Government Contracts Maritime Military – Page 7

Tariff-Driven Cost Increases: Can Federal Contractors Recover Through REAs?

Introduction
Federal government contractors operating in today’s volatile global trade environment are no strangers to sudden and sometimes dramatic shifts in material costs. With tariffs periodically imposed or adjusted by executive action, contractors frequently find themselves grappling with unexpected increases in the cost of steel, aluminum, electronics, and other imported goods. A natural question arises: Can contractors recover these increased costs under a Request for Equitable Adjustment (REA)?
This post explores the legal framework for seeking recovery of tariff-related cost increases through REAs.

Understanding the REA Mechanism
An REA is a request by a contractor to increase the contract price, extend the performance period, or both, due to a change in the contract’s terms or circumstances that increases the cost or time of performance. REAs are generally based on:

Government-directed changes (express or constructive),
Differing site conditions,
Suspension of work, and/or
Delays not caused by the contractor.

While REAs are typically associated with physical or logistical changes, economic shifts like tariff increases may also justify an adjustment — if the underlying contract and circumstances support it.

The Tariff Challenge: Is It a “Change”?
Tariff increases pose a unique challenge. They are typically imposed by the U.S. government —often after a contract has been awarded — and they raise the cost of imported materials. But unless a contractor can tie these cost increases to a government-directed change or a clause in the contract that allocates risk, recovery may be difficult.
This is where FAR 52.229-3 and FAR 52.229-6 enter the conversation.

FAR 52.229-3: Federal, State and Local Taxes
FAR 52.229-3 addresses how taxes imposed after contract award are treated. The key language provides that: “The contract price includes all applicable Federal, State, and local taxes and duties.”
However, if after the contract is awarded, the contractor becomes liable for an increase (or receives a reduction) in a federal excise tax or duty “which was not otherwise anticipated,” the contract price may be adjusted accordingly.
This clause potentially provides a path for recovery when tariffs (which are essentially federal duties) are imposed or increased after the contract award date.
To recover under FAR 52.229-3, the contractor generally must show that:

The tariff was not in effect or anticipated at the time of award;
The tariff is a federal duty or tax covered by the clause;
The tariff directly increased the contractor’s cost of performance;
The contractor timely notifies the contracting officer of the change; and
The contractor can substantiate the increased costs attributable to the tariff.

FAR 52.229-6: Taxes – Foreign Fixed-Price Contracts
Another relevant clause in this context is FAR 52.229-6, which addresses foreign taxes and duties. This clause can potentially offer a path to recovery for tariffs imposed by a foreign government, in certain international contract settings, or where foreign supply chains are impacted.
Under FAR 52.229-6(c), if the contractor is required to pay or bear the burden of any “new or increased taxes or duties,” and those costs are due to changes in applicable laws or regulations of a foreign jurisdiction after the contract date, the contractor may be entitled to an equitable adjustment in the contract price.
Here’s what contractors need to show to trigger relief under FAR 52.229-6:

The tariff qualifies as a “duty” or similar charge imposed by a foreign government (or potentially, in some interpretations, by the U.S. when operating abroad).
The tariff was imposed or increased after the contract was awarded.
The contractor notified the contracting officer promptly, as required under the clause.
The additional costs are allocable and reasonable, and directly traceable to the tariff.

While FAR 52.229-6 may have limited application to purely domestic contracts, it remains highly relevant for contracts involving foreign performance or procurement, and those with heavy foreign supply chains, particularly those impacted by shifting international trade policy.
Timing and Notice Are Critical
FAR 52.229-3 includes a notice requirement. The contractor must notify the contracting officer promptly after becoming aware of the change in duty or tax. Failing to do so could waive the right to an adjustment. Ideally, notice should be provided within 30 days.

Proving the Cost Impact
To prevail on an REA based on the FAR or a constructive change theory, contractors should:

Maintain detailed cost records;
Segregate tariff-related cost increases from other pricing components;
Show that the tariff was not foreseeable at the time of the contract award; and
Demonstrate that the contractor took reasonable steps to mitigate the impact.

Other Potential Theories of Recovery
Besides FAR 52.229-3 and FAR 52.229-6, contractors may explore:

Constructive change – If the government required compliance with a specification or sourcing decision that made tariffs unavoidable.
Economic price adjustment clause (FAR 52.216-4) – Under this clause, a contractor may use an REA to recover increased costs if those costs are tied directly to the escalation of prices outlined in the clauseand meet the procedural requirements.
Changes clause (FAR 52.243-1/-4/-5) – If the contract’s scope or specifications changed, resulting in exposure to tariffs.
Commercial impracticability or force majeure – These are less commonly successful but may be considered in extreme cases.

