What Should Contractors and Grant Recipients do in Response to the DEI Executive Orders?
In Part 1 of our blog series, we outlined the Trump Administration’s new Executive Orders (“EOs”) on Diversity, Equity, Inclusion (“DEI”) and Diversity, Equity, Inclusion, and Accessibility (“DEIA”) programs, and the current legal status of those EOs. In this second part, we provide several observations on what actions federal contractors and grant recipients might want to consider taking in response to these EOs to ensure compliance and mitigate risks.
Review and catalog your various DEI and DEI‐related programs and initiatives. The EO directs agencies to terminate all federal DEI programs, and further directs the Office of Personnel Management (“OPM”), Office of Management and Budget (“OMB”), and the Department of Justice (“DOJ”) to work together to ensure this happens. The forthcoming FAR clause will require contractors to certify to the same. The EO also emphasizes that the Government will be looking for agencies and contractors disguising their DEI programs under other names, and directs the termination of such programs “under whatever name they appear.” Having identified all such programs will prepare you to be ready to take action quickly.
Catalog and re‐assess your diversity‐based alliance initiatives. To be clear, we are not recommending at this point terminating all vendor diversity initiatives. We think it highly likely, however, the Government will view such programs as contrary to the spirit, if not the letter, of the EOs. While the EOs do not explicitly refer to corporate programs designed to promote disadvantaged businesses by giving them a preferential path to becoming a subcontractor or supplier, it may be hard to identify a meaningful distinction between internal DEI programs and subcontractor preference programs.
Review your Code of Conduct, your Environmental, Social, and Governance (“ESG”) reports, your hiring materials, and your website to identify and remove language (and programs) contrary to the EOs. The EOs are very clear that they are intended to end “dangerous, demeaning, and immoral race‐ and sex‐ based preferences under the guise of so‐called ‘diversity, equity, and inclusion’ (DEI).” The Government will be looking for companies continuing to promote DEI, and especially for companies that appear to have changed the names of their programs in an effort to, in the words of the OPM, “obscure their connection to DEIA programs.” But remember, you must ensure your programs that focus on Title VII of the Civil Rights Act (which prohibits discrimination, harassment, and retaliation), the Equal Pay Act, the Age Discrimination in Employment Act, and the Americans with Disabilities Act are not identified for termination because the EOs do not eliminate the equal opportunity requirements of those laws.
Consider terminating DEI programs that run afoul of the law, and rethinking DEI-related affiliations, sponsorships, speaking engagements, and marketing materials that are arguably covered by the EOs. You probably remember the urge to slow-roll the internal implementation of prior EOs (e.g., the COVID 14042 EO), but the recent DEI EOs are different in light of their specificity, the clear intent to unleash the DOJ to take action against contractors dragging their feet, and the near-term introduction of a new certification. Again, as noted above, this does not mean contractors must cease their legal efforts to make holistic hiring and promotion decisions. Just keep in mind, this is a fine line to walk and one that may come under intense Government scrutiny.
Be careful not to over‐correct in a manner that creates collateral risks – retain programs focused on non‐discrimination. Although the EOs are clear and authoritative in many ways, they do not override existing federal nondiscrimination, non‐harassment, and anti‐retaliation obligations of Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act, or the Americans with Disabilities Act (as amended). These laws protect employees from discrimination, harassment, and retaliation on the basis of race, color, gender, sexual orientation, sexual preference, pregnancy, religion, national origin, age, and disability. Similarly, while inconsistent state laws likely will fall prey to the Preemption Doctrine (the general rule that federal laws trump inconsistent state laws), state laws that are not inconsistent with the EOs likely remain operative, and contractors will be held accountable for compliance with those laws.
Review and catalog contracts and grants that incorporate DEI performance requirements. The EOs contemplate the termination of all DEI (actually, DEIA) performance requirements “for employees, contractors, and grantees” within 60 days. To facilitate implementation of this directive, the EOs instruct agencies to recommend actions to align programs, including contracts and set‐aside contracts, with the EO. Additionally, the White House’s Fact Sheet describes the EOs as expanding “individual opportunity by terminating radical DEI preferencing in federal contracting and directing federal agencies to relentlessly combat private sector discrimination.” Finally, the EOs instructs agencies to inform the White House of programs that may have been “mislabeled” to conceal their true purpose.
If you have a contract that could be suspended or terminated (e.g., providing DEI training to federal agencies, supporting foreign aid programs, etc.), take immediate steps to record and track all costs incurred relating to the stop work, suspension, or termination. The Government already has begun taking steps to pause contracts, primarily in the foreign aid space. Such pauses, whether effected pursuant to the Changes Clause, the Suspension of Work Clause, the Stop Work Order Clause, or the Terminations Clause, will create significant risks to contractors. Beyond obvious cost risks, such Government actions could create risks of disputes between primes and impacted subcontractors and suppliers.
Prepare for the elimination of EO 11246‐based Affirmative Action obligations. The new EOs revoke EO 11246 to, among other things, ensure “the employment, procurement, and contracting practices of Federal contractors and subcontractors shall not consider race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.” As EO 11246 also is an EO, the deletion is self‐executing. In other words, EO 11246 is terminated. The EOs also direct OFCCP from taking any enforcement action and to stop promoting diversity, holding contractors accountable for affirmative action, and workplace balancing.
If you are involved in pending audits or investigations relating to EO 11246 or DEI matters, consider reaching out to the investigating agency to confirm whether they will be terminating their activities. The EOs specifically direct Federal agencies to “terminate all . . . enforcement actions.” Moreover, the Office of Federal Contract Compliance Programs (“OFCCP”) guidance states that the agency shall immediately cease “holding Federal contractors and subcontractors responsible for taking ‘affirmative action.’” Thus, it is likely that all ongoing OFCCP investigations relating to the employment of women or minorities are over.
Ensure your internal affinity groups are not afforded privileges unavailable to non‐members. There is nothing in the EOs that prelude the existence of affinity groups within an organization. Likewise, there is nothing in the Supreme Court’s decision in Students for Fair Admission v. Harvard that precludes such groups. That said, if certain affinity groups are afforded special treatment unavailable to other groups, it is likely the Government will view them as illegal DEI programs. In early February, OPM issued guidance that helps shed some light on what kind of employee groups violate the EOs. The memorandum states that employee resource groups (“ERGs”) “that . . . advance recruitment, hiring, preferential benefits (including but not limited to training or other career development opportunities), or employee retention agendas based on protected characteristics” are prohibited. Additionally, ERGs that are open only to “certain racial groups but not others, or only for one sex, or only certain religions but not others” and events that limit attendance to only members of an ethnic group, or discourage attendance from those outside the group are prohibited. In contrast, the guidance states the following is not illegal: Affinity/resource group events that allow “employees to come together, engage in mentorship programs, and otherwise gather for social and cultural events.”
The Memorandum cautions, however, that discretion must be exercised to ensure such events do not cross the line into “illegal DEI.” The Memorandum offers this specific warning to Government officials: “When exercising this discretion, agency heads should consider whether activities under consideration are consistent with the [EOs] . . . and the broader goal of creating a federal workplace focused on individual merit.” The Memorandum warns that, for any activities that are retained, “agencies must ensure that attendance at such events is not restricted (explicitly or functionally) by any protected characteristics, and that attendees are not segregated by any protected characteristics during the events.”
