On January 20, 2025, President Trump signed an executive order entitled “Unleashing American Energy” (the Executive Order) aimed at reversing many of the Biden Administration’s clean energy and climate-related actions. The Executive Order will have significant impacts on many contracts (as well as grants, cooperative agreements, loans, and other awards) that are funded by either the Infrastructure Investments and Jobs Act of 2021 (IIJA) or the Inflation Reduction Act of 2022 (IRA). Given the Executive Order and its wide-ranging impacts on federal, state, and local projects, PilieroMazza provides important steps for potentially affected contractors and other fund recipients to improve their ability to recover costs in the future, if necessary. Register here for our webinar “Government Contracts and New Mandates: Executive Orders and Cost Recovery Strategies Explained.”
IIJA and IRA
The IIJA and the IRA are two of the Biden Administration’s signature pieces of legislation. Entered into law on November 15, 2021, the IIJA provides federal funding for a range of infrastructure programs, spanning from traditional construction projects on roads, bridges, rail, and waterways to climate-related initiatives like clean energy school buses and ferries, electric vehicle charging, and measures addressing legacy pollution. Large amounts of IIJA funding passed from the U.S. Department of Transportation to state and local transportation agencies in furtherance of these infrastructure projects.
The IRA became law on August 16, 2022. Aimed at reducing inflation and the federal deficit, the IRA establishes a wide variety of prescriptions, including numerous forms of funding for clean energy and other climate-related programs. But like the IIJA, the IRA funds infrastructure projects as well.
Executive Order
As stated, President Trump’s Executive Order seeks to reverse the Biden Administration’s clean energy and climate-related agenda. As relevant here, the Executive Order includes the following sections:
- Section 2 proclaims that it is “the policy of the United States” to “ensure that no Federal funding be employed in a manner contrary to the principles outlined in this section, unless required by law,” among others.
- Section 4 revokes numerous Biden Administration clean energy and climate-related executive orders and abolishes any offices and programs established thereunder. Section 4 further states: “Any contract or agreement between the United States and any third party on behalf of the entities or programs abolished . . . or in furtherance of them, shall be terminated for convenience, or otherwise, as quickly as permissible under the law.”
- Section 7, entitled “Terminating the Green New Deal,” states: “All agencies shall immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (Public Law 117-169) or the Infrastructure Investment and Jobs Act (Public Law 117-58).” (Emphasis added.) Section 7 goes on to require agencies review their practices on financial disbursements of IIJA and IRA funds for consistency with the Executive Order’s energy priorities and to submit a report within 90 days detailing their findings and recommendations.
The day after signing the Executive Order, on January 21, 2025, the White House issued a memorandum clarifying that Section 7’s immediate pause of IIJA and IRA disbursements “only applies to funds supporting programs, projects, or activities that may be implicated by the policy established in Section 2 of the order[,] . . . consistent with section 7’s heading (“Terminating the Green New Deal”).”
In sum, the Executive Order mandates an immediate pause to all disbursement of IIJA and IRA funding for contracts and other awards that may support clean energy and climate-related initiatives that the Executive Order seeks to end. Contracts ultimately determined to support such programs will be terminated. Conversely, contracts plainly in line with the Executive Order’s energy policies should not experience any pause in IIJA or IRA; similarly, funding will resume for contracts ultimately determined not to support the above clean energy and climate-related initiatives, although how soon after the pause is unclear.
Important Next Steps
The Executive Order could spell trouble for virtually any business working in any capacity on a contract or other award funded by the IIJA or the IRA. Although some contracts are supposedly immune, the litmus test for whether a contract supports or contravenes the Executive Order’s energy policies remains uncertain despite the White House’s memorandum attempting to clarify the Executive Order. Thus, contract holders may find their funding suddenly paused and their contracts eventually terminated. This very likely will have ripple effects down the subcontracting and supply chain. Given this uncertainty, contractors working on projects funded by the IIJA or IRA should take the following steps:
- Assess applicability and contact your Contracting Officer. Even if inconclusive, assess the extent to which your contract may fall within the scope of the Executive Order to approximate the potential risks and plan accordingly. You should also reach out to your Contracting Officer to obtain clarification on whether the Executive Order will impact the contract. Discuss whether the Contracting Officer anticipates issuing a stop-work order or termination at any point.
- Communicate with subcontractors. Stay in contact with subcontractors, review your subcontracts for terms addressing suspension of work and termination for convenience, and give subcontractors timely, written instructions on how to proceed (or not) if the Contracting Officer issues a stop-work order or terminates the contract. A failure to issue timely, written instruction following a stop-work order or termination could increase your exposure to a subcontractor’s continued performance.
- Document all costs and expenses. Document all costs incurred in connection with a stop-work order or termination, including wind-down of work, labor costs, and attorneys’ fees. Stop-Work Order and Termination for Convenience FAR clauses, to the extent incorporated into your contract, may provide a vehicle for recovering your costs, as well as your subcontractors’ costs. However, the ability to recover will be affected by advance preparation and documentation of your costs. Seek assistance from counsel and accountants to identify and quantify recoverable costs under federal cost principles.
- Mitigate costs. In determining whether to grant adjustments for costs resulting from a stop work or termination, judges analyze whether contractors took steps to mitigate losses. You can mitigate costs by developing an alternative work plan for employees, such as reassigning them to other projects. As a last resort, you may need to furlough or lay off employees. Bear in mind that, depending on the size of the layoff, federal and/or state WARN requirements may apply.
- Address outstanding issues ASAP. To the extent possible, take steps now to settle outstanding issues with the agency, such as approving deliverables, paying invoices, and issuing modifications.
- Anticipate a Termination for Convenience proposal. If a termination for convenience occurs, you and the agency will need to settle what you are still owed under the contract. This typically occurs through a negotiated agreement where you submit a settlement proposal that the government can either accept, counter, or deny. Understanding what you are entitled to recover is crucial in putting together your settlement proposal, as certain contract types—i.e., firm-fixed-price vs. commercial items—require certain forms of proposal submissions. Seek assistance from counsel and accountants to prepare the settlement proposal, the costs for which may be recoverable.
- Potential challenges to a Termination for Convenience. Although not impossible, it is difficult to challenge a termination for convenience. To successfully do so, there needs to be a showing of bad faith or a clear abuse of discretion on the part of the Contracting Officer. This is especially difficult given the presumption that government officials act in good faith. Because of this, settlement negotiations are even more important when your contract is terminated for convenience. If you cannot reach an agreement with the Contracting Officer on his/her decision to terminate or, subsequently, on the Contracting Officer’s final decision on termination settlement costs owed to you as a result of the termination, you may be able to appeal either decision to the appropriate contract appeals board or Court of Federal Claims.
If your contract disbursements have been paused or your contract has been issued a stop-work order or terminated due to the Executive Order, or if you are concerned that any of these may occur, PilieroMazza attorneys are available to assist with counseling, preparing responses, and handling any claims and appeals. For more information, please contact Jessica duHoffmann, Lauren Brier, Jackie Unger, Aaron Kor, or another member of the Firm’s REAs, Claims, and Appeals or Government Contracts practice groups.
____________________
If you’re seeking practical insights to gain a competitive edge by understanding the government’s compliance requirements, tune into PilieroMazza’s podcasts: GovCon Live!, Clocking in with PilieroMazza, and Ex Rel. Radio.
