Cybersecurity in the Nuclear Industry: US and UK Regulation and the Sellafield Case
Key Points:
Real-world examples from both the U.S. and U.K. demonstrate that nuclear facilities are being targeted by sophisticated cyber attackers, including state actors. This isn’t just a theoretical risk—it’s happening now, and facilities must take it seriously.
The successful prosecution of Sellafield with significant fines (£332,500) shows that regulators are now willing to take strong enforcement action, even when no actual breach has occurred. Nuclear facilities cannot afford wait for an incident before improving their cybersecurity—they must be proactive.
With both the U.S. and U.K. strengthening their regulatory frameworks and increasing enforcement powers, nuclear facilities should take steps now to review and upgrade cybersecurity measures. This includes not just updating technical controls, but also ensuring compliance with security plans, auditing systems, and maintaining proper documentation.
National security regulators are particularly concerned about the vulnerabilities of nuclear facilities to cyberattacks. In March 2022, the U.S. Justice Department unsealed criminal indictments against four agents of the Russian government, charging them with offenses related to cyber “spearfishing attacks” which compromised the business network of the Wolf Creek Nuclear Operating Corporation (WCNOC) in Burlington, Kansas. Also of note is the October 2024 prosecution and conviction of Sellafield Ltd in the U.K. for three offenses involving inadequate cybersecurity controls. In that case, the company (rather than the hacker) was charged by the Office for Nuclear Regulation (ONR) for failing to protect sensitive nuclear information and for failure to follow its own cybersecurity plan between 2019 and 2023.
Fortunately, the nuclear facilities in both cases were not materially compromised in these attacks. The targeting of nuclear facility operators demonstrated that malicious actors intended to exploit cyber vulnerabilities within the nuclear industry.
U.S. Regulatory Framework
The Nuclear Regulatory Commission (“NRC”) has been active in establishing rules and guidelines to enhance the cybersecurity of U.S. nuclear facilities:
10 CFR Part 73.54: One of the NRC’s key regulatory frameworks that includes cybersecurity requirements, the regulation mandates that nuclear facilities establish and maintain a cybersecurity program to protect digital assets critical to safety, security, and emergency preparedness.
Regulatory Guide 5.71: In February 2023, the NRC revised its regulatory guide to provide detailed guidance on implementing cybersecurity measures. It outlines a defensive strategy that includes the identification of critical digital assets, continuous assessment of threats, and implementation of protective measures.
Nuclear Energy Institute (NEI) 08-09 (2018 Addendum): This document, developed by the nuclear industry with NRC’s endorsement, offers a comprehensive framework for cybersecurity programs. It emphasizes a risk-informed approach, allowing facilities to tailor their cybersecurity measures based on specific threats and vulnerabilities.
In 2013, the NRC’s Office of Nuclear Security and Incident Response established a Cyber Security Branch (CSB) to strengthen internal governance of the agency’s regulatory activities. Today, the NRC actively monitors threats associated with cybersecurity against NRC-licensed facilities. The CSB maintains a dedicated cyber assessment team responsible for analysing and evaluating real-world cyber incidents.
Today, the Nuclear Regulatory Commission (NRC) actively monitors threats associated with cybersecurity against NRC-licensed facilities. The Cyber Security Branch maintains a dedicated cyber assessment team responsible for analysing and evaluating real-world cyber incidents.
The team evaluates whether an identified threat could impact licensed facilities and makes recommendations for NRC actions and communications to the licensees. The NRC also coordinates with other intelligence and law enforcement communities including the National Counterterrorism Center, the Department of Homeland Security’s U.S. Computer Emergency Response Team, and the Federal Bureau of Investigation in working to prevent cyberattacks.
U.K. Regulatory Framework
The U.K. Nuclear industry is subject to a range of different cybersecurity regulations that all have at their heart the concept that effective cybersecurity is a mandatory requirement. These rules have existed in various forms over the years, but there is now increasing activity by regulators to strictly enforce them.
The U.K. Nuclear industry is subject to a range of different cybersecurity regulations that all have at their heart the concept that effective cybersecurity is a mandatory requirement.
The overarching framework is set out in the Civil Nuclear Cyber Security Strategy 2022. This strategy aims to strengthen the cybersecurity posture of the U.K. civil nuclear sector over five years. It focuses on four key objectives:
Risk Management: Prioritizing cybersecurity as part of a holistic risk management approach.
Risk Mitigation: Proactively addressing cyber risks, including those from legacy systems and new technologies.
Incident Management: Enhancing resilience by preparing for and responding to cyber incidents collaboratively.
Culture and Skills: Promoting a positive security culture and developing cyber skills within the sector.
Underpinning this strategy are an overlapping (and growing) regime of cybersecurity laws:
The Nuclear Industries Security Regulations 2003 (“the NISR”) governs a wide range of security issues, including obligations to ensure that “sensitive nuclear information” is kept secure.
The Network and Information Security Regulations (“NIS 1”) designates nuclear sites as critical infrastructure and imposes an obligation to implement “appropriate technical and operational measures” to protect IT systems and to ensure continuity of service.
Whilst these regimes have been in place for some time, regulators recently stepped up enforcement to ensure compliance with these laws as was evidenced by the recent prosecution of Sellafield.
The Sellafield Case
Sellafield Ltd, the company licensed to operate the Sellafield nuclear decommissioning and waste site, received a fine in October 2024 of £332,500 after pleading guilty to three offences relating to inadequate cybersecurity controls and procedures that it had in place across a four-year period.
The prosecution was brought by the U.K.’s independent nuclear regulator (the Office for Nuclear Regulation (“ONR”)) following its investigation where it had identified that Sellafield Ltd had failed to meet the requisite standards, procedures and arrangements set out in its own approved plan for cybersecurity as required under the NISR.
The ONR’s case was not brought on the basis that there had been an actual exploitation of the security failings (seemingly because there was a lack of evidence that attacks had been successful, rather than conclusive proof that the attacks were stopped). The basis of the prosecution was Sellafield’s unsatisfactory performance in relation to the management of its IT systems, and that had the vulnerabilities been exploited by attackers, it could have led to the unauthorised access to critical systems and loss of key data resulting in disrupted operations, damaged facilities and the delay of important decommissioning activities. In particular, Sellafield failed to comply with its own cybersecurity plan and failed to undertake annual checks on the security of its operational and information technology systems.
Following its guilty plea to three offences under the NISR, Sellafield Ltd was ordered to pay a fine of £332,500, along with prosecution costs of £53,253.20. Despite the successful prosecution, the ONR has reported that the cybersecurity failings have yet to be fixed and are subject to ongoing required improvements.
Going forward, the U.K. legal regime is only going to get stronger. The Government has announced that it plans to introduce a new Cyber Security and Resilience Bill which intends to strengthen the U.K.’s operational resilience to cyber threats by, amongst other things:
Updating the existing (NIS1) regime to ensure that more essential services are protected, including by increasing the scope of digital services and supply chains within the regime;
Increasing regulators’ powers through introducing new cost recovery mechanisms and the ability to proactively investigate potential vulnerabilities (similar to the U.S.’s 2022 update to inspection procedure 71130); and
Expanding reporting requirements.
