UPDATE (January 29, 2026): On January 28, Law360 reported that the D.C. District Court issued a temporary restraining order enjoining OMB’s directive to freeze federal financial assistance. We will closely monitor and report on further developments.
The first seven days of the Trump administration have brought new meaning to the saying that the only constant in government contracting is change. Multiple executive actions promise to be just the start of what is expected to be a period of significant change to the rules governing federal contracts and grants. This summary provides government contractors, grant recipients, and compliance professionals with an overview of significant changes to federal contract and grant rules, with more to come over the coming weeks.
Affirmative Action Repeal: Key Executive Order Rescinds Previous Mandates
As we wrote about here, on January 21, President Trump issued an Executive Order (EO) rescinding EO 11246, which established affirmative action programs applicable to federal contracts and federally-funded construction programs, and which was initially put in place by President Johnson. That EO, as amended, imposed employment nondiscrimination obligations on federal government contractors/subcontractors and required non-discrimination provisions be included in federally assisted construction contracts, which covered construction efforts funded by federal grants, among other types of federal assistance.
The new EO also directs the Department of Labor’s (DOL) Office of Federal Contract Compliance Programs (OFCCP) to immediately cease promoting “diversity,” holding contractors responsible for taking affirmative action or allowing/encouraging federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin. And while federal contractors were given 90 days from the date of the EO to continue to comply with the prior regulatory scheme, OFCCP was ordered to immediately cease holding contractors responsible for taking affirmative action. The Acting Secretary of DOL has already issued an order stopping all investigative and enforcement activity relating to the rescinded EO. That order also requires that DOL notify all regulatory parties with open reviews or investigations that those matters have been closed. Based on these actions, it appears that continued compliance with affirmative action obligations imposed by that EO on federal contracts or federally assisted construction agreements is not necessary (but note that similar obligations applicable to veterans, 38 U.S.C. 4212, and the disabled, 29 U.S.C. 793, are statutory and therefore still in place).
Implications for Federal Contracts and Grants: New Certification Requirements
Going forward, federal agencies have been directed to include in every contract or grant award a term requiring the contractor or grant recipient to agree that its compliance in all respects with all applicable federal anti-discrimination laws is material to the government’s payment decision for purposes of the False Claims Act (FCA). FCA cases often turn on whether the provision of the federal contract or grant alleged to have been violated is “material” to payment; therefore, once implemented, this clause will make it easier for the government to succeed in FCA actions against contractors or grant recipients for violation of federal anti-discrimination laws. Contracts and grants will also have to include a term requiring contractors and grant recipients to certify that they do not operate “any programs promoting DEI [diversity, equity and inclusion] that violate any applicable Federal anti-discrimination laws.”
How the government implements this certification requirement will be interesting because the EO does not require certification that companies do not operate any programs promoting DEI, but rather that they do not operate programs promoting DEI that violate any applicable federal anti-discrimination laws. If the president had intended the certification to cover all DEI programs, the EO could have required contractors and grant recipients to certify they would not operate “any programs promoting DEI, which violate applicable Federal anti-discrimination laws.”
Presumably, companies that operated DEI programs over the past decade believed those programs to comply with federal anti-discrimination laws. Until there is more clarification from the administration, particularly the Department of Justice, regarding the change in interpretation of the legality of DEI programs, it is not possible to evaluate what type of DEI programs may be permissible under the new EO. That said, some major government contractors, including Lockheed Martin, are not waiting for clarification and have already taken action in response to President Trump’s EO.
Once finalized, it is possible, if not likely, that the government will attempt to impose these new provisions in existing procurement contracts and grants through modifications. And the new clauses will appear in all new federal contracts and grants.
Understanding the Scope: Who the New Executive Order Applies To
While it is true that federal agencies have been directed to include these new provisions in “every contract or grant award,” in context that should be read to mean every procurement contract. The direction appears in a section of the EO that is introduced by a statement that the federal contracting process “will be streamlined to enhance speed and efficiency, reduce costs, and require Federal contractors and subcontractors to comply with our civil-rights laws.” This reference to speed and efficiency is likely intended to support the position that the president’s action relies on his authority under the Federal Property and Administrative Services Act of 1949 to prescribe policies and directives necessary to provide the federal government with an economical and efficient procurement system. Provider agreements are contracts with the federal government in the sense that they are binding agreements, but they are not procurement contracts and Medicare providers are not “federal contractors.”
Revocation of Dozens of Biden Executive Orders: Key Rescissions Impacting Federal Contractors
On January 20, President Trump issued an EO rescinding over 70 EOs and actions. Among other impacts, that EO, “Initial Rescissions of Harmful Executive Orders and Actions,” rescinded President Biden’s EO 14055, which had imposed a requirement that successor contractors and subcontractors on government service contracts in good faith offer service employees employed under the predecessor contract a right of first refusal of employment. This “Nondisplacement of Qualified Workers” requirement was first imposed by a President Obama EO that was reversed by President Trump during his first term. DOL issued a final rule implementing EO 14055 on December 14, 2023, and we expect those rules at 29 CFR Part 9 will now also be rescinded.
President Trump’s revocation EO also revoked a number of EOs relating to clean energy and implementation of major pieces of legislation passed during the Biden administration, specifically the Inflation Reduction Act (e.g., EO 14082) and the Infrastructure Investment and Jobs Act (e.g., EO 14052) (together, the Acts). A number of those EO requirements – including those relating to improving equitable access to jobs, workforce development implementation plans, and provisions preferential to unions – have been included in grants awarded under those Acts. It remains to be seen what steps the Trump administration will take to modify those agreements and how quickly those may change. Further, a separate EO issued on January 20, “Unleashing American Energy,” directed all agencies to, among other actions, immediately pause disbursement of funds appropriated under both Acts until the new administration has completed a review of “processes, policies, and programs for issuing grants, loans, contracts, or other financial disbursements” to ensure they are consistent with the updated energy policy.
Trump Administration Freezes Rulemaking Process, Federal Financial Assistance
In addition to revoking dozens of EOs, on January 20 President Trump ordered a freeze on any new rules until the new administration reviews and approves the rules. Rules that have been sent to the Office of the Federal Register but not yet published were required to be immediately withdrawn, and agencies were to consider postponing for 60 days from the date of the memorandum the effective date of any rules that had been issued but not yet taken effect. The memorandum also encouraged agencies to reopen the comment period and consider further delays, if appropriate, beyond the 60-day period.
Similarly, President Trump has ordered a “temporar[y] pause [of] all activities related to obligation or disbursement of all Federal financial assistance.” The decision will likely affect billions of dollars appropriated by Congress through the Inflation Reduction Act and Infrastructure Investment and Jobs Act, but also funding for programs related to overdose prevention, community health centers, and food assistance. While the scope of the memo is broad, it does provide authority to “grant exceptions allowing Federal agencies to issue new awards or take other actions on a case-by-case basis.” There have also been reports that the new Secretary of Defense is preparing to halt all new Army contract awards and solicitations to ensure their terms comply with administrative prerogatives.
This action is not unusual when a president from a different party is inaugurated, but it does mean that any new rules applicable to government contracts, even if they have bipartisan support, will be held up. For example, this could impact the proposed rule on preventing organizational conflicts of interest published in the Federal Register on January 15.
If you have any questions regarding the recent changes to federal contract and grant rules or how they may impact your organization, please contact the author for further clarification.