Key Takeaways

Tariff-related cost increases may be recoverable under an REA, but success depends heavily on contract terms and timing.
FAR 52.229-3 and FAR 52.229-6 offer a path for recovery where post-award tariffs increase the cost of imported goods.
Prompt notice and clear documentation are essential.
Contractors should evaluate their supply chains during bidding and consider including tariff-related risk in pricing or negotiating tailored clauses.

Conclusion
While not all tariff-driven cost increases are compensable, federal contractors should not assume they must absorb these costs without recourse. Understanding the interplay between REAs, the FAR, and changes in federal and international duties is essential to preserving rights and maintaining profitability in uncertain times.
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Closing Time: Hell, High Water, and Insights from the Delaware Chancery Court Decision in Desktop Metal v. Nano Dimension

Cross-border M&A deals frequently present unique issues and strategic closing considerations for transaction parties to navigate—including national security approvals. In a recent Delaware Chancery Court decision, these issues intersected when the court was forced to weigh national security-related approval conditions imposed by the Committee on Foreign Investment in the United States (“CFIUS”) against the buyer’s stringent contractual closing obligations.
On July 2, 2024, Nano Dimension, an Israeli company, agreed to acquire Desktop Metal, a U.S. company that makes industrial-use 3D printers which produce specialized parts for missile defense and nuclear-related applications. Unsurprisingly, closing the acquisition was contingent upon receiving CFIUS approval due to the sensitive nature of Desktop Metal’s operations. At the conclusion of its review period, CFIUS required Nano Dimension to enter into a national security agreement (“NSA”) outlining several post-closing operational restrictions imposed upon the parties, which Nano Dimension refused to accept as a result of new leadership that opposed the acquisition. Desktop Metal subsequently filed suit to force Nano Dimension to enter into the NSA to obtain CFIUS approval and consummate the acquisition, which the court granted.
Key Findings and Takeaways:

Hell-or-High-Water Provision: A pivotal aspect of the court’s decision was the interpretation of a “hell-or-high-water” clause in the transaction merger agreement. This clause required Nano Dimension to undertake all necessary actions—including agreeing to several enumerated conditions typically requested by CFIUS—to secure approval, subject to limited exceptions (i.e., a condition that would require Nano to relinquish control of 10% or more of its business). The court found that Nano Dimension breached this obligation through both its negotiating posture with CFIUS in relation to the NSA and by delaying the CFIUS approval process.
CFIUS Approval Strategy: Desktop Metal’s operations in critical technology sectors resulted in a complicated CFIUS approval process. The ruling emphasized that transaction parties should be aware of the potential for CFIUS to rely on NSAs impacting post-closing operations to address potential national security risks associated with foreign control.
Contractual Clarity Around CFIUS Obligations: The court’s decision illustrates the importance of clear contractual language detailing the relative obligations of the parties to obtain CFIUS approvals. We recommend that transaction parties carefully consider the implications of CFIUS approval language included in transaction documents:

For example, agreements should clearly delineate what conditions would be considered reasonable mitigation conditions that a potential buyer must accept (e.g., data security practices and auditing mechanisms) and those conditions that would not trigger an obligation to close (e.g., divestment of certain business lines or the use of proxy boards).
The use of clear language outlining stakeholder alignment, permissible negotiation strategies and timing considerations with respect to CFIUS approval also contribute to the likelihood of a better outcome with CFIUS.

The Nano Dimension and Desktop Metal ruling serves as a crucial reminder of the complexities involved in cross-border mergers subject to CFIUS approval and provides valuable insights for practitioners and transaction parties navigating the CFIUS process.

Contract Law in the Age of Agentic AI: Who’s Really Clicking “Accept”?

In May 2024, we released Part I of this series, in which we discussed agentic AI as an emerging technology enabling a new generation of AI-based hardware devices and software tools that can take actions on behalf of users. It turned out we were early – very early – to the discussion, with several months elapsing before agentic AI became as widely known and discussed as it is today. In this Part II, we return to the topic to explore legal issues concerning user liability for agentic AI-assisted transactions and open questions about existing legal frameworks’ applicability to the new generation of AI-assisted transactions.
Background: Snapshot of the Current State of “Agents”[1]
“Intelligent” electronic assistants are not new—the original generation, such as Amazon’s Alexa, have been offering narrow capabilities for specific tasks for more than a decade. However, as OpenAI’s CEO Sam Altman commented in May 2024, an advanced AI assistant or “super-competent colleague” could be the killer app of the future. Later, Altman noted during a Reddit AMA session: “We will have better and better models. But I think the thing that will feel like the next giant breakthrough will be agents.” A McKinsey report on AI agents echoes this sentiment: “The technology is moving from thought to action.” Agentic AI represents not only a technological evolution, but also a potential means to further spread (and monetize) AI technology beyond its current uses by consumers and businesses. Major AI developers and others have already embraced this shift, announcing initiatives in the agentic AI space. For example:

Anthropic announced an updated frontier AI model in public beta capable of interacting with and using computers like human users;
Google unveiled Gemini 2.0, its new AI model for the agentic era, alongside Project Mariner, a prototype leveraging Gemini 2.0 to perform tasks via an experimental Chrome browser extension (while keeping a “human in the loop”);
OpenAI launched a “research preview” of Operator, an AI tool that can interface with computers on users’ behalf, and launched beta feature “Tasks” in ChatGPT to facilitate ongoing or future task management beyond merely responding to real time prompts;
LexisNexis announced the availability of “Protégé,” a personalized AI assistant with agentic AI capabilities;
Perplexity recently rolled out “Shop Like a Pro,” an AI-powered shopping recommendation and buying feature that allows Perplexity Pro users to research products and, for those merchants whose sites are integrated with the tool, purchase items directly on Perplexity; and
Amazon announced Alexa+, a new generation of Alexa that has agentic capabilities, including enabling Alexa to navigate the internet and execute tasks, as well as Amazon Nova Act, an AI model designed to perform actions within a web browser.

Beyond these examples, other startups and established tech companies are also developing AI “agents” in this country and overseas (including the invite-only release of Manus AI by Butterfly Effect, an AI developer in China). As a recent Microsoft piece speculates, the generative AI future may involve a “new ecosystem or marketplace of agents,” akin to the current smartphone app ecosystem. Although early agentic AI device releases have received mixed reviews and seem to still have much unrealized potential, they demonstrate the capability of such devices to execute multistep actions in response to natural language instructions.
Like prior technological revolutions—personal computers in the 1980s, e-commerce in the 1990s and smartphones in the 2000s—the emergence of agentic AI technology challenges existing legal frameworks. Let’s take a look at some of those issues – starting with basic questions about contract law.
Note: This discussion addresses general legal issues with respect to hypothetical agentic AI devices or software tools/apps that have significant autonomy. The examples provided are illustrative and do not reflect any specific AI tool’s capabilities.
Automated Transactions and Electronic Agents
Electronic Signatures Statutory Law Overview
A foundational legal question is whether transactions initiated and executed by an AI tool on behalf of a user are enforceable. Despite the newness of agentic AI, the legal underpinnings of electronic transactions are well-established. The Uniform Electronic Transactions Act (“UETA”), which has been adopted by every state and the District of Columbia (except New York, as noted below), the federal E-SIGN Act, and the Uniform Commercial Code (“UCC”), serve as the legal framework for the use of electronic signatures and records, ensuring their validity and enforceability in interstate commerce. The fundamental provisions of UETA are Sections 7(a)-(b), which provide: “(a) A record or signature may not be denied legal effect or enforceability solely because it is in electronic form; (b) A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation.”
UETA is technology-neutral and “applies only to transactions between parties each of which has agreed to conduct transactions by electronic means” (allowing the parties to choose the technology they desire). In the typical e-commerce transaction, a human user selects products or services for purchase and proceeds to checkout, which culminates in the user clicking “I Agree” or “Purchase.” This click—while not a “signature” in the traditional sense of the word—may be effective as an electronic signature, affirming the user’s agreement to the transaction and to any accompanying terms, assuming the requisite contractual principles of notice and assent have been met.
At the federal level, the E-SIGN Act (15 U.S.C. §§ 7001-7031) (“E-SIGN”) establishes the same basic tenets regarding electronic signatures in interstate commerce and contains a reverse preemption provision, generally allowing states that have passed UETA to have UETA take precedence over E-SIGN. If a state does not adopt UETA but enacts another law regarding electronic signatures, its alternative law will preempt E-SIGN only if the alternative law specifies procedures or requirements consistent with E-SIGN, among other things.
However, while UETA has been adopted by 49 states and the District of Columbia, it has not been enacted in New York. Instead, New York has its own electronic signature law, the Electronic Signature Records Act (“ESRA”) (N.Y. State Tech. Law § 301 et seq.). ESRA generally provides that “An electronic record shall have the same force and effect as those records not produced by electronic means.” According to New York’s Office of Information Technology Services, which oversees ESRA, “the definition of ‘electronic signature’ in ESRA § 302(3) conforms to the definition found in the E-SIGN Act.” Thus, as one New York state appellate court stated, “E-SIGN’s requirement that an electronically memorialized and subscribed contract be given the same legal effect as a contract memorialized and subscribed on paper…is part of New York law, whether or not the transaction at issue is a matter ‘in or affecting interstate or foreign commerce.’”[2]
Given US states’ wide adoption of UETA model statute, with minor variations, this post will principally rely on its provisions in analyzing certain contractual questions with respect to AI agents, particularly given that E-SIGN and UETA work toward similar aims in establishing the legal validity of electronic signatures and records and because E-SIGN expressly permits states to supersede the federal act by enacting UETA. As for New York’s ESRA, courts have already noted that the New York legislature incorporated the substantive terms of E-SIGN into New York law, thus suggesting that ESRA is generally harmonious with the other laws’ purpose to ensure that electronic signatures and records have the same force and effect as traditional signatures.
Electronic “Agents” under the Law
Beyond affirming the enforceability of electronic signatures and transactions where the parties have agreed to transact with one another electronically, Section 2(2) of UETA also contemplates “automated transactions,” defined as those “conducted or performed, in whole or in part, by electronic means or electronic records, in which the acts or records of one or both parties are not reviewed by an individual.” Central to such a transaction is an “electronic agent,” which Section 2(6) of UETA defines as “a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part, without review or action by an individual.” Under UETA, in an automated transaction, a contract may be formed by the interaction of “electronic agents” of the parties or by an “electronic agent” and an individual. E-SIGN similarly contemplates “electronic agents,” and states: “A contract or other record relating to a transaction in or affecting interstate or foreign commerce may not be denied legal effect, validity, or enforceability solely because its formation, creation, or delivery involved the action of one or more electronic agents so long as the action of any such electronic agent is legally attributable to the person to be bound.”[3] Under both of these definitions, agentic AI tools—which are increasingly able to initiate actions and respond to records and performances on behalf of users—arguably qualify as “electronic agents” and thus can form enforceable contracts under existing law.[4]
AI Tools and E-Commerce Transactions
Given this existing body of statutory law enabling electronic signatures, from a practical perspective this may be the end of the analysis for most e-commerce transactions. If I tell an AI tool to buy me a certain product and it does so, then the product’s vendor, the tool’s provider and I might assume—with the support of UETA, E-SIGN, the UCC, and New York’s ESRA—that the vendor and I (via the tool) have formed a binding agreement for the sale and purchase of the good, and that will be the end of it unless a dispute arises about the good or the payment (e.g., the product is damaged or defective, or my credit card is declined), in which case the AI tool isn’t really relevant.
But what if the transaction does not go as planned for reasons related to the AI tool? Consider the following scenarios:

Misunderstood Prompts: The tool misinterprets a prompt that would be clear to a human but is confusing to its model (e.g., the user’s prompt states, “Buy two boxes of 101 Dalmatians Premium dog food,” and the AI tool orders 101 two-packs of dog food marketed for Dalmatians).
AI Hallucinations: The user asks for something the tool cannot provide or does not understand, triggering a hallucination in the model with unintended consequences (e.g., the user asks the model to buy stock in a company that is not public, so the model hallucinates a ticker symbol and buys stock in whatever real company that symbol corresponds to).
Violation of Limits: The tool exceeds a pre-determined budget or financial parameter set by the user (e.g., the user’s prompt states, “Buy a pair of running shoes under $100” and the AI tool purchases shoes from the UK for £250, exceeding the user’s limit).
Misinterpretation of User Preference: The tool misinterprets a prompt due to lack of context or misunderstanding of user preferences (e.g., the user’s prompt states, “Book a hotel room in New York City for my conference,” intending to stay near the event location in lower Manhattan, and the AI tool books a room in Queens because it prioritizes price over proximity without clarifying the user’s preference).

Disputes like these begin with a conflict between the user and a vendor—the AI tool may have been effective to create a contract between the user and the vendor, and the user may then have legal responsibility for that contract. But the user may then seek indemnity or similar rights against the developer of the AI tool.
Of course, most developers will try to avoid these situations by requiring user approvals before purchases are finalized (i.e., “human in the loop”). But as desire for efficiency and speed increases (and AI tools become more autonomous and familiar with their users), these inbuilt protections could start to wither away, and users that grow accustomed to their tool might find themselves approving transactions without vetting them carefully. This could lead to scenarios like the above, where the user might seek to void a transaction or, if that fails, even try to avoid liability for it by seeking to shift his or her responsibility to the AI tool’s developer.[5] Could this ever work? Who is responsible for unintended liabilities related to transactions completed by an agentic AI tool?
Sources of Law Governing AI Transactions
AI Developer Terms of Service
As stated in UETA’s Prefatory Note, the purpose of UETA is “to remove barriers to electronic commerce by validating and effectuating electronic records and signatures.” Yet, the Note cautions, “It is NOT a general contracting statute – the substantive rules of contracts remain unaffected by UETA.” E-SIGN contains a similar disclaimer in the statute, limiting its reach to statutes that require contracts or other records be written, signed, or in non-electronic form (15 U.S.C. §7001(b)(2)). In short, UETA, E-SIGN, and the similar UCC provisions do not provide contract law rules on how to form an agreement or the enforceability of the terms of any agreement that has been formed.
Thus, in the event of a dispute, terms of service governing agentic AI tools will likely be the primary source to which courts will look to assess how liability might be allocated. As we noted in Part I of this post, early-generation agentic AI hardware devices generally include terms that not only disclaim responsibility for the actions of their products or the accuracy of their outputs, but also seek indemnification against claims arising from their use. Thus, absent any express customer-favorable indemnities, warranties or other contractual provisions, users might generally bear the legal risk, barring specific legal doctrines or consumer protection laws prohibiting disclaimers or restrictions of certain claims.[6]
But what if the terms of service are nonexistent, don’t cover the scenario, or—more likely—are unenforceable? Unenforceable terms for online products and services are not uncommon, for reasons ranging from “browsewrap” being too hidden, to specific provisions being unconscionable. What legal doctrines would control during such a scenario?
The Backstop: User Liability under UETA and E-SIGN
Where would the parties stand without the developer’s terms? E-SIGN allows for the effectiveness of actions by “electronic agents” “so long as the action of any such electronic agent is legally attributable to the person to be bound.” This provision seems to bring the issue back to the terms of service governing a transaction or general principles of contract law. But again, what if the terms of service are nonexistent or don’t cover a particular scenario, such as those listed above. As it did with the threshold question of whether AI tools could form contracts in the first place, UETA appears to offer a position here that could be an attractive starting place for a court. Moreover, in the absence of express language under New York’s ESRA, a New York court might apply E-SIGN (which contains an “electronic agent” provision) or else find insight as well by looking at UETA and its commentary and body of precedent if the court isn’t able to find on-point binding authority, which wouldn’t be a surprise, considering that we are talking about technology-driven scenarios that haven’t been possible until very recently.