It is worth noting that the European Union’s transition from NIS 1 to NIS 2 demonstrates a strengthened approach to cybersecurity, featuring expanded scope, more detailed requirements, and enhanced enforcement measures. This update emphasizes the EU’s dedication to protecting critical infrastructure and extends security obligations to equipment suppliers and service providers. The U.K. Government is likely to use NIS 2 as a model when developing its own Cyber Security and Resilience Bill.
Going forward, the U.K. legal regime is only going to get stronger. The Government has announced that it plans to introduce a new Cyber Security and Resilience Bill which intends to strengthen the U.K.’s operational resilience to cyber threats.
Looking Ahead
U.S. and U.K. regulators are focused on ensuring that organisations providing essential services, and their related key digital suppliers, implement sufficient technical controls to enhance the level of cybersecurity and help protect critical infrastructure. Those in the nuclear industry will be at the sharp edge of these changes and should take the opportunity to review their operational and technical cybersecurity measures now to ensure they are fit for purpose.
What Every Multinational Company (Doing Business in Mexico) Should Know About … Mitigating Risks From ATA Scrutiny in a New Enforcement Regime
Mexican cartels dominate large swaths of the Mexico-United States border and the Bajío region (an area encompassing relevant parts of Queretaro, Guanajuato, Aguascalientes, San Luis Potosí, Jalisco, and Michoacán), and they control significant economic segments/activities in these territories. These are the same areas in which multinational companies maintain significant manufacturing operations.
In an Executive Order issued on January 20, 2025[1], the White House announced a shift toward increased enforcement of the Immigration and Nationality Act (INA) and International Emergency Economic Powers Act (IEEPA), which are key statutes in the United States’ fight against terrorism. Though these statutes are not new, the Trump Administration plans to broaden U.S. enforcement activity to cartels and transnational criminal organizations (TCOs) by allowing for the designation of cartels or TCOs as Foreign Terrorist Organizations and/or Specially Designated Global Terrorists. This new focus of enforcement resources, along with the expansive inclusion of cartels or TCOs within the purview of the INA and IEEPA, creates a heightened risk for multinational companies doing business in Mexico and other areas where cartels operate, as the companies can be perceived as — and then prosecuted for — engaging in terrorism or aiding terrorists, as explained below.
Under the INA, the Secretary of State can designate groups as Foreign Terrorist Organizations (FTOs)[2] based on an assessment of the State Department’s Bureau of Counterterrorism regarding the group’s terrorist activity. Once a group has received an FTO designation, multinationals subject to U.S. jurisdiction — which is interpreted very broadly by U.S. regulators — may face strict criminal and civil penalties under 18 U.S.C. § 2339B (the Antiterrorism Act or ATA) if they knowingly provide, or attempt or conspire to provide, “material support or resources” to the FTO.[3]
The State Department currently designates more than 60 organizations as FTOs. Trump’s January 20, 2025, Executive Order directs the State Department to scrutinize drug cartels — especially Mexico-based drug cartels and two cartels mentioned by name, Tren de Aragua (TdA) and La Mara Salvatrucha (MS-13) — for designation as FTOs. Since the order, Secretary of State Marco Rubio already has designated eight cartels as FTOs, most of which have operations in Mexico. We anticipate this number will sharply rise as the administration works together with OFAC to identify additional cartels and TCOs. This raises a number of concerns for companies that operate in areas known to have cartel or TCO activities, because the following types of regularly conducted business activities may be viewed through the lens of providing material support or resources to an FTO:
Making payments to secure employee safety or the ongoing operation of a physical plant;
Engaging in business dealings with local companies that themselves are in business with cartels or that are making such payments; and
Recording payments to said local companies or to cartels in the books and records of publicly traded companies.
The expansion of enforcement scrutiny also may expand the types of risks facing companies, including:
Combined OFAC and DOJ investigations of conduct that potentially violates both the INA and OFAC regulations;
Matters that formerly would have been dealt with as civil matters by OFAC can become criminal matters pursued by DOJ;
New designations can be combined with anti-money laundering laws to expand the potential violations of U.S. laws; and
The expansion of the reach of OFAC designations to non-U.S. companies, since the material support statute has extraterritorial effect.
The January 20 Executive Order also heightens the risk of private civil litigation for multinationals doing business in Mexico. The ATA creates a civil remedy for U.S. national victims and their estates or heirs against defendants alleged to have caused an “injury arising from an act of international terrorism committed, planned, or authorized by an organization that had been designated as a foreign terrorist organization under section 219 of the [INA]” where “liability may be asserted as to any person who aids and abets, by knowingly providing substantial assistance, or who conspires with the person who committed such an act of international terrorism” (emphasis added). Under the ATA, “[a]ny national of the United States injured in his or her person, property, or business by reason of an act of international terrorism, or his or her estate, survivors, or heirs, may sue therefor in any appropriate district court of the United States and shall recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” 18 U.S.C. § 2333(a). The line of culpability under this section remains unsettled, as lower courts attempt to apply recent Supreme Court precedent regarding the “knowing” provision of “substantial assistance” to FTOs.[4] But the designation of cartels and TCOs as FTOs exposes companies that operate in countries with heightened cartel activity to litigation under the ATA.
For several years, Mexican cartels have shifted revenue sources from drug smuggling into the United States to racketeering in Mexico. The latter typically consists of Mexican cartels extorting regular payments from small-to-medium-sized businesses, many of which provide goods or services to larger companies such as the multinationals operating in Mexico. In addition to direct extortion, cartels engage in behaviors such as forcing suppliers on companies that in turn do business with multinational companies, establishing “front” entities to provide miscellaneous services, selling protection against rival organizations, establishing prices for goods or services, and receiving payments for not carrying out threatened violence.
Multinational companies in Mexico are thus in constant risk of having indirect contacts with these cartel FTOs within their local supply chain and, even if they are unaware of such touch points, multinationals must guard against being seen as actively complicit or willfully blind if they fail to take reasonable precautions.
To safeguard against these risks, multinationals subject to U.S. jurisdiction that do business in Mexico should take precautions such as:
Conducting due diligence on all business counterparties, especially when onboarding new suppliers or other new business partners;
Updating due diligence and requiring certifications of compliance with the laws prohibiting conducting business activities with TCOs and FTOs;
Conducting routine OFAC and FTO screenings to assess the company’s risk profile with respect to potential touchpoints with cartels and TCOs;
Mapping supply chains, including for sub-suppliers, to confirm zero contact with cartel or TCO activities throughout the supply chain;
Based on risk assessments, following up and conducting audits to ensure the company’s supply chain is in compliance with the updated legal requirements;
Implementing and maintaining vendor management systems for payments to suppliers and other business partners;
Conducting financial audits on suppliers or other business partners to identify potential payments to cartels or TCOs;
Alerting suppliers or other business partners regarding their potential connections to cartels or TCOs and help monitor to avoid risk; and
Incorporating prohibitions on cartel and TCO connections, in addition to FTO restrictions, into agreements with third parties.
[1] “Designating Cartels and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” Executive Order (Jan. 20, 2025) available at https://www.whitehouse.gov/presidential-actions/2025/01/designating-cartels-and-other-organizations-as-foreign-terrorist-organizations-and-specially-designated-global-terrorists/.