Keep a close eye on your inbox for CO/GO notices regarding modifications to your contracts and grants. The EOs require the inclusion in every contract of a certification that the contractor does not operate any program promoting DEI that violates any federal anti‐discrimination laws. Only a few weeks after the EO was issued, certain federal agencies began including such certifications in their contracts, even before a FAR deviation was issued. On February 19, GSA issued a class deviation directing all GSA COs to remove DEI and affirmative action related FAR clauses from contracts and solicitations, however, it does not add a new FAR clause or certification requirement (yet). Relatedly, the EOs give the requirements teeth by adding a related clause that acknowledges that compliance with all anti‐discrimination laws is material to the Government’s decision to pay all invoices for purposes of the civil False Claims Act. This clause will make it much easier for the Government and whistleblowers to bring False Claims Act cases against contractors who they believe have not fully implemented the new requirements. The EOs are very clear that OMB and the DOJ must take action to implement the EOs and to excise all DEI elements of process, programs, contracts, grants, etc.
Once your federal agreements are modified, be sure to modify your subcontracts. Remember, the goal of these EOs is “to encourage the private sector to end illegal discrimination and preferences, including DEI.” By continuing to require your subcontractors to comply with these “illegal” FAR/DFARS/Uniform Guidance (for grants) clauses, you could be viewed as running afoul of the prohibition. When your prime agreement (or higher‐tier subcontract agreement) is modified, it’s important to do the same for your subcontractors.
Keep your Corporate Governance team in the loop. Companies should review their public disclosures (e.g., statements in the 10-Ks and 10-Qs, proxy statements, etc.) to ensure they reflect any material changes to the company’s DEI programs, including any such changes undertaken in an effort to maintain compliance with the current state of the law. Publicly traded companies are often targets of shareholder litigation related to governance matters. Companies may see a material increase in shareholder litigation as a result of the new EOs. Even where a company thoughtfully maintains legal elements of its DEI program (recall, the EOs talk only about “illegal DEI”), shareholder plaintiffs could still claim decision-makers did not adequately disclose these remaining DEI programs and/or exposed the company to needless litigation and reputational risk and/or failed to disclose such risks to the investing public regardless of the company’s response to the EOs and related caselaw.
Ensure your internal reporting and investigation plans are up to date. In addition to the direction to the DOJ to be vigilant in pursuing contractors (and non‐contractors) that act in a manner inconsistent with the new rules, employees, competitors, and members of the general public have been incentivized to take advantage of the FCA to bring suits against contractors. We believe the DOJ will pursue contractors that do not comply with the EOs. We likewise well recognize the forthcoming contract modifications that will make it easier for whistleblowers to bring FCA cases. In fact, the Equal Employment Opportunity Commission (“EEOC”) issued two documents designed to inform workers of their rights if they believe they have experienced “discrimination related to DEI at work.” These documents could further motivate potential whistleblowers to raise allegations against their employers. It is against this background that we recommend taking a moment to ensure your hotlines, your internal investigations plans, your Mandatory Disclosure Rule policies, and your related programs and tools are up to date (including those flowing from the DOJ published guidance for corporate compliance programs).
Contractors must navigate a complex legal landscape in response to the DEI Executive Orders. By proactively adjusting DEI programs, preparing for certifications, and staying informed on legal developments, contractors can mitigate risks and ensure compliance with federal mandates.
The Trump Administration’s Diversity, Equity, and Inclusion (DEI) Executive Orders: A Brief Primer
The first 100 days of President Trump’s second term have been action-packed with the President issuing 43 Executive Orders within hours of his inauguration – and an additional 46 that soon followed. Two Executive Orders in particular – Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferences,” and Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” – have received significant attention. These Orders mark a significant shift from prior administrations, and aim to redefine the role of DEI not only within the Federal Government, but also within the private sector. What follows is a brief overview of these Orders and how they likely affect – or will affect –businesses.
What do the DEI Executive Orders Actually Require?
The DEI-related Executive Orders identify 5 objectives:
The elimination of Federal personnel whose roles focus on enhancing DEI programs within the Federal Government;
The termination of all DEI programs and activities that promote or support DEI objectives;
Requiring Federal Contractors to eliminate internal DEI efforts, certifying compliance with federal anti-discrimination laws and affirming they do not operate “illegal DEI” programs;
A return to merit-based practices, discouraging any form of preference based on race or sex in hiring, promotion, or contracting processes; and
Encouraging companies that do not take federal dollars to end their internal DEI efforts.
Since January, we have seen the Administration pursue these objectives using all tools at its disposal, including closing Federal DEI offices, placing Federal employees on leave, rescinding Executive Orders issued by predecessors (including the well-known Executive Order 11246), defunding grant programs and terminating contracts that emphasize DEI objectives, directing the non-enforcement of existing DEI-related requirements, and expanding the Department of Justice’s (DOJ) authority to investigate non-compliance these initiatives.
What is “Illegal DEI”?
One of the primary open questions surrounding compliance with these Executive Orders is the lack of guidance on exactly what constitutes “illegal DEI.”
On February 5, 2025, Acting OPM Director Charles Ezell provided additional insight into how OPM, at least, views the scope of the President’s Orders. According to the OPM memorandum, the following activities likely constitute “illegal DEI”:
“Recruiting, interviewing, hiring, training or other professional development, internships, fellowships, promotion, retention, discipline, and separation, based on protected characteristics like race, color, religion, sex, national origin, age, disability, genetic information, or pregnancy, childbirth or related medical condition….”
Diversity requirements “for the composition of hiring panels, as well as for the composition of candidate pools (also referred to as “diverse slate” policies).”
Employee Resource Groups (ERGs) “that . . . advance recruitment, hiring, preferential benefits (including but not limited to training or other career development opportunities), or employee retention agendas based on protected characteristics.”
ERGs that are open only to “certain racial groups but not others, or only for one sex, or only certain religions but not others.”
Events that limit attendance to only members of an ethnic group, or that permit employees to discourage attendance by those outside the ethnic group.
Social or cultural events or other “inclusion-related” events or trainings that segregate “participating employees into separate groups of ‘White’ and ‘People of Color’ (or other compositions based upon protected characteristics).”
Conversely, the memorandum suggests the following activities do not constitute “illegal DEI”:
Activities required by statute or regulation “to counsel employees allegedly subjected to discrimination, receive discrimination complaints, collect demographic data, and process accommodation requests.”
Accessibility or disability-related accommodations, assistance, or other programs that are required by those or related laws.”
Affinity/resource group events that allow “employees to come together, engage in mentorship programs, and otherwise gather for social and cultural events.” The Memorandum cautions, however, that discretion must be exercised to ensure such events do not cross the line into “illegal DEI.” The Memorandum offers this specific warning to Government officials: “When exercising this discretion, agency heads should consider whether activities under consideration are consistent with the [EOs] . . . and the broader goal of creating a federal workplace focused on individual merit.” The Memorandum warns that, for any activities that are retained, “agencies must ensure that attendance at such events is not restricted (explicitly or functionally) by any protected characteristics, and that attendees are not segregated by any protected characteristics during the events.”
Last month, the Equal Employment Opportunity Commission (“EEOC”) published two additional memoranda (“What to do if you Experience Discrimination Related to DEI at Work” and “What You Should Know About DEI-Related Discrimination at Work”) that provide additional pieces to help solve the “illegal DEI” puzzle. According to the EEOC, the following activities may be unlawful under Title VII (and therefore likely would constitute “illegal DEI”):
Disparate Treatment, including discrimination against applicants or employees on the basis of sex or race;
Harassment, including subjecting employees to “unwelcome remarks or conduct based on race, sex, or other protected characteristics.”
Limiting, Segregating, and Classifying, including limiting membership in workplace groups to specified individuals or “separating employees into groups based on race, sex, or another protected characteristic when administering DEI…”
Retaliation, including retaliation by an employer “because an individual has engaged in protected activity under the statute, such as objecting to or opposing employment discrimination related to DEI, participating in employer or EEOC investigations, or filing an EEOC charge.”
