What’s Happening Now?
As expected, BDO’s Government Contract’s Practice is seeing in the market and our client-base a significantly increased frequency of the Department of Government Efficiency (DOGE)-directed actions focused on the suspension, stop work and / or termination of federally funded contracts and grants. The federal agencies currently most impacted are the U.S. Agency for International Development (USAID), Department of Education and Federal Emergency Management Agency (FEMA). Most of the transactions caught in this situation collectively fall under the category of U.S. Foreign Assistance or Aid-type contracts and grants.
The sustainment and outcome of these Government actions remains to be seen pending the active and fluid litigation situation generally addressing the Government’s authority to unilaterally freeze current funding, block future obligations and suspend, temporarily stop or terminate performance under large swaths of federal Government contracts or grants.
Of note and importantly, DOGE’s current evaluation of U.S. federal spending and obligations spans beyond contracts or grants related to U.S. foreign assistance or aid projects or initiatives. Various published news sources reported DOGE representatives were at the Pentagon February 14, 2025 to initiate their evaluation of the Department of Defense’s (DoD) portfolio of contracts. Various DoD agencies (Navy, Air Force, et al) were asked to compile and provide a list of weapons or other programs that could be potential for elimination. Weapons programs mentioned in the published reports include, for example, the Air Force F-35, Navy frigates and littoral combat ships and excessive quantities of Army drones and vehicles. This initial list of candidate programs for non-renewal or termination consideration is apparently due for submission to DOGE later this month.
What’s Potentially Next for DoD Contracts?
If DOGE’s pace of evaluation and decision-making remains consistent with its very recent past, the likely result could be a series of near-term Federal Acquisition Regulation (FAR)-based suspensions of work, stop-work notifications and / or terminations for convenience. While this is similar in many ways to other termination actions we support outside of DOD, notable distinctions exist between a FAR- and DoD-based suspension, stop-work or termination action vs. a USAID or FEMA action. For example:
- DoD weapons and other programs lean toward issuance of firm fixed-price contracts,
- The ability to receive ongoing payments during the settlement process is significantly limited under fixed price-contracts compared to the opportunity to continue the public voucher process under cost reimbursement contracts or draw-down of funds under grants,
- DoD weapons and other systems contracts will include significant material and inventory content requiring unique disposition procedures during the settlement process,
- The settlement process is much more rigid and procedural including the use of required Standard Forms, and
- The settlement process likely will be subject to audit by DoD auditors (Defense Contract Audit Agency), generally bringing with a higher level of diligence and scrutiny.
Applicable and frequent FAR clauses used as authority by the Government, and also for remedy by the contractor, include among others: FAR 52.242-14 Suspension of Work, FAR 52.242-15 Stop-Work Order, and FAR 52.249-2 Termination for the Convenience of the Government (Fixed-Price).
What Can I Do Now to Prepare?
Contractors are encouraged to consider the following as proactive measures during this uncertain period:
- Communicate with the Government Contracting Officers or prime contract representatives. However, Government Contracting Officers may be limited as to what they may communicate publicly, i.e., a gag order-type restriction,
- Identify possible cost mitigation efforts that may be effective should a contract be terminated for convenience,
- Be aware of potential personnel actions that may be required because of a pro-longed suspension or stop-work action,
- Maintain current inventories of government-owned material and identify possible disposition plans, and
- Coordinate with supply chain members and establish protocols and expectations to achieve a consolidated settlement process.
BDO’s Government Contracts Practice is available to assist contractors with addressing the unique concerns and responsibilities that will present themselves during this time. Stay tuned as we will continue to report on this evolving situation.