[2] Though this article focuses on the FTO designation under the INA, the Specially Designated Global Terrorist designation under IEEPA creates a separate set of enforcement issues for multinationals, as well as additional sanctions under IEEPA for FTOs. IEEPA is the governing authority for most economic sanctions overseen by the Office of Foreign Assets Control (OFAC), which has long maintained robust restrictions on U.S. persons, or any other person subject to U.S. law, to the primary U.S. economic sanctions. OFAC has sanctioned numerous drug cartels, as well as companies and individuals, using its authorities under its Significant Narcotics Traffickers program pursuant to Executive Order 12978 and the Kingpin Act. Because OFAC uses an expansive definition of U.S. jurisdiction, restrictions under these designations include the activities of non-U.S. persons that take place on U.S. territory, use the U.S. financial system, or otherwise trigger U.S. jurisdiction. Proper compliance requires that any persons with a U.S. jurisdictional nexus take into account all the potential ways U.S. law can apply to them, including both the new emphasis on the INA/IEEPA and the longstanding OFAC regulations.
[3] 18 U.S.C. § 2339A defines “material support or resources” to include “any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safehouses, false documentation or identification, communications equipment, facilities, weapons, lethal substances, explosives, personnel . . . and transportation, except medicine or religious materials.”
[4] See Twitter, Inc. v. Taamneh 598 U.S. 471 (2023).
Tariffs: Force Majeure and Surcharges — FAQs
As we navigate a turbulent tariff landscape for manufacturers, we want to help you with some of the most frequently asked questions we are encountering right now as they relate to force majeure and price increases:
1. What are the key doctrines to excuse performance under a contract?
There are three primary defenses to performance under a contract. Importantly, these defenses do not provide a direct mechanism for obtaining price increases. Rather, these defenses (if successful) excuse the invoking party from the obligation to perform under a contract. Nevertheless, these defenses can be used as leverage during negotiations.
Force Majeure
Force majeure is a defense to performance that is created by contract. As a result, each scenario must be analyzed on a case-by-case basis depending on the language of the applicable force majeure provision. Nevertheless, the basic structure generally remains the same: (a) a listed event occurs; (b) the event was not within the reasonable control of the party invoking force majeure; and (c) the event prevented performance.
Commercial impracticability (Goods)
For goods, commercial impracticability is codified under UCC § 2-615 (which governs the sale of goods and has been adopted in some form by almost every state). UCC § 2-615 excuses performance when: (a) delay in delivery or non-delivery was the result of the occurrence of a contingency, of which non-occurrence was a basic assumption of the contract; and (b) the party invoking commercial impracticability provided seasonable notice. Common law (applied to non-goods, e.g., services) has a similar concept known as the doctrine of impossibility or impracticability that has a higher bar to clear. Under the UCC and common law, the burden is quite high. Unprofitability or even serious economic loss is typically insufficient to prove impracticability, absent other factors.
Frustration of Purpose
Under common law, performance under a contract may be excused when there is a material change in circumstances that is so fundamental and essential to the contract that the parties would never have entered into the transaction if they had known such change would occur. To establish frustration of purpose, a party must prove: (a) the event or combination of events was unforeseeable at the time the contract was entered into; (b) the circumstances have created a fundamental and essential change, and (c) the parties would not have entered into the agreement under the current terms had they known the circumstance(s) would occur.
2. Can we rely on force majeure (including if the provision includes change in laws), commercial impracticability, or frustration of purpose to get out of performing under a contract?
In court, most likely not. These doctrines are meant to apply to circumstances that prevent performance. Also, courts typically view cost increases as foreseeable risks. Official comment of Section 2-615 on commercial impracticability under UCC Article 2, which governs the sale of goods in most states, says:
“Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com.Cas. 55 (1915, K.B.D.).)” (emphasis added).
That said, during COVID and Trump Tariffs 1.0, we did see companies use force majeure/commercial impracticability doctrines as a way to bring the other party to the negotiating table, to share costs.
3. May we increase price as a result of force majeure?
No, force majeure typically does not allow for price increases. Force majeure only applies in circumstances where performance is prevented by specified events. Force majeure is an excuse for performance, not a justification to pass along the burden of cost increases. Nevertheless, the assertion of force majeure can be used as leverage in negotiations.
4. Is a tariff a tax?
Yes, a tariff is a tax.
5. Is a surcharge a price increase?
Yes, a surcharge is a price increase. If you have a fixed-price contract, applying a surcharge is a breach of the agreement.
That said, during COVID and Trump Tariffs 1.0, we saw many companies do it anyway. Customers typically paid the surcharges under protest. We expected a big wave of litigation by those customers afterward, but we never saw it, suggesting either the disputes were resolved commercially or the customers just ate the surcharges and moved on.
6. Can I pass along the cost of the tariffs to the customer?
To determine if you can pass on the cost, the analysis needs to be conducted on a contract-by-contract basis.
7. If you increase the price without a contractual justification, what are customers’ options?
The customer has five primary options:
1. Accept the price increase:
An unequivocal acceptance of the price increase is rare but the best outcome from the seller’s perspective.
2. Accept the price increase under protest (reservation of rights):
The customer will agree to make payments under protest and with a reservation of rights. This allows the customer to seek to recover the excess amount paid at a later date. Ideally, the parties continue to conduct business and the customer never seeks recovery prior to the expiration of the statute of limitations (typically six years, depending on the governing law).
3. Reject the price increase:
The customer will reject the price increase. Note that customers may initially reject the price increase but agree to pay after further discussion. In the event a customer stands firm on rejecting the price increase, the supplier can then decide whether it wants to take more aggressive action (e.g., threaten to stop shipping) after carefully weighing the potential damages against the benefits.
4. Seek a declaratory judgment and/or injunction:
The customer can seek a declaratory judgment and/or injunction requiring the seller to ship/perform at the current price.
5. Terminate the contract:
The customer may terminate part or all of the contract, depending on contractual terms
For additional information, here is a comprehensive white paper we have written on the tariffs.
Fast Track to a First Contract: Senator Proposes Faster Labor Contracts Act
U.S. Sen. Josh Hawley (R-Mo.) looks to speed up collective bargaining negotiations for a first contract between private employers and unions via new legislation. On March 4, Sen. Hawley introduced the Faster Labor Contracts Act. The bill proposes an amendment to Section 8(d) of the National Labor Relations Act (NLRA) that would, it says:
Amend the NLRA to require that after workers have voted to form a union, employers must begin negotiating with the new union within 10 days
Provide that if no agreement is reached within 90 days, the dispute will be referred to mediation
Stipulate that if mediation fails within 30 days, or additional periods agreed upon by the parties, the dispute will be referred to binding arbitration to secure an initial contract
Commission a Government Accountability Office report on average workplace time-to-contract one year after enactment.
Section 8(d) of the NLRA requires the employer and the union to bargain in good faith over employees’ wages, hours, and other terms and conditions of employment, and states “but such obligation does not compel either party to agree to a proposal or require the making of a concession.” The NLRA does not impose a time limit for the parties to reach an agreement. According to Bloomberg Law’s statistics, it takes the parties on average 458 days to bargain a first contract.
If passed, the Faster Labor Contracts Act will affect employers and unions alike. Most notably, the bill ignores both the union’s and the employer’s rights to object to the results of an election, test certification of a unit, and have the opportunity to litigate those issues. It is not clear how those rights – also provided by the NLRA – would stand in light of the proposed 10-day start time. By setting a negotiation timeline, the bill may also force both parties to concede to unfavorable terms, placing limits on the parties’ rights to freely contract without outside intervention.