UETA generally attributes responsibility to users of “electronic agents”, with the prefatory note explicitly stating that the actions of electronic agents “programmed and used by people will bind the user of the machine.” Section 14 of UETA (titled “Automated Transaction”) reinforces this principle, noting that a contract can be formed through the interaction of “electronic agents” “even if no individual was aware of or reviewed the electronic agents’ actions or the resulting terms and agreements.” Accordingly, when automated tools such as agentic AI systems facilitate transactions between parties who knowingly consent to conduct business electronically, UETA seems to suggest that responsibility defaults to the users—the persons who most immediately directed or initiated their AI tool’s actions. This reasoning treats the AI as a user’s tool, consistent with the other UETA Comments (e.g., “contracts can be formed by machines functioning as electronic agents for parties to a transaction”).
However, different facts or technologies could lead to alternative interpretations, and ambiguities remain. For example, Comment 1 to UETA Section 14 asserts that the lack of human intent at the time of contract formation does not negate enforceability in contracts “formed by machines functioning as electronic agents for parties to a transaction” and that “when machines are involved, the requisite intention flows from the programming and use of the machine” (emphasis added).
This explanatory text has a couple of issues. First, it is unclear about what constitutes “programming” and seems to presume that the human intention at the programming step (whatever that may be) is more-or-less the same as the human intention at the use step[7], but this may not always be the case with AI tools. For example, it is conceivable that an AI tool could be programmed by its developer to put the developer’s interests above the users’, for example by making purchases from a particular preferred e-commerce partner even if that vendor’s offerings are not the best value for the end user. This concept may not be so far-fetched, as existing GenAI developers have entered into content licensing deals with online publishers to obtain the right for their chatbots to generate outputs or feature licensed content, with links to such sources. Of course, there is a difference between a chatbot offering links to relevant licensed news sources that are accurate (but not displaying appropriate content from other publishers) versus an agentic chatbot entering into unintended transactions or spending the user’s funds in unwanted ways. This discrepancy in intention alignment might not be enough to allow the user to shift liability for a transaction from a user to a programmer, but it is not hard to see how larger misalignments might lead to thornier questions, particularly in the event of litigation when a court might scrutinize the enforceability of an AI vendor’s terms (under the unconscionability doctrine, for example).
Second, UETA does not contemplate the possibility that the AI tool might have enough autonomy and capability that some of its actions might be properly characterized as the result of its own intent. Looking at UETA’s definition of “electronic agent,” the commentary notes that “As a general rule, the employer of a tool is responsible for the results obtained by the use of that tool since the tool has no independent volition of its own.” But as we know, technology has advanced in the last few decades and depending on the tool, an autonomous AI tool might one day have much independent volition (and further UETA commentary admits the possibility of a future with more autonomous electronic agents). Indeed, modern AI researchers have been contemplating this possibility even before rapid technological progress began with ChatGPT.
Still, Section 10 of UETA may be relevant to some of the scenarios from our bulleted selection of AI tool mishaps listed above, including misunderstood prompts or AI hallucinations. UETA Section 10 (titled “Effect of Change or Error”) outlines the possible actions a party may take when discovering human or machine errors or when “a change or error in an electronic record occurs in a transmission between parties to a transaction.” The remedies outlined in UETA depend on the circumstances of the transaction and whether the parties have agreed to certain security procedures to catch errors (e.g., a “human in the loop” confirming an AI-completed transaction) or whether the transaction involves an individual and a machine.[8] In this way, the guardrails integrated into a particular AI tool or by the parties themselves play a role in the liability calculus. The section concludes by stating that if none of UETA’s error provisions apply, then applicable law governs, which might include the terms of the parties’ contract and the law of mistake, unconscionability and good faith and fair dealing.
* * *
Thus, along an uncertain path we circle back to where we started: the terms of the transaction and general contract law principles and protections. However, not all roads lead to contract law. In our next installment in this series, we will explore the next logical source of potential guidance on AI tool liability questions: agency law. Decades of established law may now be challenged by a new sort of “agent” in the form of agentic AI…and a new AI-related lawsuit foreshadows the issues to come.