Though the Administration is signaling that not all DEI programming is illegal, without clear definitions and guidance from the Administration, federal contractors and grantees face uncertainty in their compliance obligations. At least one court case pending in Maryland hinges largely on the absence of concrete definitions and guidance for companies – perhaps opening the door for other courts to weigh in on this topic.[1]
How will the Federal Government Enforce these Requirements?
The Trump Administration has indicated its intent to utilize every tool at its disposal to execute on its DEI priorities, including using the False Claims Act (“FCA”). In particular, the Executive Orders direct government contracts and grant agreements to include:
A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of tile 31, United States Code [the FCA]; and
A term requiring such counterparty or recipient to certify that it does not operate any programs or promot[e] DEI that violate any applicable Federal anti-discrimination laws.
In sum, this language adds a new certification and pre-ordained “materiality” finding, designed to make it easier for the Government to bring civil enforcement actions under the FCA against contractors – essentially removing from the playbook the typical “materiality” defense.
Federal contractors and grant recipients are not the only entities at risk of enforcement action. The Executive Orders also direct Federal agencies to “identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” The DOJ has since indicated that it will initiate, where appropriate, criminal investigations against these companies.
Conclusion
Though the DEI Executive Orders are in some cases expansive, it is important to remember that their overall scope is limited by the Administration’s ability to act without Congressional intervention. For example, where some Federal contractor Affirmative Action Plan requirements are predominantly administrative in nature – stemming from the now defunct Executive Order 11246 – others, such as non-discrimination provisions addressed by the Civil Rights Act of 1964, the Rehabilitation Act, VEVRAA, and even the Small Business Act, cannot, by law, be eliminated by Executive Order alone.
Still, the DEI Executive Orders represent a significant shift in federal policy, with wide-ranging implications for government contractors and private organizations. The ongoing legal challenges emphasizes the need for clear guidance and thoughtful compliance strategies. Organizations must stay vigilant and adaptable as they navigate this complex regulatory environment.
FOOTNOTES
[1] See, e.g, Nat’l Assoc. of Diversity Officers in Higher Ed. v. Trump, D. Md., No. 1:25-cv-00333.
Michigan Supreme Court Confirms: No Independent Cause of Action for Breach of Implied Covenant of Good Faith
Sometimes an expected result is still newsworthy. On March 27, 2025, in Kircher v Boyne USA, Inc., the Michigan Supreme Court held that there is no independent cause of action for breach of the implied covenant of good faith and fair dealing inherent in contracts. This is no surprise; lower state courts and federal courts interpreting Michigan law had consistently reached the same conclusion. Kircher represents the first such holding by the Michigan Supreme Court, however, and thus it brings certainty to this area of the law.
As Kircher explains, every contract contains an implied covenant of good faith and fair dealing. “Where a party to a contract makes the manner of its performance a matter of its own discretion, the law does not hesitate to imply the proviso that such discretion be exercised honestly and in good faith.”[1] In other words, if a party has flexibility in how it performs a contract, it must use that flexibility in good faith. If it does not, then it could be liable for breach of the contract.
The duty of performing in good faith cannot alter a contract’s terms, however. Each party to a contract is required to do only what it bargained to do, nothing more. A party to a contract that regrets the bargain it struck is not free to argue “Bad faith!” to get out of its deal.
The Kircher court decided that is what the plaintiff was trying to do. The plaintiff and defendants had agreed in a contract that the defendants would be required to purchase the plaintiff’s shares in a certain company. They settled on a mathematical formula to calculate the price at which the defendants would purchase the shares. Neither party disputed this.
Circumstances changed, though, and the share price yielded by the formula fell below $0 per share. The contract allowed the parties to change the formula if they both wished. Plaintiff sued, claiming that the duty of good faith required defendants to agree to a different formula that would yield a result above $0 per share. The Supreme Court disagreed. The formula the parties had selected gave defendants no flexibility in how the share price was to be calculated, and thus there was no question of “good” or “bad” faith in the computation. The fact that parties could change the formula if they so agreed did not mean that they must do so because of changed circumstances. Plaintiff had to live with the bargain as originally negotiated and could not alter it with the benefit of hindsight.
Although it may not feel “fair” that the formula to which plaintiff previously agreed now yields unfavorable results, that is the agreement the parties had struck. Had the Kircher court ruled otherwise, it would allow the fairness of a contract to be called into question whenever a party had regrets. The decision by the Kircher court thus brings a welcome dose of certainty. Parties can rely on the terms of the contracts that they draft, without concern that a court might later second guess those terms at the request of a disgruntled party.
[1] Kircher, quoting Burkhardt v City Nat’l Bank of Detroit, 57 Mich App 649, 652; 226 NW2d 678 (1975).
Trump DEI Executive Orders – Impacts on Small Businesses and Small Business Subcontracting
On January 20 and 21, 2025, President Trump signed two executive orders focused on Diversity, Equity, and Inclusion (DEI) programs: EO 14151, “Ending Radical and Wasteful Government DEI Programs and Preferencing” and EO 14173, “Ending Illegal Discrimination and Restoring Merit‐Based Opportunity” (the “EOs”). You can read more about the content of these EOs here. While the EOs have broad ranging impacts on federal contractors in a number of areas, this blog focuses on the potential impacts specific to small businesses generally and to large businesses via small business subcontracting.
At the outset, the EOs require “Each agency, department, or commission head” to “direct the deputy agency or department head to . . . recommend actions . . . to align agency or department programs, activities, policies, regulations, guidance, employment practices, enforcement activities, contracts (including set-asides), grants, consent orders, and litigating positions with the policy of equal dignity and respect identified in section 1 of this order. . . .” EO 14151 (emphasis added).
The EOs take this approach because, unlike many policies and programs that are the creature of EOs, regulations, and contract terms; the various federal set-aside programs are creatures of statute – most notably the Small Business Act of 1953. Importantly, although the Small Business Act created the small business preference categories most likely to be in the crosshairs of the EOs (women-owned small businesses and socially/economically disadvantaged small businesses), the EOs do not (and cannot legally) do away with those statutory preferences.
To remove these preferences (or other subcategories), or to eliminate small business subcontracting preferences altogether, Congress would have to amend the Small Business Act. Although the President currently controls both houses of Congress, it still may be a tough political task to eliminate a program responsible for $178.6 billion dollars (FY23) annually awarded to small businesses. Accordingly, at the moment, the various federal set-aside programs remain in place.
The Small Business Administration’s (“SBA”) “Day One” Memo
Although the Trump administration cannot unilaterally eliminate the federal set-aside programs, it certainly can reprioritize. On February 24, 2024, in what is being labeled “a new day at SBA,” newly installed SBA Administrator Kelly Loeffler outlined her top priorities for “rebuilding the SBA into an America First engine for free enterprise.”
The first six priorities are directed at supporting the President’s “America First agenda.” These are largely internal changes, which include the following:
Transforming the SBA’s Office of International Trade into the Office of Manufacturing and Trade with the goal of “promoting economic independence, job creation, and fair trade practices to power the next blue‐collar boom.”
Enforcing the President’s anti‐DEI (EO 14151), only‐two‐sexes (EO 14168), and less restrictive environmental controls (EO 14154) Executive Orders.
Supporting the Department of Government Efficiency’s (“DOGE”) cost cutting efforts by, among other things, prioritizing the elimination of fraud and waste within the agency.
Mandating SBA’s employees return to the office full‐time.
Evaluating workforce reduction (e.g., assessing opportunities for workforce reductions).
Cracking down on fraud across all SBA programs, including establishing “a Fraud Working Group” and a “Fraud Czar” ‘to identify, stop, and claw back criminally obtained funds….”