The bill is bipartisan and cosponsored by Sens. Cory Booker (D-N.J.), Gary Peters (D-Mich.), Bernie Moreno (R-Ohio), and Jeff Merkley (D-Ore.). The bill is also backed by the International Brotherhood of Teamsters.
OFCCP Proposes Plan to Satisfy Workforce Reduction Mandate
On February 25, 2025, Acting Director Michael Schloss of the Office of Federal Contract Compliance Programs (OFCCP) issued a memorandum addressing the OFCCP’s proposed strategy for reducing its workforce by 90 percent, as instructed by the Office of the Secretary.
The proposed strategy aims to shift the OFCCP’s focus to the work required by Section 503 of the Rehabilitation Act (“Section 503”) and the Vietnam Era Veterans Readjustment Assistance Act (“VEVRAA”). Federal contractors are still obligated to comply with these statutes, the outline requirements related to veterans and individuals with disabilities, following President Trump’s revocation of Executive Order 11246.
As part of its proposed reduction, the OFCCP will close 51 of its current 55 offices, keeping one office in four designated regions. The proposal also cuts the OFCCP’s staff down to 50 employees. Those 50 employees would prioritize carrying out the Section 503 and VEVRAA compliance requirements.
Further, the OFCCP’s National Office, which establishes all policy and program operations implemented by the regions, would be reduced to 14 employees. Those remaining employees would be scattered across four divisions: the Front Office, the Policy Division, the Operations and Enforcement Division, and the Administrative Division.
Finally, to achieve its desired reduction, the OFCCP used the proposal memorandum to ask permission to use the Voluntary Early Retirement Authority (“VERA”) and the Voluntary Separation Incentive Program (“VSIP”). The OFCCP proposed offering VSIP to all retirement eligible and early retirement eligible employees.
The OFCCP’s proposal will surely see movement in the coming weeks as it seeks to abide by the Office of the Secretary’s mandate to reduce its workforce, which could have big implications for federal contractors. Employers should work with their counsel to assess compliance strategies in response to the myriad of changes and enforcement priorities at federal agencies.
Unusual Combinations of Justices Denying Veterans’ Claim but Requiring Executive to Make Foreign Aid Payments to Contractors – SCOTUS Today
The U.S. Supreme Court resolved more textual battles today, one in a fully argued case, the other on procedural motions.
The combinations of Justices continue to defy stereotypes, and at least one of those combinations, led by the Chief Justice, constitutes a majority that is willing to stand up to presidential assertions of expansive powers.
Bufkin v. Collins involved the application by the Department of Veterans Affairs (VA) of the so-called “benefit of the doubt” rule, a kind of “tie goes to the runner” rule that “tips the scales in a veteran’s favor when evidence regarding any issue material to a service-related disability claim is in ‘approximate balance.’” 38 U. S. C. §5107(b).
The petitioners in the case are veterans who applied for disability benefits related to their service-connected post-traumatic stress disorder. The VA found no clear link between the claimed condition and the veterans’ military service. These adverse determinations were reviewed de novo by the Board of Veterans Appeals (the “Board”), which rendered final decisions on behalf of the VA denying the claims. The veterans then challenged these adverse determinations before the U.S. Court of Appeals for Veterans Claims (the “Veterans Court”). The Veterans Court is charged with reviewing legal issues de novo and factual issues for clear error. In doing so, the Veterans Court must “take due account” of the VA’s application of the benefit-of-the-doubt rule.
Here, the Veterans Court affirmed the VA’s adverse benefit determinations, finding that the Board’s approximate-balance determinations were not clearly erroneous. On further appeal, the U.S. Court of Appeals for the Federal Circuit rejected the veterans’ argument that the statutory command to “take due account” of the VA’s application of the benefit-of-the-doubt rule requires the Veterans Court to review the entire record de novo and decide for itself whether the evidence is in approximate balance.
Writing for a 7–2 majority affirming the Federal Circuit, Justice Thomas opined that the VA’s determination that the evidence regarding a service-related disability claim is in “approximate balance” is a predominantly factual determination reviewed only for clear error. According to Justice Thomas and the six Justices who joined him, “[r]eviewing a determination whether record evidence is approximately balanced is ‘about as factual sounding’ as any question gets.”
An interesting feature of the case is not just that the dissent is longer than the lengthy majority opinion but that it was written by Justice Jackson and joined by Justice Gorsuch. Jackson suggested, not without the force of considerable reason, that “[n]othing about the text, context, or drafting history” of the provision at issue “demonstrates that ‘take due account’ actually means ‘proceed as normal.’”
The Trump administration suffered a significant loss in Department of State v. AIDS Vaccine Advocacy Coalition, in which the Court voted 5–4—with the Chief Justice and Justice Barrett joining the Court’s three jurisprudential liberals—to deny the president’s emergency application to lift a lower court order to pay nearly $2 billion to contractors in foreign aid funds for already-completed work.
Though there is no substantial record in the case and the majority’s order is contained in a single paragraph, the outcome demonstrates that the Chief Justice is an institutionalist first and foremost and, as I have been suggesting recently, so is Justice Barrett. Together with the liberals, particularly Justice Kagan, there is a functional majority that is willing to exert judicial power over a president whose wide-ranging executive orders would greatly extend the power of his office.
A caveat: It ain’t over till it’s over. Litigation in this matter will continue in the lower courts, so the case could come back to the Court in the future. At that point, we’ll see whether the division among the Justices persists. Joined in dissent by Justices Thomas, Gorsuch, and Kavanaugh, Justice Alito vehemently posited the rhetorical question:
Does a single district-court judge who likely lacks jurisdiction have the unchecked power to compel the Government of the United States to pay out (and probably lose forever) 2 billion taxpayer dollars? The answer to that question should be an emphatic “No,” but a majority of this Court apparently thinks otherwise. I am stunned.
We are sure that Justice Alito will find his bearings. As he does, will the Court’s majority continue to stand up to the executive? We shall soon see.
What to Do If the Government Doesn’t Pay You as a Federal Contractor
Winning a federal contract can be a significant opportunity, but what happens if the government doesn’t pay you on time — or at all? While the federal government is typically a reliable payer, delays or disputes can arise, especially in today’s political climate. If you’re facing non-payment under your contract, here’s what you need to do:
Review Your Contract
Start by carefully reviewing the payment terms in your contract.
Check deadlines, invoicing requirements, and any clauses related to payment disputes.
Government contracts generally follow the Federal Acquisition Regulation (FAR), which provides guidelines for how and when payments must be made.
Follow Up with the Contracting Officer
Your contracting officer is your primary point of contact.
If a payment is late, send a formal inquiry to confirm the status of your invoice.
Sometimes, delays result from administrative errors that can be resolved quickly.
If a formal inquiry from the contractor doesn’t do the trick, then consider having your attorney contact agency counsel about the matter.
Submit a Proper Invoice
Ensure that your invoice meets all federal requirements, including:
Proper formatting per FAR 32.905
Correct payment information
Invoice submission through the designated payment portal (such as Wide Area Workflow (WAWF) for DoD contracts)
File a Claim Under the Contract Disputes Act
If informal efforts fail, you can file a formal claim under the Contract Disputes Act (CDA).
