of the Joint Chiefs of Staff and all Defense Field Activities (the “DoD Memo”) ordering contracting officers to immediately “cancel or amend solicitations and terminate or partially terminate existing contracts (including set-asides) and contract-like instruments (e.g., Other Transaction Authority agreement) that contain diversity, equity, and inclusion (DEI) and diversity, equity, inclusion, and accessibility (DEIA) requirements.” The DoD memo also requires Components to report to the DoD Principal Director, Defense Pricing, Contracting and Acquisition Policy all DEIA-related contracts and any contract descriptions that were changed to obscure their connection to DEIA-related programs no later than February 21 2025. Contractors and federal fund recipients should expect agency action in the coming days if their funding agreements are impacted by the Executive Order.
Background
On January 20, 2025, President Trump signed an Executive Order, titled Ending Radical and Wasteful Government DEI Programs and Preferencing (the Executive Order), which, in part, directs federal agencies to terminate federal contracts and grants related to Diversity, Equity, and Inclusion (DEI), as well as environmental justice related contracts and grants within 60 days. Goodwin covered the Executive Order in more detail here.
The next day, OPM issued initial guidance to agencies on carrying out the mandate of the Executive Order to (i) close agency DEIA Offices; (ii) report to OPM on all steps taken to implement the OPM guidance including lists of DEIA offices and DEIA-related contracts; and (iii) submit to OPM by January 31, 2025 a written plan for executing a reduction-in-force action regarding the employees who work in a DEIA office and a list of all contract descriptions or personnel positions that were changed since November 5, 2024 to obscure their connection to DEIA programs.
Impact of the DoD Memo
The DoD is a direct mandate issued to contracting officers to take action to cancel solicitations and terminate certain contract and contract like instruments that have been targeted by the Trump Administration. The DoD Memo appears to give contracting officers the ability to partially terminate instruments with the goal of descoping certain DEI and DEIA related requirements. Notably, the DoD Memo specifically directs contracting officers to extend their actions to contract actions that being executed on the DoD’s behalf by other federal agencies under assisted acquisition authorities. So ultimately, non-DoD contracts will be impacted, if those contracts are supporting DoD activities.
Takeaways
- Companies should continue performing until they receive written direction from the appropriate point of contact to stop work. Even if you believe your contract may be ultimately impacted by the Executive Order, it is important to continue to perform unless or until you receive official direction your warranted contracting officer, grants officer or agreements officer. Doing so will ensure that you do not default on contractual obligations. To the extent that your contract is descoped as opposed to terminated, you will need to ensure you understand what provisions of your statement of work remain in place and what obligations you still have to perform or deliver. Also, companies should consider negotiating schedule extensions as necessary to ensure that they can account for performance disruptions that may flow from agency actions.
- Companies should document impacts related to partial or total contract terminations. Companies should contemporaneously document any expenses that they incur as a result of, or related to, agency actions that partially or totally terminate existing contracts, grants, or other funding agreements. Termination clauses that allow the government to terminate an agreement in whole or in part for the convenience of the government will set forth how a company should submit termination proposals. The contractual authority that will likely be used to terminate a contract for convenience resides in Federal Acquisition Regulation (FAR) clauses 52.249-1 Termination for the Convenience of the Government (Fixed-Price) (Short Form), 52.249-2 Termination for the Convenience of the Government (Fixed-Price), 52.249-4 Termination for the Convenience of the Government (Services) (Short Form), FAR 52.249-6 Termination (Cost Reimbursement), and 52.212-4(l) Commercial Products and Commercial Services, Termination for the Government’s Convenience. Importantly, companies should review any non-FAR based agreements such as Other Transaction Agreements (OTAs) carefully for tailored termination clauses that may deviate from those set forth in the FAR.
- Companies should document all exchanges with federal agency employees in writing. Because direction coming from the Trump Administration is coming quickly and has been changing significantly in short periods of time, you may be tempted to rely on verbal direction from agency points of contact. However, doing so may be to your detriment, if the direction you receive is from someone who is not authorized to provide you with direction. Working with program points of contact collaboratively may make sense, it is important to remember that direction related to contract performance should come from agency personnel in writing who are authorized to bind the federal government. It will be critical to keep contemporaneous notes of any direction related to performance that may be provided orally in meetings and follow up to ensure confirmation in writing is obtained before any action is taken that is inconsistent with contract terms or conditions that have not yet been modified by amendment.
- Companies should examine any subcontracts or subawards that have been executed in conjunction with partially or fully terminated prime awards and take actions, as appropriate. If your contract is partially or fully terminated, your company will be responsible for winding down subcontracts or subawards, consistent with the terms and conditions of those agreements. Because there is no privity of contract between the government and your subcontractor or subawardee, you may find your company liable to your sub for the cost of services or supplies that are no longer needed to support the prime effort. As a general rule, the government will not reimburse prime contractors for costs or expenses that are in excess of what is allowable under the FAR. Accordingly, you may need to take affirmative steps to negotiate the wind down of these agreements in a manner that limits financial risk to the extent that is possible.
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