The next four priorities outlined in Loeffler’s memo are directed at eliminating waste and reducing fraud. These are more likely to have a more immediate impact on federal contractors. They include:
Conducting an independent SBA‐wide financial audit in an effort to identify and counter delinquencies, defaults, and charge‐offs on SBA loan programs.
Evaluating SBA’s lending programs to maintain the “zero‐subsidy status” of some of its programs, reviving its collection programs, and restoring its underwriting standards, among other actions.
Banning illegal aliens from receiving SBA assistance.
Restricting “hostile foreign nationals,” particularly those with ties to the Chinese Communist party, from receiving SBA assistance.
The final five priorities are identified as “Empowering Small Businesses” and likely will have the largest and most immediate impact on small businesses. They include:
Establishing a “strike force” “to identify and eliminate burdensome regulations promulgated by all federal agencies….”
Improving SBA’s customer service, technology and cybersecurity, to improve digital interfaces, response times, and customer satisfaction.
Reducing the contractual goals for contracting with 8(a) companies – i.e., Small Disadvantaged Businesses – from the current 15% down to the statutory 5%. The rationale for this change is the concern that the higher goal had been “negatively impacting many veteran‐owned small businesses.”
Changing the locations of SBA regional offices to remove them from “sanctuary cities” and relocate them to “to less costly, more accessible locations in communities that comply with federal immigration law.”
Terminating SBA funded voter registration activities.
While most of the priorities above appear relatively straightforward, the shift away from 8(a) contracting (by reducing the contracting goals), is notable for a couple of reasons. First, the rationale suggests this administration is not interested in reducing preferences for veteran-owned small businesses, so those programs and goals very likely are safe. Second, this reprioritization suggests it is likely we may see a concurrent effort to reduce 8(a) small business subcontracting goals, which will have an impact on both small and large businesses, as discussed in more detail below.
Small Business Subcontracting Plans
Most large businesses contracting with the Federal Government are required to adopt subcontracting goals, make good faith efforts to achieve those goals, and to report to the Government the contractor’s success in meeting those goals. The goals cover subcontract spending on small businesses, minority owned small businesses, women owned small businesses, and more.
As noted above, the Federal Government’s small business subcontracting program is a preference program of the sort targeted by the EOs. Like the prime contract set-aside preference programs, however, most of the small business subcontracting requirements are established by statute. Thus, here again, it would take an act of Congress to eliminate certain preference categories, or the program altogether. Although we have little doubt Congress will take steps to align the law with the EOs, that has not happened yet. Accordingly, the subcontracting rules continue to apply. That is not to say the Government will expend any effort enforcing those rules. It would be unsurprising to see a directive to the SBA and other contracting agencies (most likely General Services Administration (“GSA”), Department of Defense (“DOD”), and National Aeronautics and Space Administration (“NASA”)) not to audit or enforce the Subcontracting Plan requirements. Still, large businesses should not ignore existing compliance obligations. Indeed, while the Government may not seek to enforce the rules, whistleblowers may. As such, noncompliance with the Subcontracting Plan requirements still presents a risk to large businesses.
Time will tell how the Trump administration’s priorities (including the 15 SBA priorities) will be implemented, and, thus, what impact they will have on small—and large—businesses. In the meantime, small business would be well advised to reassess compliance programs to ensure they are in sync with all current rules, regulations, and guidelines. Additionally, small businesses may want to take steps to prepare for an audit as we are likely to see an uptick in SBA audit activities. Likewise, large business would be well advised to do some advanced planning since (a) it is likely there will be a concurrent change in the SBA’s subcontracting programs and (b) the SBA’s new priorities likely will impact the pros and cons of partnership choices on federal opportunities.
Fourth Circuit Stays Injunction on DEI Executive Orders – What Federal Grantees and Contractors Need to Know
As we shared in a previous client alert, on February 21, 2025, a U.S. District Court judge issued a preliminary injunction in National Association of Diversity Officers in Higher Education et al. v. Trump et al., Dkt. No. 1:25-cv-00333 (D. Md. Feb. 21, 2025) that blocked portions of the Trump administration’s executive orders on diversity, equity, and inclusion programming (“DEI”) by federal contractors and grantees and private sector entities. On March 10, 2025, the same U.S. District Court issued a clarified preliminary injunction, explaining that the February 21 preliminary injunction applied to all federal executive branch agencies, departments, and commissions, but not the President.
The federal government appealed the preliminary injunction to the Fourth Circuit Court of Appeals, arguing that the Executive Orders instructed agencies to enforce existing laws without violating First Amendment rights. On Friday, March 14, 2025, the Fourth Circuit issued an Order staying the preliminary injunction. This stay means that executive agencies may now enforce the portions of the January 20 and January 21, 2025 Executive Orders previously enjoined, including:
Executive agencies may terminate “equity-related grants or contracts” (the “Termination Provision”);
Executive agencies may require federal contractors or grantees to certify that they do not operate illegal programs promoting DEI and agree that they are in compliance with “all applicable Federal anti-discrimination laws” (the “Certification Provision”); and
The Attorney General may take “appropriate measures to encourage the private sector to end illegal discrimination and preferences” including by identifying “potential civil compliance investigations” to deter illegal DEI programs (the “Enforcement Provision”).
The Fourth Circuit’s order also clarifies that these Executive Orders only require the executive agencies that are enforcing these Executive Orders to enforce them consistent with current federal rules and law, which prevent the agencies impinging on protected speech rights. As a reminder, federal civil rights laws have not changed under the new administration (that would require an act of Congress or a court holding), so federal grantees and contractors that were complying with federal law in their programing prior to January 20 and 21, 2025 would still be in compliance with those laws today.
Notable for legal scholars, after the Fourth Circuit unanimously stayed the preliminary injunction, each judge offered a concurring opinion. Chief Judge Diaz reasoned that “how the administration enforces these executive orders … may well implicate cognizable First and Fifth Amendment concerns.” Judge Harris recognized the executive orders should only terminate funding as “subject to applicable legal limits,” only for “conduct that violates existing federal anti-discrimination law.” Judge Rushing stated that “the government is likely to succeed in demonstrating that [a narrow application of] the challenged provisions of the Executive Orders,” do not violate the First or Fifth Amendments.
Separately, Judge Rushing reasoned that a nationwide “scope of the preliminary injunction alone should raise red flags” as it “purported to enjoin nondefendants from taking action against nonplaintiffs.” It remains to be seen whether other Circuit Courts will take a similar stance.
What does this mean for institutions of higher education?
As shared in our prior client alert, institutions should review their policies or programs and confirm that their practices comply with existing federal discrimination law. Institutions should also review any federal agency requests for certification or changing terms and conditions related to their federal grants and contracts. Please continue to monitor developments and consult legal counsel with concerns related to compliance.
Minnesota Employment Legislative Update 2025, Part I: Breaking the Tie to Make the Law
After controlling Minnesota’s House, Senate, and governorship since 2023, the Minnesota Democratic–Farmer–Labor (DFL) Party’s legislative and gubernatorial “trifecta” at the state capitol is no more. The 2025 regular session of the Minnesota Legislature began with Democrats and Republicans tied at sixty-seven members each in the House and a slim DFL majority in the Senate, meaning no single party can push through its agenda alone.
With every vote carrying significant weight in the session, legislators must reach across the aisle to achieve the majority vote required to pass bills. The question is, who will compromise, and what will it take to break the tie?
Quick Hits
The Minnesota Legislature’s party divide creates uncertainty for employers, with amendments to key labor laws like Paid Family and Medical Leave and Earned Sick and Safe Time potentially facing delays or requiring bipartisan compromise.