For a formal claim, the contractor should prepare (usually with the assistance of legal counsel) and submit a written claim to the contracting officer, clearly stating the amount owed, the basis for payment, citing relevant law, and certifying the claim, if appropriate.
As the U.S. Court of Appeals for the Federal Circuit has made clear, “a ‘pure breach’ [of contract] claim accrues when a [contractor] has done all [they] must do to establish [their] payment and the [government] does not pay.” Brighton Village Assoc. v. United States, 52 F.3d 1056, 1060 (Fed. Cir. 1995).
The contracting officer has 60 days to respond to the claim.
Escalate the Issue
If the contracting officer denies your claim or fails to respond, you have the right to appeal to:
The Civilian Board of Contract Appeals (CBCA) for civilian contracts
The Armed Services Board of Contract Appeals (ASBCA) for defense contracts
The U.S. Court of Federal Claims for both civilian and defense contracts
Final Thoughts
Unfortunately, non-payment by the government is becoming more common lately.
However, understanding your contract, maintaining proper documentation, communicating with your contracting officer, and following dispute resolution procedures can help you recover your rightful payments.
Cross-Border Catch-Up: USAID’s Stop-Work Order—Strategies for Global Employers [Podcast]
In this episode of our Cross-Border Catch-Up podcast series, Patty Shapiro (shareholder, San Diego) and Maya Barba (associate, San Francisco) discuss the effect of the recent United States Agency for International Development (USAID) stop-work order on global employers. Patty and Maya delve into the challenges that impacted organizations are facing as a result of the stop-work order and discuss strategies to manage workforce disruptions in compliance with local labor and employment laws. The speakers explore options such a furloughs, pay reductions and terminations, and also touch on the ongoing legal developments related to the USAID stop-work order. [The legal developments discussed in this episode are current as of February 21, 2025.]
Federal Judge Denies Bid to Stay Preliminary Injunction Blocking President Trump’s DEI-Related Executive Orders
On March 3, 2025, a federal judge in Maryland refused to halt a preliminary injunction blocking key parts of two of President Donald Trump’s executive orders (EO) seeking to eliminate “illegal” diversity, equity, and inclusion (DEI) programs and initiatives in the federal government and in federal contracting.
Quick Hits
A federal judge maintained a preliminary injunction blocking key provisions of President Trump’s executive orders aimed at DEI initiatives, finding that the government had failed to show a reason to halt the injunction pending appeal.
The judge rejected the Trump administration’s argument that the preliminary injunction prevents the executive branch from implementing its policies, noting that such policies must still comply with the United States Constitution, particularly in this case, free speech and due process rights.
The Trump administration is appealing the preliminary injunction ruling, indicating that the constitutionality of the EOs will continue to be litigated, potentially reaching the Supreme Court of the United States.
U.S. District Judge Adam B. Abelson denied the Trump administration’s motion to stay the preliminary injunction issued on February 21, 2025, in the case brought by a coalition of DEI advocates. The judge found the Trump administration had failed to show a stay was warranted, given the plaintiffs’ likelihood of successfully establishing on the merits that the enjoined parts of the EOs violate free speech and are unconstitutionally vague.
In seeking a stay of the preliminary injunction, the Trump administration argued that it had demonstrated a likelihood of success on the merits and that the plaintiffs had only alleged speculative harms; that the injunction harmed “intra-executive policy implementation by enjoining the President’s policy directives to federal agencies”; and that the preliminary injunction improperly prevented federal agencies from enforcing antidiscrimination laws.
However, Judge Abelson said that he had already considered and rejected the government’s argument regarding its likelihood of success on the merits and that the policy goals of the executive branch must still comply with the Constitution.
“As the Court explained in its memorandum opinion granting the preliminary injunction, the executive branch is obviously entitled to have policy goals and to pursue them,” Judge Abelson said in the decision denying the stay. “But in pursuing those goals it must comply with the Constitution, including, as relevant here, the Free Speech Clause of the First Amendment, and the Due Process Clause of the Fifth Amendment.”
Judge Abelson stated that the blocked provisions of the EOs seek to “punish, or threaten to punish, individuals and institutions based on the content of their speech,” thereby discriminating against viewpoints disfavored by the administration, likely in violation of the First Amendment. Judge Abelson observed that the provisions appear to target “purely private persons” and leverage funding to regulate the speech of “individuals and institutions that happen to contract with (or receive grants from) the federal government.
In addition, Judge Abelson noted, the provisions likely violate the due process clause of the Fifth Amendment because they are so vague that they do not sufficiently explain what is and is not prohibited.
Specifically, the preliminary injunction blocked three provisions of the EOs: (1) a provision that required federal agencies to terminate “equity-related grants or contracts,” (2) a provision that required federal contractors and subcontractors to certify for purposes of False Claims Act (FCA) liability that they do not operate unlawful DEI programs, and (3) a provision directing the attorney general to enforce civil rights laws against DEI programs in the private sector.
The National Association of Diversity Officers in Higher Education, the American Association of University Professors, Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore—filed the lawsuit on February 3, 2025, challenging EO 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing,” issued on January 20, 2025, President Trump’s first day in office, and EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” issued on January 21, 2025.
Since that lawsuit was filed, at least three more federal court challenges have been filed targeting the EOs and President Trump’s January 20, 2025, EO 14168, “Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government,” which outlined the federal government’s new policy to only “recognize two sexes, male and female.” The suits raise similar constitutional claims, contending that the EOs are vague, violate free speech and due process, exceed the executive branch’s authority, and usurp legislative functions.
Next Steps
Judge Abelson’s denial of the Trump administration’s stay motion keeps in place the preliminary injunction blocking parts of the EO 14151 and EO 14173, meaning that entities affected by the orders will continue to have a reprieve, at least in the short term. However, the Trump administration is appealing the preliminary injunction decision, and the case and other challenges to the EOs are likely to be decided in the federal courts of appeal, and, potentially, by the Supreme Court of the United States.
Government Contractors Should Prepare for Executive Order 14222, “Implementing the President’s ‘Department of Government Efficiency’ Cost Efficiency Initiative,” Directing Agency Heads to Terminate or Modify Existing Government Contracts and Grants
On February 26, 2025, President Trump issued Executive Order 14222, Implementing the President’s “Department of Government Efficiency” Cost Efficiency Initiative (Feb. 26, 2025) (“EO 14222”). EO 14222’s purpose is to commence “a transformation in Federal spending on contracts, grants, and loans to ensure Government spending is transparent and Government employees are accountable to the American public.” EO 14222 includes several significant provisions that government contractors need to be prepared to address. Many of those are highlighted in this alert.
1. Which Agencies and Contractors are Impacted by EO 14222?
Under Executive Order 14158 – Establishing and Implementing the President’s “Department of Government Efficiency” (Jan. 20, 2025), the President established the United States DOGE Service and required that each “Agency Head” of each Government “Agency” establish within that Agency a “DOGE Team.” An “Agency”, with a few exceptions, generally means any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch. However, President Trump exempted his own office from any of the DOGE requirements by declaring that “the Executive Office of the President and any components thereof” is not an Agency. The “Agency Head” means the highest-ranking official of an Agency, such as the Secretary, Administrator, Chairman, or Director.