[1] In keeping with common practice in the artificial intelligence industry, this article refers to AI tools that are capable of taking actions on behalf of users as “agents” (in contrast to more traditional AI tools that can produce content but not take actions). However, note that the use of this term is not intended to imply that these tools are “agents” under agency law.
[2] In addition, the UCC has provisions consistent with UETA and E-SIGN providing for the use of electronic records and electronic signatures for transactions subject to the UCC. The UCC does not require the agreement of the parties to use electronic records and electronic signatures, as UETA and E-SIGN do.
[3] Under E-SIGN, “electronic agent” means “a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response.”
[4] It should be noted that New York’s ESRA does not expressly provide for the use of “electronic agents,” yet does not prohibit them either. Reading through ESRA and the ESRA regulation, the spirit of the law could be construed as forward-looking and seems to suggest that it supports the use of automated systems and electronic means to create legally binding agreements between willing parties. Looking to New York precedent, one could also argue that E-SIGN, which contains provisions about the use of “electronic agents”, might also be applicable in certain circumstances to fill the “electronic agent” gap in ESRA. For example, the ESRA regulations (9 CRR-NY § 540.1) state: “New technologies are frequently being introduced. The intent of this Part is to be flexible enough to embrace future technologies that comply with ESRA and all other applicable statutes and regulations.” On the other side, one could argue that certain issues surrounding “electronic agents” are perhaps more unsettled in New York. Still, New York courts have found ESRA consistent with E-SIGN.
[5] Since AI tools are not legal persons, they could not be liable themselves (unlike, for example, a rogue human agent could be in some situations). We will explore agency law questions in Part III.
[6] Once agentic AI technology matures, it is possible that certain user-friendly contractual standards might emerge as market participants compete in the space. For example, as we wrote about in a prior post, in 2023 major GenAI providers rolled out indemnifications to protect their users from third-party claims of intellectual property infringement arising from GenAI outputs, subject to certain carve-outs.
[7] The electronic “agents” in place at the time of UETA’s passage might have included basic e-commerce tools or EDI (Electronic Data Interchange), which is used by businesses to exchange standardized documents, such as purchase orders, electronically between trading partners, replacing traditional methods like paper, fax, mail or telephone. Electronic tools are generally designed to explicitly perform according to the user’s intentions (e.g., clicking on an icon will add this item to a website shopping cart or send this invoice to the customer) and UETA, Section 10, contains provisions governing when an inadvertent or electronic error occurs (as opposed to an abrogation of the user’s wishes).
[8] For example, UETA Section 10 states that if a change or error occurs in an electronic record during transmission between parties to a transaction, the party who followed an agreed-upon security procedure to detect such changes can avoid the effect of the error, if the other party who didn’t follow the procedure would have detected the change had they complied with the security measure; this essentially places responsibility on the party who failed to use the agreed-upon security protocol to verify the electronic record’s integrity.
Comments to UETA Section 10 further explain the context of this section: “The section covers both changes and errors. For example, if Buyer sends a message to Seller ordering 100 widgets, but Buyer’s information processing system changes the order to 1000 widgets, a “change” has occurred between what Buyer transmitted and what Seller received. If on the other hand, Buyer typed in 1000 intending to order only 100, but sent the message before noting the mistake, an error would have occurred which would also be covered by this section.” In the situation where a human makes a mistake when dealing with an electronic agent, the commentary explains that “when an individual makes an error while dealing with the electronic agent of the other party, it may not be possible to correct the error before the other party has shipped or taken other action in reliance on the erroneous record.”