Proposed amendments to Minnesota’s Earned Sick and Safe Time Law include delaying penalties for violations before January 1, 2026, making Earned Sick and Safe Time permissive, and changes to leave notice requirements and documentation for extended leave, but none have advanced past initial stages.
Various bills aim to modify or delay the Paid Family and Medical Leave Law, with some proposing exemptions for small employers and others seeking to repeal the law or delay its implementation until 2027.
This divide in the Minnesota Legislature means uncertainty for Minnesota employers. Critical issues, such as Minnesota’s Paid Family and Medical Leave and Earned Sick and Safe Time (ESST) laws, may either face delays or require bipartisan compromise to advance. Employers should stay alert until the end of the legislative session on May 19, 2025, as the legislature negotiates the future of Minnesota’s labor and employment laws.
This article previews key proposed bills that would impact employers if enacted. While it is too early to predict which bills will reach the governor’s desk, the nature of the proposed legislation offers insight into the extent of the legislative divide and the effort required by the legislature to pass any bills.
Minnesota Earned Sick and Safe Time
A handful of proposed bills would amend Minnesota’s ESST law, but none have advanced past their introduction and first reading. These bills sit in the Minnesota House of Representatives’ Workforce, Labor, and Economic Development Finance and Policy Committee and the Minnesota Senate’s Labor Committee, respectively.
House File (HF) 2025 / Senate File (SF) 2300 would create the most significant changes among the proposed bills. These companion bills, among other amendments, would:
exempt employers with fewer than fifteen employees from ESST requirements;
allow prorating ESST hours based on full-time or part-time employee status;
change employee notice for unforeseeable leave from “as soon as practicable” to “as reasonably required by the employer”;
allow employers to ask for documentation if ESST use exceeds two days;
remove certain paid time off (PTO) requirements; and
let employers ask employees to find replacements unless the leave is unforeseeable and permit employees to find replacements on their own.
Other proposed bills would exclude farm employees working for farms with five or fewer employees (HF 1057 / SF 310), Department of Transportation workers (HF 1905), and inmates of correctional facilities (SF 947) from certain requirements; exclude employees appointed to serve on boards or commissions from certain definitions (HF 758 / SF 494); and give employers the option to provide certain benefits (HF 1542 / SF 2572). HF 1325 / SF 2605 would prohibit penalties for violations before January 1, 2026, and provide various exemptions and proration options for small employers.
Paid Family and Medical Leave (Paid Leave)
Various proposed bills aim to change the Paid Leave Law, including potentially delaying its implementation for another year or repealing it altogether. Notably, HF 0011 / SF 2529 would delay the law’s implementation by one year, meaning employees would not receive benefits until January 1, 2027. Once it was sent to the House floor for debate and vote, the House laid HF0011 on the table. No further action will be taken until the House reconsiders the bill.
Other related bills to watch:
HF 1241 / SF 1771 and HF 1263 / SF 2277 would repeal the Paid Leave Law and return unspent money to the general fund.
HF 0260 / SF 1793 would exempt employers with twenty or fewer employees until January 1, 2028.
HF 2113 would exempt employers with fifty or fewer employees.
HF 2024 would exempt certain small employers; change the definition of a seasonal employee; allow private plans to provide shorter durations of leave and benefits under certain circumstances; and postpone benefits until January 1, 2027.
HF 1523 / SF 1849 would exempt certain agricultural workers.
HF 2269 would delay employer penalties for failure to notify employees of paid leave benefits until January 1, 2027.
HF 1976 / SF 2466 would exempt collective bargaining agreement employees from the definition of “covered employment” under certain conditions; remove individuals with personal relationships with employees from the definition of “Family Member”; change the definition of “small employer” to fifty or fewer employees; and require small employers to pay a 50 percent rate among other amendments.
Nondiscrimination
The legislature introduced numerous bills targeting nondiscrimination laws, which are summarized here.
HF 1672 / SF 2371 would expand nondiscrimination provisions to include medical cannabis patients.
HF 2182 / SF 200 would allow employers to justify adverse impact of discriminatory practices if related to the job or business purpose.
HF 0481 / SF 1529 would prohibit employment discrimination based on refusal of medical intervention.
HF 0282 / SF 407 would add political affiliation as a protected category under the Minnesota Human Rights Act. Similarly, SF 863 would prohibit employers from engaging in economic reprisals based on political contributions or activity.
HF 1427 / SF 1111 would require transportation network companies to make vehicles wheelchair-accessible and adopt nondiscrimination policies.
Independent Contractors
The legislature has taken up several bills related to independent contractors. Below is a summary of the key bills currently under consideration:
HF 1316 / SF 2306 would require employers to report newly hired independent contractors to the commissioner of children, youth, and families for child support purposes.
SF 2153 would expand “prohibited practices” to include “if an employer has a formal job classification and compensation plan, place an employee in a job classification or job category or provide a job title that misrepresents the employee’s experience or actual job duties and responsibilities.”
HF 2145 / SF 2361 woulddouble the potential penalty for employers that intentionally misrepresent an employee as an independent contractor in the unemployment insurance or paid family and medical leave programs.
Job Postings, Employment Agreements, and Unions
The legislature also introduced bills that would affect job posting requirements, employment agreements, and unions. Namely:
Job Postings
HF 1484 / SF 2235 would require job postings to disclose whether employee health plan options comply with cost-sharing limits.
Employment Agreements
HF 2567 / SF 2533 would prohibit stay-or-pay provisions as a condition of employment.
HF 1768 would provide more circumstances under which a covenant not to compete is valid and enforceable.
Unions
HF0107 / SF1532 would allow strikers who stop working due to a labor dispute to be eligible for unemployment benefits.
SF 1148 would allow applicants to be eligible for unemployment benefits if the employer hires a replacement worker for their position.
HF 2240 / SF 3050 would allow private employees to allocate their union dues to a local, state, or national organization of their choice.
Productively Pursuing and Maximizing Insurance Claims
Maximizing insurance claims starts with locating and notifying all potentially responsive coverages when facing a loss or claim. This article offers a 101 about what types of maritime-, transportation-, and shipping-related events insurance may cover and how to go about productively pursuing an insurance recovery when disaster strikes—even if your insurance company says “no.”
Two Overarching Types of Insurance
Without getting too far into the weeds of the many different types of insurance coverage available to policyholders, think about them as falling into one of these two broad buckets: (1) first-party insurance coverage, and (2) third-party insurance coverage.
First-party insurance describes coverages that respond to a policyholder’s losses, which do not involve any claim asserted against the policyholder (e.g., you, your business, your employer). First-party property policies such as marine property insurance and bumbershoot property insurance, for example, typically insure against loss of, or damage to, the policyholder’s property (e.g., structures, terminals (including piers, breasting dolphins, storage tanks, etc.), electronic equipment), as well as coverage for lost business revenue. These first-party property policies frequently are “all risk” policies, meaning they cover the policyholder’s losses unless caused by an expressly excluded peril that the insurer can prove (e.g., ordinary wear and tear). Property policies often include business interruption coverage and coverage for inventory or goods lost or damaged in transit. Other types of first-party policies relevant to the maritime industry include:
Inland Marine Insurance that protects movable business property for policyholders that aren’t on the seas, including trucking and construction companies, property developers, and contractors, for example;
Marine Hull and Machinery Insurance that protects from physical damage to ships, vessels, and their machinery on the water, at the dock, and under construction for most sizes of commercial vessels including tugs, barges, dredges, and passenger vessels;
Marine Cargo Insurance that protects goods while in transit, across various modes of transportation, and while in storage; and
Political Risk Insurance that protects against losses caused by “political” events in a foreign country.