EO 14158 confirms that the DOGE Team for each Agency “will typically include one DOGE Team Lead, one engineer, one human resources specialist, and one attorney.” Once the DOGE Team is established for an Agency, it is required to work with the Agency Head and the United States DOGE Service to modernize federal technology and software to maximize governmental efficiency and productivity.
While EO 14158 implemented DOGE generally across the entire Federal Government, the recently issued EO 14222 directs DOGE Teams in only certain Agencies to review and implement changes to federal spending on particular contracts and grants. Only “covered contracts and grants” are impacted by EO 14222, which does not include “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.”
EO 14222 also does not apply to:
Law enforcement officers, as defined in 5 U.S.C. 5541(3) and 5 CFR 550.103, or covered contracts and grants directly related to the enforcement of Federal criminal or immigration law;
U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement in the Department of Homeland Security;
Uniformed Services, as defined in 20 CFR 404.1330 (Air Force, Army, Navy, Coast Guard, or Marine Corps);
Any other covered grant or contract, agency component, or real property that the relevant Agency Head exempts in writing from all or part of this order, in consultation with the agency’s DOGE Team Lead and the Director of OMB; and
Classified information or classified information systems.
Therefore, government contracts related to law enforcement, national defense, immigration and customs enforcement, public safety, and the intelligence community are all exempt from the requirements of EO 14222. However, government contractors working outside of these categories, including covered contracts issued by the Departments of Agriculture, Energy, Health and Human Services (though excluding individual assistance like Medicare), Interior, Labor, Transportation, Treasury, and Veterans Affairs are all subject to the requirements of EO 14222, unless exempted by the Agency Head. Similarly, covered contracts issued by the General Services Administration, Environmental Protection Agency, and the Small Business Administration are also subject to EO 14222 unless the Agency Head excludes them or unless they relate to one of the exempted categories of funding (i.e., military, law enforcement, etc.). Accordingly, a significant number of government contractors need to be aware of EO 14222 and should take immediate steps to prepare for its impacts.
2. What New Regulatory Mandates Does EO 14222 Impose?
a. New Public Database to Record Every Government Payment Issued by the Agency for Each of the Agency’s Covered Contracts and Grants, Along With a Written Justification For Each Payment.
EO 14222 issues new requirements for the establishment of a public payment approval database, which will require approvals for every Government payment made under covered contracts and grants, and will publicly post the amount of those Government payments, along with a Government employee’s written approval justifying the payment:
Each Agency Head shall, with assistance as requested from the agency’s DOGE Team Lead, 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, along with a brief, written justification for each payment submitted by the agency employee who approved the payment.
Once this payment system is implemented in accordance with EO 14222, the Agency Head (in consultation with the agency’s DOGE Team Lead) is then required to issue guidance for the Agency that will require every Government payment under any covered federal contract or grant to have a written justification and approval from an authorized Government employee. Furthermore, this payment system “shall 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.”
Notably, EO 14222 does not include any minimum acquisition threshold that would limit its application to payments above a certain amount. By noting that “every payment” must be posted in this system with a brief written justification from an approving employee, it appears that it will apply to even the most routine payments of the smallest amounts, which raises interesting and potentially concerning questions. For example, what will constitute a sufficient written justification from a Government employee? While the justification is required to be made by the Government employee, will the Government nonetheless flow down that requirement so that contractors are required to prepare a written justification for each request for payment even if the contract does not require it? If so, who will pay for the contractor to develop these written justifications for every single payment made under a covered government contract? Time will tell with each of these questions.
While there are now scant details related to how this new software system will exactly work or when it will be implemented, once the system is in place, it will certainly have a direct impact on how (or if) payments will be made under covered contracts and grants. As guidance is released in the future, government contractors would be wise to track closely any additional imposed requirements that are not written in their contracts. To the extent that new obligations are imposed, contractors should also closely track expenses caused by these new requirements so that they can submit claims and requests for equitable adjustment in appropriate circumstances.
b. Government’s Immediate Review of Covered Contracts and Grants, Which Can Result in the Government’s Termination or Modification of Those Contracts and Grants.
EO 14222 also provides direction to each Agency Head to review, modify, and potentially terminate all covered contracts and grants “to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of [the Trump] administration[:]”
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 [the Trump] 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.
Therefore, by Friday, March 28, 2025, each Agency Head is required to review each existing covered contract and grant, and then is encouraged to terminate or modify such covered contracts and grants to reduce overall Federal spending or reallocate spending to promote efficiency and advance the policies of the Trump administration. This direction will have immediate impacts on government contractors with covered contracts, which requires immediate preparation.
c. Government’s Immediate Review of Contracting Policies and Procedures and Contracting Personnel.
EO 14222 also imposes on Agency Heads with covered contracts an obligation to comprehensively review all of the Agency’s contracting policies, procedure, and personnel by March 28, 2025:
Each Agency Head, in consultation with the agency’s DOGE Team Lead, shall conduct a comprehensive review of each agency’s contracting policies, procedures, and personnel. Each Agency Head shall complete this process within 30 days of the date of this order and shall not issue or approve new contracting officer warrants during the review period, unless the Agency Head determines such approval is necessary.
While EO 14222 does not expressly state that new contract actions will be entirely eliminated, contractors competing for covered contracts should be aware of the possibility of cancelled solicitations. Contractors also should know that Agencies do not have unlimited discretion to cancel a pending solicitation. Seventh Dimension, LLC v. United States, 160 Fed. Cl. 1, on reconsideration in part, 161 Fed. Cl. 110 (2022) (finding that the cancellation of a solicitation violated procurement regulations and was arbitrary and capricious); see also Parcel 49C Ltd. P’ship v. United States, 31 F.3d 1147 (Fed. Cir. 1994) (holding that cancellation of solicitation by General Services Administration had no rational basis).
Therefore, to the extent that a contractor has submitted a proposal in response to a solicitation that appears to be arbitrarily canceled as part of the EO 14222 review process, the contractor should closely review its protest rights and talk with a bid protest attorney about protest opportunities.
3. How Should Government Contractors Prepare for The Impacts of EO 14222 and Similar Executive Orders?
The impacts of EO 14222 are far-reaching and yet to be fully determined. However, because EO 14222 directs Agencies to modify and terminate covered government contracts, any contractor with one of those contracts should take immediate steps to prepare.
a. Closely Review The Changes Clause and Suspension of Work Clause In Your Covered Government Contract to Understand the Notice Requirements Along With Your Potential Entitlement to Compensation for Changes or Suspensions.
Contractors with covered contracts should closely review FAR Part 43 – Contract Modifications and should be prepared to take appropriate action if modifications are sought to a covered contract. For example, pursuant to FAR 43.104, contractors should be prepared to provide quick written notification of contract changes to the contracting officer if they are impacted by any provisions of EO 14222, including potential requests by the Agency to perform work that is not required by the covered contract.
Contractors should also review closely the applicable changes clause included in their covered contracts. For example, FAR 52.243-1 Changes—Fixed-Price makes clear that, if any Government-directed change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under a contract, the contracting officer shall make an equitable adjustment in the contract price, the delivery schedule, or both, and shall modify the contract. Similarly, FAR 52.243-2 Changes—Cost-Reimbursement (Aug. 1987), states that when a Government-directed change causes an increase or decrease in the estimated cost of, or the time required for, performance of any part of the work under a cost reimbursement contract, the Contracting Officer shall make an equitable adjustment in the (1) estimated cost, delivery or completion schedule, or both; (2) amount of any fixed fee; and (3) other affected terms and shall modify the contract accordingly. Contractors need to track closely any changes made to their covered contracts by the Government and need to provide quick written notice to the Agency that describes those changes.