DOJ Final Rule on Bulk Transfer of Sensitive U.S. Personal and Government Data to Countries and Persons of Concern Goes Into Effect

On April 8, 2025, the Department of Justice’s final rule implementing Executive Order 14117 (“Final Rule”) went into effect, with the exception of certain due diligence, audit and reporting obligations that will take effect on October 5, 2025. The Final Rule restricts the bulk transfer of sensitive U.S. personal and government data to certain countries and persons of concern.
The Final Rule establishes a national security regulatory regime that either prohibits or restricts “covered data transactions,” which are certain transactions (i.e., data brokerage, employment agreements, investment agreements and vendor agreements) that could result in access to bulk U.S. sensitive personal data or government-related data by (1) a “country of concern” (i.e., China, Cuba, Iran, North Korea, Russia and Venezuela) or (2) a “covered person” (e.g., an entity with 50% or more ownership by a country of concern, an entity organized under the laws of, or with their principal place of business in, a country of concern, or a foreign person that is an employee or contractor of such entity or a primary resident of a country of concern).
Read our previous coverage of the Final Rule.

Agencies Issue Guidance Clarifying Sackett Implementation

The U.S. Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers (Corps) (jointly, “the Agencies”) issued guidance on March 12, 2025 addressing implementation of the definition of “waters of the U.S.” (WOTUS) under the Clean Water Act (CWA). The guidance addresses the jurisdictional requirement that, for a wetland to be subject to Corps jurisdiction, the wetland must have a “continuous surface connection” to and directly abut an otherwise jurisdictional water (a traditional navigable water or a relatively permanent body of water connected to a traditional navigable water). The jurisdictional requirement addressed by the new guidance can have substantial time and cost implications for projects.
Consistent with the Supreme Court’s 2023 decision in Sackett v. EPA,[1] the Agencies state that WOTUS includes “only those adjacent wetlands that have a continuous surface connection because they directly abut the [requisite jurisdictional water].” An adjacent wetland that is separated from the jurisdictional water by uplands, a berm, dike or similar feature does not directly abut covered waters and is not, therefore, jurisdictional. This interpretation provides a plain language reading of Sackett, and departs from and narrows the prior Administration’s interpretation, which allowed for jurisdiction over adjacent wetlands separated from a jurisdictional waterbody by a berm or similar feature.
The Agencies also published a Federal Register notice announcing upcoming listening sessions and soliciting feedback to inform potential future administrative action to provide additional clarification on the WOTUS definition. Written recommendations on the meaning of key terms must be received by the Agencies on or before April 23, 2025. The listening sessions for various stakeholder groups will be held as web and in-person conferences in April-May 2025. Registration instructions and dates are available at this website.
Background
The Supreme Court’s Sackett decision limited CWA jurisdiction over WOTUS to: (1) traditional interstate navigable waters; (2) relatively permanent bodies of water connected to traditional interstate navigable waters; and (3) wetlands with a continuous surface connection to such waters. The Court held that the CWA extends only to wetlands that are practically indistinguishable from WOTUS, which requires a party asserting jurisdiction over adjacent wetlands to establish that (1) the adjacent body of water is a WOTUS in its own right; and (2) the wetland has a continuous surface connection with that water, making it practically impossible to tell where the water ends and the wetland begins.
Following Sackett, the Agencies issued a rule amending the 2023 WOTUS Rule. To “conform with” the Sackett decision, the 2023 Amended WOTUS Rule struck portions of the earlier 2023 Rule the Agencies acknowledged were inconsistent with the Sackett decision.
Importantly, the Agencies’ interpretation and use of concepts not directly addressed in Sackett to continue to assert jurisdiction over a variety of features created significant confusion about WOTUS jurisdiction. Specifically, on September 27, 2023, the Agencies issued implementation memos setting forth coordination practices among the Corps Districts, EPA Regions, and EPA and Corps Headquarters, and providing for Headquarters’ review of certain Approved Jurisdictional Determinations. Under the prior Administration, the Agencies occasionally published “policy memoranda” resulting from this coordination process, in which EPA and Corps Headquarters provided direction to the Corps Districts on how to implement the WOTUS regime for certain types of features. Some of the issues discussed in the memos are ones flagged as open questions by Justice Kavanaugh in Sackett, including whether a continuous surface connection can be established by a ditch, swale, pipe or culvert; how difficult it has to be to discern a wetland boundary; and how temporary interruptions in a surface connection can be.
The Agencies’ recent guidance seeks to clarify some of this confusion and, as discussed below, rescinds many of these field memos.
Guidance on “Continuous Surface Connection” for Purposes of Determining “Adjacency”
Sackett states that the CWA “extends to only those wetlands that are ‘as a practical matter indistinguishable from waters of the United States,’” 598 U.S. at 678, and to make this determination, the Agencies must establish that (1) an adjacent body of water constitutes WOTUS; and (2) the wetland has a continuous surface connection with that water. Thus, under Sackett, adjacent wetlands are only jurisdictional if they have a continuous surface connection to waters that are WOTUS in their own right (e.g., traditional navigable waters, the territorial seas, interstate waters, relatively permanent jurisdictional impoundments or relatively permanent tributaries).
The guidance provides clarification on implementation of “continuous surface connection” and took effect immediately. It states that WOTUS only includes those adjacent wetlands that have a continuous surface connection to a jurisdictional water because they directly abut that jurisdictional water. Guidance at 5. If the adjacent wetlands are separated from the jurisdictional water by uplands, a berm, dike, or similar feature, the wetlands are not jurisdictional because they do not have the “necessary connection” to covered waters to trigger CWA jurisdiction. Id.
Under the prior Administration, the Agencies took the position that, “depending on the factual context, … a channel, ditch, swale, pipe or culvert [can] serve[] as a physical connection that maintains a continuous surface connection between an adjacent wetland and a relatively permanent water.” See, e.g., Memorandum on POH-2023-00187 (Nov. 20, 2024). This position is explicitly rescinded by the guidance, and the case-specific memoranda to the field that addressed continuous surface connection and jurisdiction over “discrete features” are rescinded. Guidance at 5 n.8.
In the guidance, the Agencies recognize that there may be some instances where the “line drawing” to determine where the water ends and the wetland begins may be difficult to ascertain – including during periods of drought or low tide, or where there may be temporary interruptions in surface connection. The Agencies state that they will work to resolve those scenarios on a case-by-case basis and provide further clarity when appropriate. Guidance at 5-6.
[1] 598 U.S. 651 (2023).