Third-party insurance coverage sometimes is called liability insurance. That’s because it includes policies that provide insurance for the policyholder’s liability to third parties alleging damages. Perhaps the most well-known form of third-party insurance for policyholders in the maritime industry is maritime general liability insurance (and excess bumbershoot liability insurance), which provides broad coverage for allegations asserted against the policyholder for bodily injury, property damage, and product and completed operation for marine risks. Other types of potentially relevant third-party policies include:
Cargo Owner’s Liability Insurance to protect against the risks for property damage, bodily injury to third parties, and as a result of pollution from a cargo event in ocean transit;
Shipowners’ Liability (“SOL”) Insurance for a shipowner’s exposure arising from an alleged breach of a contract of carriage and certain liabilities that fall outside of the Protection and Indemnity (“P&I”) Club’s standard P&I rules;
Directors and Officers (“D&O”) Insurance that protects companies and their corporate officers and directors against claims alleging wrongful acts and may cover legal fees for responding to subpoenas and search warrants; and
Pollution Liability Insurance to supplement or bolster pollution coverage that may exist in other marine liability (and property) insurance; some policyholders have standalone pollution liability insurance to broadly cover allegations of property damage from an actual or threatened pollution incident (spill) including fines, penalties, criminal defense, and more.
A single event can implicate several types of coverage found in multiple different insurance policies. For example, a vessel colliding with a terminal may involve loss to:
the terminal’s structures and equipment covered by a marine property insurance policy;
the terminal owner’s profits covered by business interruption insurance (and other time element coverages);
claims by third parties (adjacent property owners or the government, for example) alleging property damage from pollutants released from the vessel or terminal’s structures that are covered by marine general liability insurance and pollution liability insurance;
claims by shareholders alleging malfeasance in allowing the collision to happen (depending on which entity was responsible for the tugs, for example) that are covered by D&O insurance; and
this does not begin to untangle the myriad insurance implications when analyzing claims against the vessel and potential subrogation claims.
It’s important to look for responsive coverage from a company’s entire insurance portfolio when facing a loss or claim.
Three Things to Keep in Mind When Pursuing Insurance
Many policyholders don’t productively or efficiently pursue all of the insurance that is provided by their insurance policies. Here are three considerations when filing claims:
Be prompt. One of the most important first steps in pursuing insurance is to make sure that notice of a loss, claim, or occurrence is prompt and otherwise meets the requirements of the insurance policy.
Be thorough. It is important to look at all potentially responsive coverages that may be located in several different insurance policies with varying notice provisions. The general rule is that notices should be given under all possible policies that might be triggered—regardless of type, year, or layer. The old adage “better safe than sorry” never rings more true than when it comes to a company giving notice to its insurers.
Be diligent. As already stressed, the notice provisions in insurance policies also may specify how, and in what form, notice should be given. The policies typically identify to whom notice should be addressed, and request a statement regarding all the particulars of the underlying claims.
After a loss or claim has occurred, the policyholder should present its claim to the insurer in a way that will maximize coverage. Many legal issues, such as trigger of coverage, number of occurrences, and allocation, can significantly affect the existence or amount of an insurance recovery. Moreover, certain causes of loss or liability may be excluded from coverage, while others are not. These are complex issues that vary by state law and require a high level of legal sophistication to be understood and applied to the facts of a particular case.
The insurer may respond to its policyholder’s notice letter with a request for information. Such requests may seek to have the policyholder characterize its claim in a way that will limit coverage. Before the policyholder engages in any such communications with its insurance company, the policyholder should know what legal issues are likely to arise, and how best to describe its claim to maximize coverage.
It’s important to get the little things right from the beginning to avoid being blindsided and enhance the likelihood of succeeding at the finish line.
Understanding the U.S. Embassy Paris Certification Requirement
Last week, the U.S. Embassy in Paris issued a letter and certification form to multiple French companies requiring companies that serve the U.S. Government to certify their compliance with U.S. federal anti-discrimination laws. This certification request was issued in furtherance of President Trump’s Executive Order 14173 on Ending illegal Discrimination and Restoring Merit-Based Opportunities, issued on January 21, 2025. This Order addresses programs promoting Diversity, Equity and Inclusion (DEI) and requires that government contractors’ employment, procurement and contracting practices not consider race, color, sex, sexual preference, religion or national origin in ways that violate the United States’ civil rights laws.
Certification Contents
The certification requires U.S. Government contractors to certify that they comply with all applicable U.S. federal anti-discrimination laws and do promote DEI in violation of applicable U.S. federal anti-discrimination laws.
While the letter was issued by the U.S. Embassy in Paris and is arguably limited to contractors serving that embassy, the requirement under the Executive Order extends to all contractors doing business with any U.S. Government agency.
Any company submitting the certification with knowledge that it is false will be deemed to have violated the U.S. False Claims Act, which imposes liability on individuals and companies who defraud governmental programs.
Implications for French Companies
This letter raises questions about the extraterritorial application of U.S. laws to foreign companies and their reach. In particular, while the Executive Order clearly applies to companies (irrespective of nationality) that directly supply or provide services to the U.S. Government, it is unclear whether, for example, the French parent of a U.S. subsidiary providing services to the U.S. Government would be subject to the certification.
The issue is complicated by the fact that French law in some ways conflicts with the provisions of the Executive Order – for instance, requiring that mid-sized and large companies have a minimum percentage of women sitting on their boards.
Neither the Executive Order nor the documents mention any exemptions or carve-outs for suppliers and service providers.
Conclusion
The U.S. Embassy’s certification requirement underscores the current complexities faced by international businesses in dealing with the U.S. Government. French companies should consider carefully assessing their DEI programs and overall compliance with U.S. federal laws while continuing to adhere to their own legal obligations, striking a careful balance as best they can.
FAR on the Chopping Block: Potential Impacts on Protests
As those in the federal contracting community wait anxiously for rumored and hinted at changes to the Federal Acquisition Regulation (“FAR”), we are beginning to evaluate how certain of those changes might most impact our clients. In the first of a series engaging in some mild—or wild, depending on your outlook—speculation about these potential changes, we take a look at how the removal of certain FAR requirements might impact bid protests.
One of the cardinal rules of bid protests is that protests not alleging solicitation improprieties must be filed no later than 10 days after the basis of protest is known or should have been known. 4 C.F.R. § 21.2(b). There is a key exception, however—for procurements under which a debriefing is requested. If requested, a debriefing is required, and the initial protest cannot be filed before the debriefing date offered and must be filed no later than 10 days after the debriefing concludes. In other words, a protester’s timeliness clock does not start ticking until the debriefing concludes.
But what does it mean for a debriefing to be “required,” and does that requirement stem primarily or exclusively from the FAR or from statute? Our understanding is that the FAR re-write currently underway is intended to eliminate non-statutory FAR requirements, which means identifying a statutory basis for FAR clauses will be key to understanding the potential scope of any pending revisions. FAR 15.506 is perhaps the most commonly cited provision creating a “requirement” for agencies to offer debriefings in certain circumstances, but the requirement for a post-award debriefing in certain circumstances is actually established by 41 U.S.C. § 3704, which provides:
When a contract is awarded by the head of an executive agency on the basis of competitive proposals, an unsuccessful offeror, on written request received by the agency within 3 days after the date on which the unsuccessful offeror receives the notification of the contract award, shall be debriefed and furnished the basis for the selection decision and contract award.
Given their statutory origin, debriefings should continue even if removed from the FAR, meaning the Government Accountability Office (“GAO”) protest deadlines would likely remain unchanged for standalone contracts.