Similarly, contractors also should review FAR 52.242-14 Suspension of Work to understand how to respond if the Agency orders the contractor to suspend, delay, or interrupt all or any part of the work under the covered contract as a result of EO 14222. “Under FAR 52.242-14, a contractor is entitled to an equitable adjustment when the government constructively suspends work by delaying work for an unreasonable amount of time.” Nassar Grp. Int’l, ASBCA No. 58451, 19-1 BCA ¶ 37,405 (citing CATH-dr/Balti Joint Venture, ASBCA Nos. 53581, 54239, 05-2 BCA 133,046 at 163,793 and other cases). In order to preserve these rights to an equitable adjustment, contractors should provide quick written notice to the Agency when the suspension occurs.
b. Closely Review the Termination for Convenience Clauses In Your Covered Government Contracts To Understand Your Rights and Opportunity to Submit a Termination Settlement Proposal.
So long as it is not done in bad faith, the Government has broad authority to terminate contracts for convenience.
To the extent that a covered contract is terminated under the direction of EO 14222, contractors should closely review FAR Part 49-Termination of Contracts and the relevant termination for convenience clauses included in their covered contracts (e.g. FAR 52.249-2, FAR 52.249-3, etc.) to evaluate the deadlines and requirements for submitting a termination settlement proposal to the Agency.
While the Government unfortunately has broad authority to terminate contracts for the Government’s own convenience, contractors are entitled to submit termination settlement proposals to the Government to obtain payment for certain costs incurred because of the termination. See FAR 49.206-1; FAR 49.602-1. Contractors should review these FAR provisions and speak with a government contracts attorney to prepare those termination settlement proposals.
c. Maintain Detailed Documentation of the Cost and Time Impacts Associated With Any Modification or Termination.
Contractors with covered contracts will need to support their requests for equitable adjustment, claims, and/or termination settlement proposals with detailed documentation of the costs incurred as a result of the direction from the Government. Therefore, contractors should be very careful to ensure that they are documenting closely the communications that they are receiving from the Government that could be construed as a change and also should document the impacts of those changes on the performance time and costs associated with the covered contract. Contractors should engage their performance personnel, accounting departments, and their contract management departments to all collectively maintain this detailed documentation.
d. Communicate With a Legal Professional Before Accepting Any Modification or Signing Any Waiver of Future Rights.
As noted above, EO 14222 directs each Agency Head, in consultation with the Agency’s DOGE Team Lead, to modify or terminate covered contracts to reduce overall federal spending or to reallocate spending to promote efficiency and advance the policies of the Trump Administration.
Before agreeing to change the terms of an existing covered contract and certainly before signing any waivers or releases related to those changes, contractors should speak with a government contracts legal professional who can guide the contractor on the clauses and provisions noted above. For example, since FAR 52.243-1 discussed above entitles a contractor to an equitable adjustment in certain circumstances, the contractor needs to be cautious to avoid waiving that right through signing a modification that fails to provide adequate compensation or time to address the change.
e. Communicate With Your Subcontractors And Suppliers About EO 14222 and the Potential Impacts From Similar Executive Orders.
Prime contractors should ideally already have flow-down provisions in their subcontracts and supplier agreements that allow the contractor to terminate for convenience any subcontract and/or supply agreement to the extent that the Government terminates the prime contract. Prime contractors that do not have these flow down provisions in their subcontracts should immediately talk with their subcontractors and suppliers about including them.
However, even if those flow-down provisions are included, prime contractors with covered contracts should also maintain open communication with their suppliers and subcontractors to ensure that they are aware of any modifications, changes, suspensions, or terminations that might impact the subcontract or supply agreement. As further guidance is issued about EO 14222 and similar executive orders, prime contractors are going to be in the best position if they make sure everyone in the supply chain is aware of the potential risk.
Conclusion
Contractors with covered contracts should closely review EO 14222 and should take the steps outlined in this client alert to prepare for its impacts.
Summary of the Executive Order Implementing the President’s Department of Government Efficiency Cost Efficiency Initiative – Mandatory Agency Review of Federal Contracts, Grants and Loans
On February 26, 2025, President Trump issued an Executive Order (EO), “Implementing the President’s ‘Department of Government Efficiency’ Cost Efficiency Initiative,” aiming to transform Federal spending related to covered Government contracts, grants and loans to ensure Federal spending is transparent. This order requires that agencies, in consultation with the Department of Government Efficiency (DOGE), immediately review all existing covered contracts and grants, and, where appropriate, either terminate or modify such contracts and grants. In this review, which must be completed within 30 days, agencies must prioritize the review of funds disbursed to educational institutions and foreign entities for review of waste, fraud and abuse.
What Covered Contracts and Grants are Subject to Review?
Covered contracts and grants include discretionary spending through Federal contracts, grants, loans and related instruments. Covered contracts and grants exclude direct assistance to individuals; expenditures related to immigration enforcement (including U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement in the Department of Homeland Security), law enforcement, the military, public safety and the intelligence community (including classified information or classified information systems); and other critical, acute or emergency spending, as determined by the relevant agency.
What Does this Review Mean for Contractors and Grantees?
This new EO indicates that the administration, acting through DOGE, will continue to increase its level of scrutiny of grants and contracts, resulting in more substantial cuts. Contractors and federal award recipients should be prepared to exercise their rights in the event of complete or partial termination of any agreements, especially with regard to financial recovery. This preparation involves understanding the termination provisions applicable to your agreements and having thorough documentation and justification of all costs incurred in support of work under each agreement.
You also should consider contingency planning in the event your contract is terminated. Your obligations under the federal Worker Adjustment and Retraining Notification (WARN) Act and state law equivalents may be implicated if you were to terminate employees who were working on the cancelled contract. With reductions in force, there also could be discrimination or retaliation issues depending on how you select employees for termination. You may have certain obligations under the Age Discrimination in Employment Act (ADEA), depending on those selected for termination. Understanding your responsibilities under these laws will help you better plan for responding to a cancellation.
Additional Requirements
Payment Justification Records. Each agency, in collaboration with DOGE, must build a centralized system to record every payment (including those for federally funded travel) issued by the agency pursuant to its covered contracts and grants, along with a written justification by the agency employee who approved the payment. These written payment justifications must be publicly posted, subject to some exceptions.
New Guidance. Going forward, agencies must issue guidance on signing new contracts or modifying existing contracts. Agencies may approve new contracts prior to the issuance of such guidance on a case-by-case basis.
Credit Card Freeze. All credit cards held by agency employees are frozen for 30 days from the date of this order, subject to limited exceptions.
Real Property Disposition. Within seven days, agencies must provide confirmation to the Administrator of General Services that the Federal Real Property Profile Management System is up to date and reflects a complete and accurate inventory of the agency’s real property. Within 30 days, each agency must identify all termination rights under existing leases of government-owned real property and, in consultation with DOGE and the Administrator of General Services, determine whether to exercise such rights. Within 60 days, the Administrator of General Services must submit a plan to the Director of the Office of Management and Budget (OMB) for the disposition of government-owned real property which each agency deemed as no longer needed.
