On February 26, 2025, the White House issued another Executive Order (EO) that will have major implications for Federal government contractors across numerous industries and agencies. The new EO, entitled Implementing the President’s “Department of Government Efficiency” Cost Efficiency Initiative, requires every agency to work with that agency’s DOGE Team Lead (i.e., the leader of the DOGE Team at each agency, as defined in Executive Order 14158) to, among other things, conduct a review of covered contracts and grants, set up guidance for new contracts aimed at promoting efficiency and the Trump administration’s priorities, and build a system to track and justify payments made to contractors. What does that mean for you? Consider the below.

Existing Contracts

The EO states:

Each Agency Head, in consultation with the agency’s DOGE Team Lead, shall review all existing covered contracts and grants and, where appropriate and consistent with applicable law, terminate or modify (including through renegotiation) such covered contracts and grants to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of my Administration. This process shall commence immediately and shall prioritize the review of funds disbursed under covered contracts and grants to educational institutions and foreign entities for waste, fraud, and abuse. Each Agency Head shall complete this review within 30 days of the date of this order.

Let’s break that down a bit:

  • What Contracts/Grants Does This Apply To? The EO requires agencies to review “All Covered Contracts and Grants,” defined as all “discretionary spending through Federal contracts, grants, loans, and related instruments” excluding “direct assistance to individuals; expenditures related to immigration enforcement, law enforcement, the military, public safety, and the intelligence community; and other critical, acute, or emergency spending, as determined by the relevant Agency Head.” This paints with a pretty broad brush. If you have questions about whether this applies to your contracts, consult a legal professional. Note that certain agencies, such as the Department of Defense, have already independently notified the industry regarding plans to conduct a review of certain contracts.
  • When Must Agencies Complete This Review? The EO requires that agencies complete this review within 30 days of February 26. So expect the agencies to start immediately (to the extent they have not already).
  • What Can Contractors Expect? Consistent with what many contractors have already seen,contractors should expect to see a lot of modifications, suspensions/stop-work orders, and/or terminations (for convenience). More detailed guidance on what contractors should do in each of these situations is coming soon from the McCarter & English team, but the general idea is that you need to make sure you properly manage subcontractors, limit costs incurred, segregate and track those costs, preserve your right to recover costs/offset delay, and maximize your recovery.
  • Are Certain Contracts More “At Risk”? The EO states that the agency heads should prioritize the review of funds disbursed under covered contracts and grants to educational institutions and foreign entities. So if your contracts are with a university or college, or if you are a foreign entity (or have foreign affiliates), expect them to start with you.

New Contracts

In addition to the review of existing contracts, the EO also requires that certain changes be made going forward, with regard to new contracts. Specifically, prior to entering into any new contracts, each Agency head shall, working with the DOGE Team Lead, issue guidance on signing new contracts or modifying existing contracts to promote “Government efficiency and the policies of [the Trump] Administration.” It’s not entirely clear what changes can be made here, as the Federal Acquisition Regulation governs what should and should not be in each government contract, but time will tell. Though the Agency Head may approve new contracts on a case-by-case basis prior to the issuance of such guidance, Contractors should expect to see delays in issuance of new contracts while this guidance is considered and drafted.

New System for Contract and Grant Payments; New “Justification” Requirement

On a more global level, going forward, the EO also requires each Agency Head to “build a centralized technological system within the agency to seamlessly record every payment issued by the agency pursuant to each of the agency’s covered contracts and grants.” Critically, agency employees approving payments must, prior to making a payment under covered contracts and grants, submit a brief, written justification for each payment. (Agency Heads, in consultation with DOGE Team Leads, are expected to issue guidance to agency employees concerning these justifications.) The EO also specifies that the system built by the Agency Head should “include a mechanism for the Agency Head to pause and rapidly review any payment for which the approving employee has not submitted a brief, written justification within the technological system.” It is likely that this will, at least at first, cause delays in payments to contractors.

Moreover, the EO provides that “[t]o the maximum extent permitted by law, and to the maximum extent deemed practicable by the Agency Head, the payment justifications described in subsection (a)(i) of this section shall be posted publicly.” In other words, the goal appears to be making all payments on covered contracts and grants – as well as the reasons for all such payments – public. There may be significant pushback on this piece, given the traditional rules protecting confidential and proprietary contractor pricing information, etc. Presumably that is where the “permitted by law” piece will come in, serving to limit what will be made public.

Miscellaneous

Other provisions of the EO call for the agency to freeze all credit cards held by agency employees and undertake steps to limit nonessential travel for agency employees.

The EO also requires agencies to take steps toward property disposition, including (1) the review, in the next 30 days, of all existing real property leases to determine termination rights and decide whether to exercise such termination rights and (2) the submission, to the director of the Office of Management and Budget, of a plan for the disposition of all government-owned property that has been deemed no longer needed.

Conclusion

These significant changes will require contractors to remain vigilant, proactive, and prepared to adapt. The EO’s broad scope and rapid implementation timeline mean that agencies will move quickly to review, modify, and potentially terminate contracts. The added complexity of new payment justification requirements further underscores the need for contractors to closely track agency actions and be ready to respond. Given the uncertainty surrounding how exactly agencies will interpret and implement these provisions, contractors should make sure they understand how their contracts may be impacted and ask the necessary questions.

Now more than ever, staying informed, being proactively inquisitive, and preparing for potential disruptions will be key to navigating this evolving landscape. Overall, this EO is likely to further intensify what contractors are already experiencing: Expect a large number of contract modifications, suspensions/stop-work orders, and terminations for convenience. Stay tuned for more detailed guidance from the M&E team on how to navigate these issues, and in the meantime check out our previous guidance on DEI developments.