Notably, though, 41 U.S.C. § 3704 applies only to contracts. While FAR 16.505 extends the debriefing requirements of FAR 15.506 to procurements for orders under multiple award contracts where the value of the order exceeds six million dollars, there is no statutory requirement to provide debriefings for task order procurements, regardless of their size. Accordingly, if both FAR 15.506 and 16.505 were removed, protests of task orders would have to be filed no later than 10 days from when the basis of protests was known or should have been known, while protests for standalone contracts under FAR Part 15 would continue to be governed by the debriefing-triggered timeliness requirements.
GAO has repeatedly held that only a “procurement statute or regulation” can make a debriefing “required”; agency policy is insufficient. As a result, only Congress would be able to remedy the dichotomy between timeliness triggers for contracts and task orders created by the removal of FAR 16.505, unless the administration changed course on the regulation.
This dichotomy would also extend to the contents of debriefings, at least for civilian agencies. While FAR 15.506’s minimum requirements for the contents of debriefings mirror those outlined in 41 U.S.C. § 3704, FAR 16.505 has no statutory impetus. Accordingly, agencies would not be required to provide any information to offerors after award of a task order. It is unclear if the FAR rewrite project will extend to agency supplements, including the Defense Federal Acquisition Regulation Supplement (“DFARS”), but it’s worth noting that the enhanced debriefing procedures outlined in the DFARS were statutorily mandated by the 2018 National Defense Authorization Act and therefore may be required even if cut from the DFARS.
If—again, hypothetically—Section 16.505 was removed from the FAR, there could be a drastic reduction in the number of task order-related protests or in their likelihood of succeeding. Under the Federal Acquisition Streamlining Act (“FASA”), the Court of Federal Claims (“COFC”) lacks jurisdiction to hear protests challenging the issuance or award of a task order. And unlike at COFC, protesters at GAO are not entitled to the full evaluation record in response to their protest. Rather, GAO will require the production of documents related only to the specific protest grounds filed. Without a debriefing, task order protesters may struggle to identify sufficient bases of protest to receive portions of the record that reveal errors. This could reduce their likelihood of success and generally discourage task order protests.
Of course, debriefings aren’t the only things on the chopping block for FAR 2.0. Agency-level protests could disappear entirely. While GAO and COFC each have jurisdiction established by statute, agency protests have no such basis. The agency-level protest process was established by FAR 33.103 in a response to Executive Order 12979 issued by President Clinton in 1995. If FAR 33.103 did not survive into the next iteration of the regulations, protesters would have no option to raise their challenges with the procuring agency. Although agency protests may be at risk, GAO is both statutorily mandated and has its governing regulations located in a different section of the Code of Federal Regulations from the FAR—which would likely spare it from significant shakeup.
Navigating Emission Control Areas: Operational, Legal, and U.S. Enforcement Risks of MARPOL Annex VI’s Low Sulphur Fuel Requirements
The North American Emissions Control Area (“ECA”), which has been in force well over a decade, is one of four existing ECAs around the world. Effective May 1, 2025, the Mediterranean Sea ECA will become the fifth. In March 2026, pursuant to MARPOL Annex VI, Regulation 13, the Canadian Arctic and Norwegian Sea will also be designated as ECAs, increasing the global total to seven. These two ECAs will become enforceable on March 1, 2027. In addition to these ECAs, other port States around the world have separately implemented domestic emissions control regulations in their territorial seas, with China being a prominent example.
The establishment of these new ECAs and similar emissions control regimes throughout the world will result in an increasing number of vessels crossing ECA boundaries—sometimes multiple times on a single voyage—and on a more frequent basis. The use of different fuel types has in more and more cases led to operational and safety challenges, which has inevitably translated into heightened legal and enforcement risks. Given this expansion of ECAs worldwide, and the growing patchwork of other related port State emissions requirements, it is more important than ever to revisit the various legal and operational risks that have emerged over time, particularly those in the United States, to ensure compliance and mitigate potential risks.
Background
Among other requirements, vessels subject to the International Convention for the Prevention of Pollution from Ships (“MARPOL”) must comply with low sulphur requirements set forth in Regulation 14 of Annex VI. These requirements mandate that ships use fuel with a sulphur content of no more than 0.5 percent when operating outside an ECA, and no more than 0.1 percent when operating inside an ECA. Alternatively, ships can install approved exhaust gas cleaning systems (“EGCS” or “scrubbers”) to meet these standards. EGCS remove sulphur from engine exhaust, achieving an equivalent reduction in sulphur emissions as required by the regulations.
Fuel Switching While Underway
Some estimates suggest approximately 10-15 percent of existing vessels subject to MARPOL are equipped with scrubbers, though that percentage is rising as many newbuild orders include installation of these systems.
Vessels not fitted with scrubbers may not carry onboard high sulphur fuel oil or other bunkers with a sulphur content exceeding the global cap of 0.5 percent. If a vessel transits through an ECA, it must consume ultra-low sulphur fuel oil, marine gas oil, or other fuel with a sulphur content no more than 0.1 percent. Vessels equipped with scrubbers may consume any combination of fuels, so long as the EGCS is fully operational and reduces the sulphur content to a level at or below applicable limits.
Whether or not a vessel is fitted with scrubbers, fuel oil changeover procedures are required by MARPOL Annex VI for vessels entering an ECA. The fuel oil changeover procedure must allow sufficient time for the fuel oil service system to be fully purged of all fuel oil exceeding the applicable sulphur limit before entering an ECA. Outside of ECAs, most ships that do not have scrubbers fitted primarily operate on very low sulphur fuel oil to meet the 0.50 percent global sulphur requirement. Upon approaching a designated ECA, such vessels undergo fuel switching to meet the more stringent emission requirements within the ECA of 0.1 percent sulphur content. Upon leaving the ECA, this process is essentially reversed.
Vessels fitted with scrubbers must also comply with local port State discharge prohibitions or other requirements for scrubber washwater, such as the U.S. Environmental Protection Agency’s Vessel General Permit or other state discharge regulations in the United States, such as California, where the use of scrubbers is not permitted.
Operational Risks—ECA Transits
The process of switching from higher sulphur fuels to lower sulphur fuels, and vice versa, must be undertaken with meticulous attention to detail by crew, following clear, standardized procedures to avoid operational failures.
Fuel changeovers, while necessary for regulatory compliance, pose safety considerations. The process typically involves a series of operations, including adjusting fuel systems, purging lines, and ensuring compatibility between the fuels. These challenges are well known, including the potential for fuel contamination, failure to properly control the temperature and viscosity of the marine fuel during transition, potential EGCS malfunction, and human error, among others. Experience has shown that these challenges can, under some circumstances, lead to loss of propulsion, loss of electrical power, engine damage, and other operational disruptions and mishaps.
Legal Risks Under U.S. Law—Reporting and Compliance
When these challenges materialize into operational disruptions or other incidents, this inevitably triggers a variety of potential reporting requirements, particularly in the United States, and the attendant significant legal risks of not reporting when required by law to do so. In addition, any non-compliance with low sulphur fuel standards—and failure to maintain accurate records in connection with these and related emissions requirements—can also result in civil or criminal penalties under applicable U.S. law.
Key reporting requirements for owners and operators of vessels, and their crews, when calling on U.S. ports include:
Marine Casualty Reporting: Depending on the facts and circumstances, failure of or damage to ship’s equipment, loss of propulsion, loss of electrical power, or other similar occurrence associated with fuel changeovers and ECA compliance may be considered a reportable “marine casualty” under 46 CFR § 4.05-1.