Regulated Entities: It’s Time to Play Love It or Leave It with Federal Regulations
Amidst the flurry of Executive Orders (“EOs”) that tends to accompany any new administration, one EO may have flown under the radar. But for the regulated community—which, these days, includes most businesses in some form or another—this EO could be both a source of opportunity and of angst.[1]
EO 14219, titled “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative” (the “Deregulation EO”), was issued on February 19.[2] Consistent with the president’s long-stated goal to streamline and minimize federal agency regulation, the Deregulation EO sets forth a series of directives to federal agencies aimed at reducing regulations and minimizing the administrative state. This client alert summarizes the Deregulation EO and opines on the opportunities for the regulated community to seek reform or deregulation, on the one hand, or to prioritize existing or new regulations, on the other.
The Deregulation EO
The Deregulation EO directs all agency heads to review their existing regulations within 60 days for consistency with law and the administration’s policy aims, in conjunction with the Department of Government Efficiency (“DOGE”) and the Office of Management and Budget (“OMB”), and, as necessary, the Attorney General. The agencies are required to identify for deregulation their regulations that fit within any of seven categories:
Those that are unconstitutional or those that raise serious constitutional questions, such as the scope of power vested in the federal government by the Constitution:
This category is aimed at regulations that exceed the power of the federal government;
Regulations that are based on unlawful delegations of legislative power:
This category stems from the constitutional Nondelegation Doctrine, which has seen renewed interest in recent years by courts and commentators.[3] The Nondelegation Doctrine is the principle that Congress cannot delegate its legislative or lawmaking powers to other entities—including Executive Branch agencies. Historically, to pass constitutional muster, when Congress did delegate to an agency, it was required to do so by providing “intelligible principles” to the agency to guide it in its rulemaking—a relatively lax standard. But in recent years, the Nondelegation Doctrine seems poised to grow some teeth;
Regulations that are based on anything other than the best reading of the underlying statute:
This category aligns with the Supreme Court’s decision last term in Loper Bright that overruled the Chevron doctrine—the principle that if an agency’s interpretation of an ambiguous statute was reasonable, even if not the best reading, the reviewing court should defer to the agency. In Loper Bright, the Court held that reviewing courts should not defer to an agency’s interpretation of an ambiguous statute, but may only view such interpretations as persuasive[4];
Those that implicate matters of “societal, political, or economic significance that are not authorized by clear statutory language”:
This principle appears aimed at the “major questions doctrine,” announced in 2022 by the Supreme Court’s decision in West Virginia v. EPA, 597 U.S. 697. There, the Court held that an agency may not resolve through regulation a question of “vast economic and political significance” without a clear statutory authorization;
Regulations that impose significant costs on private parties that are not outweighed by public benefits;
Those that harm the national interest by “significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives”; and
Regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.
These last three categories appear to be aimed at the business interests this administration has expressed an intention to prioritize. The directive to conduct such a comprehensive review of existing regulations and sort them into the categories listed above could be a significant undertaking for agency heads and staff, who may be simultaneously working on directives under other EOs and adjusting to the realities of reduced personnel. And as such, there may be opportunities for affected businesses to provide input, as addressed below.
The Effect of the Deregulation EO
Upon the expiration of the 60-day review period, the Office of Information and Regulatory Affairs (“OIRA”) is directed to consult with the agency heads to develop a “Unified Regulatory Agenda” to rescind or modify any regulations agencies have identified as fitting within the seven categories. In other words, the agencies are directed to deregulate, to the extent their existing regulations fall within any of these seven classes.
Further, the Deregulation EO stresses that agency heads should deprioritize regulatory enforcement of any regulations that “are based on anything other than the best reading of the statute” or those that go beyond the powers of the federal government (classes (1) and (3) above). Agency heads, in consultation with OMB, also are directed to review ongoing enforcement proceedings on a case-by-case basis and to terminate those that “do not comply with the Constitution, laws, or Administration policy.” While it might initially seem that agencies would be reluctant to categorize their own regulations into the categories mentioned in the EO (e.g., unconstitutional; based on unlawful delegations of legislative power; based on other than the best reading of the underlying statute), new personnel within various agencies are likely bringing different perspectives about existing regulations, and may have specific ideas already about the particular regulations that they believe should be rescinded.
Finally, the Deregulation EO directs agencies to promulgate new regulations, consistent with the process set forth in EO 12866 for submitting new regulations to OIRA for review, and to consult with DOGE about such new regulations. OIRA is directed to consider the factors set forth in EO 12866 as well as the seven principles set forth in the Deregulation EO. The Deregulation EO also directs the OMB to issue implementation guidance as appropriate.
Takeaways for the Regulated Community
Many businesses are subject to federal regulation, in some capacity. While the EO does not contemplate involvement by the regulated community in the 60-day review of agency regulations, nothing prevents affected industries from taking the apparent opportunity that now exists to identify and offer perspective to particular agencies and/or to OIRA about specific regulations that are problematic to their business, whether because of costs, technical compliance difficulties, or policy differences, and explaining why a regulation fits into one of the seven categories outlined in the Deregulation EO. [5]
Furthermore, if a business is subject to an ongoing enforcement proceeding (or the threat of one), the administration directive that agencies terminate such proceedings on a case-by-case basis provides a similar opportunity for companies to convey their thoughts to the relevant agency about the lawfulness and/or priority goals of the regulation at issue in that proceeding.
On the other hand, if there are regulations that are particularly beneficial to a given industry, or in which significant time or capital has been invested to further compliance, the industry may want to ensure these regulatory schemes are preserved. For these regulatory schemes, businesses may also want to reach out to the relevant agency proactively to explain why such regulations are consistent with the Deregulation EO, in an attempt to avoid the uncertainty or costs that could accompany any roll back.
While the EO does not clarify whether the coming deregulation process will follow the standard notice and comment rulemaking process of the Administrative Procedure Act—which requires a notice of proposed rulemaking in connection with the repeal of an existing regulation—that process will afford further opportunity for industry to submit comments on any regulations that an agency intends to repeal.
The Loper Bright, Corner Post, Jarkesy, and Ohio v. EPA cases demonstrate that a changing administrative state brings both opportunities and risks.[6] Staying proactive in addressing the regulatory regime applicable to a company’s industry is the best way to “take the bull by the horns”—whether that is in an effort to jettison existing, burdensome regulations, or to retain efficient, functional regulations.
Download This Alert
[1] See, e.g., Estimating the Impact of Regulation on Business | The Regulatory Review.
[2] Available at Ensuring Lawful Governance and Implementing the President’s “Department of Government Efficiency” Regulatory Initiative – The White House
[3] E.g., Move Over Loper Bright — Nondelegation Doctrine Is Administrative State’s New Battleground | Carlton Fields
[4] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[5] Nb. There presently are various legal challenges to many of the administration’s EOs, so any action by a regulated entity should be carefully considered (perhaps in conjunction with the relevant agency) to withstand an Administrative Procedure Act or other legal challenge.
[6] Legal Experts to Lay Out Recent SCOTUS Decisions’ Impact on Business – PA Chamber