Hazardous Condition Reporting: Apart from the marine casualty reporting requirement, depending on the facts and circumstances, such incidents and occurrences could also potentially be considered a reportable “hazardous condition” under the Ports and Waterways Safety Act (“PWSA”). A “hazardous condition” is defined in 33 CFR § 160.2020 as “any condition that may adversely affect the safety of any vessel, bridge, structure, or shore area or the environmental quality of any port, harbor, or navigable waterway of the United States. It may, but need not, involve collision, allision, fire, explosion, grounding, leaking, damage, injury or illness of a person aboard, or manning-shortage.”
Determining whether a particular incident qualifies as a reportable “marine casualty” and/or “hazardous condition” under U.S. law is a fact-specific determination. This evaluation is influenced by the nature and severity of the incident, its location, the conditions, the circumstances surrounding it, and various other relevant factors. The U.S. Coast Guard issued guidance on marine casualty and other reporting requirements in Navigation and Vessel Inspection Circular 01-15. Since these reports must generally be made “immediately,” it is often prudent to report the incident right away, along with any necessary response actions being undertaken by the vessel to address the situation. Penalties can be significant for failure to report in a timely manner.
Failure to report a “marine casualty” can result in civil penalties for both individuals and corporate vessel owners and operators. Failure to report a “hazardous condition” under PWSA regulations can result in both civil and criminal penalties.
Submitting a prompt written or verbal report to the U.S. Coast Guard when an occurrence happens typically fulfills both regulatory requirements. In the event of a reportable “marine casualty,” the regulation also mandates the submission of CG Form 2692 within five days. This form serves as the method to report to the U.S. Coast Guard the specifics of what occurred.
Conclusion
The implementation of the Mediterranean Sea ECA and the upcoming designations of the Canadian Arctic and Norwegian Sea as ECAs underscore the continued global commitment to reducing vessel emissions. However, using low sulphur fuels in ECAs may present operational challenges, safety concerns, and legal risks, especially in the United States. As the decarbonization of shipping evolves, the use of alternative fuels and changes to vessel design may exacerbate these risks over time.
To mitigate legal and enforcement risks, vessel owners and operators should review their Safety Management Systems and operational procedures to ensure they align well with U.S. reporting and other regulatory requirements and policies cited above.
FedRAMP 20x – Major Overhaul Announced to Streamline the Security Authorization Process for Government Cloud Offerings
On March 24, 2025, the Federal Risk and Authorization Management Program (“FedRAMP”) announced a major overhaul of the program, which is being called “FedRAMP 20x.” The FedRAMP 20x announcement stated there are no immediate changes to the existing authorization path based on agency sponsorship and assessment against the FedRAMP Rev 5 baseline.[1] However, once the initiative kicks off, we expect major changes to speed up and streamline that authorization path that likely will be welcomed by industry partners and cloud service providers participating in the program. Below are key points based on the recent FedRAMP 20x announcement.
The primary goals of the FedRAMP 20x initiative include:
Seeking to implement the use of automated validation for 80% of FedRAMP requirements, which would leave about 20% of narrative as opposed to the current 100% narrative explanations required in the document submission package.
Leaning on industry partners to provide continuous simple standardized machine-readable validation of continuous monitoring decisions.
Fostering trust between industry and federal agencies to promote direct relationships between cloud service providers and customers. Note, this appears to indicate that the FedRAMP Program Management Office (“PMO”) will have a much smaller role moving forward with respect to the authorization process and assessments.
Replacing annual assessments with simple automated checks.
Replacing the significant change process with an approved business process that will not require additional oversight to be developed in collaboration with industry.
FedRAMP 20x is an initiative that will be implemented in phases. The timeline for Phase 1 has not been announced but, once it is open, Phase 1 seeks to streamline the authorization process for eligible participants and authorized cloud service offerings in weeks rather than months. Phase 1 will focus on Software-as-a-Service offerings with the following characteristics:
Deployed on an existing FedRAMP Authorized cloud service offering using entirely or primarily cloud-native services;
Minimal or no third party cloud interconnections with all services handling federal information FedRAMP Authorized;
Service is provided only via the web (browser and/or APIs);
Offering supports a few standard customer configured features needed by federal agencies (or the cloud provider willing to build that capability quickly); and
Existing adoption of commercial security frameworks are a plus (SOC 2, ISO 27000, CIS Controls, HITRUST, etc.).
The practical implications of Phase 1 appear to be positive. Cloud service providers will be able to submit fewer pages for authorization submissions (i.e., less narrative, and more standard configuration choices for documentation). The documentation required for Phase 1 includes (1) documentation of security controls implemented by the cloud service provider and (2) materials demonstrating the cloud service provider’s existing commercial security framework to the extent it overlaps with FedRAMP requirements (e.g., a Security & Privacy Policy). There will be an automated validation component for Phase 1 authorizations, which may involve making configuration changes as needed to meet certain security controls. Following the assessment process, the cloud service offering will receive a score related to Confidentiality, Integrity, and Availability of federal information, and federal agencies will review this information to make risk assessments prior to adoption. Lastly, there will be changes to continuous monitoring with the replacement of annual assessments with simple automated checks and a new significant change process that will not require additional oversight.
Overall, with less documentation and narrative explanation, a more automated process with quicker authorization timelines, and less burdensome continuous monitoring activities due to enhancements through automation, the goal of FedRAMP 20x changes is to establish more efficient authorization and continuous monitoring processes. This should make it easier for cloud providers to sell their offerings to the government. Industry participation is a major focus of the new initiative. There are community engagement groups planning to begin meeting immediately and there will be opportunities for public comment as new ideas and documentation are rolled out. The community group meetings are focused on four topics: (1) Rev 5 Continuous Monitoring, (2) Automating Assessments, (3) Applying Existing Frameworks, and (4) Continuous Reporting. For those in this space, it will be important to participate to ensure industry partners are involved in shaping the program. The schedule for the meetings can be found here.
FOOTNOTES
[1] The FedRAMP Rev. 5 baseline aligns with National Institutes of Standards and Technology (“NIST”) Special Publication (“SP”) 800-53, Security and Privacy Controls for Federal Information Systems and Organizations, Revision 5.
VHA and DLA Enter Into Another Interagency Agreement: Déjà Vu All Over Again?
In March 2025, the Defense Logistics Agency (“DLA”) and the Veterans Health Administration (“VHA”) entered into another interagency agreement. The agencies announced that the purpose of the 10-year, $3.6 billion agreement is to align supply chain requirements and centralize logistical support DLA will provide to all VHA healthcare facilities nationwide.
The 2025 agreement follows three DLA and VHA interagency agreements entered into between 2018 and 2020. In 2018, DLA and VHA entered into an agreement under which VHA began transitioning its medical supplies purchasing to DLA’s Electronic Catalog (“ECAT”). In 2019, the agencies entered into another interagency agreement which allowed VHA to access medical and surgical items by leveraging the DLA supply chain and provided for creating a centralized ordering system, rather than using the separate VHA and DLA systems.
In December 2020, the agencies expanded their 2019 agreement. The 2020 agreement created a strategic partnership allowing VHA to pilot adoption of the DLA Defense Medical Logistics Standard Support (“DMLSS”) inventory management system. DMLSS serves as the primary system for DLA’s Medical Surgical Prime Vendor (“MSPV”) program. In 2021, the agencies announced plans to merge their MSPV programs. The plan was for the VA MSPV program to wind down and transition to the DLA MSPV program by September 2023. However, the merger was scuttled because of a bid protest filed at the U.S. Court of Federal Claims.
Companies selling medical and surgical supplies to the federal government might wonder whether the March 2025 agreement is nothing more than another interagency agreement between DLA and VHA extending their partnership. Alternatively, because we currently are living in a Department of Government Efficiency (“DOGE”) government contracts streamlining environment, the March 2025 agreement could mean DLA and VHA are getting ready to take another run at consolidating their MSPV programs.