Modern Piracy: Insurance Coverage Options for Cargo Theft and Related Losses

Theft in the cargo industry has skyrocketed in recent years. In the first half of 2024, cargo thefts rose 49 percent and the average loss per shipment by 83 percent. Given these dramatic spikes in cargo theft, policyholders whose operations rely on the safe transportation and trade of cargo should take steps to mitigate against the potential losses of a cargo-theft event. We discuss below the insurance coverage options available to policyholders that can help protect against the risks and losses associated with cargo-related theft if such a loss occurs.
The Spike in Cargo Theft
Certain types of cargo thefts have skyrocketed; between 2022 and 2024, strategic theft (theft by trickery or deception) increased 1455 percent. Similarly, between the last quarters of 2021 and 2022, double brokering rose 400 percent. Other types of theft include forging or altering documents, impersonating legitimate shippers, and simple theft (physically stealing items or shipments).
The causes of this peak vary. The nearly tenfold increase in the cost to move containers between the U.S. and China and worldwide inflation has made shipping that much more expensive. Cost-cutting measures in response to higher costs have eroded the relationships between industry players—notably, many shipments are moved by posting on a load board rather than through a trusted shipping company or professional intermediary—and normalized transacting with strangers. At the same time, thieves have become more familiar with technology and obtained access to powerful tools such as AI to fool industry players.
The Impacted Players
The owners of the stolen cargo are not the only players impacted when cargo is stolen. Any number of parties in the supply chain may suffer losses if a shipment is stolen. Manufacturers and retailers lose property. Shippers lose goodwill and reputation among their clients and may be liable to those clients for the property loss. Recently, brokers have lost, too, as other parties in the chain allege that broker negligence in managing shipments allowed thieves to submit bids, double broker, or reroute shipments.
Insurance Offerings to Protect Against Cargo-Related Theft and Related Losses
Wherever your organization is located in the supply chain, insurance can help offset losses from theft. While traditional forms of insurance may be helpful, insurers have responded to the increased needs of the transportation industry by creating a number of specialized products targeting specific risks.
Cargo Insurance. Cargo insurance—a form of property insurance sometimes called “all risk” because it covers all perils except those specifically excluded—is typically obtained by shippers and protects goods in transit. It is often broken up into ocean marine (transit over the ocean) and inland marine (transit over land). Some insurers offer insurance products further tailored to the type of party, risk, or goods being shipped, allowing shippers who handle high-value loads to obtain additional peace of mind. Brokers may consider contingent cargo loss insurance, which helps protect brokers when the shipper’s cargo insurance policy does not cover a loss and the manufacturer turns to the broker to pay.
When obtaining a cargo insurance policy, it is important to review the conditions of coverage and exclusions. Cargo policies may require the policyholder to implement certain security measures to protect the shipment or pack the shipment in a certain way (which could result in delayed payment or litigation while the facts are investigated). They may also exclude some shipments, notably high-value goods or goods that thieves often target.
Liability Insurance. A staple of any good risk management program, liability insurance covers defense (attorneys’ fees) and indemnity (damages) costs in a lawsuit to recover the costs of a shipment. Shippers should consider general liability insurance, which covers losses from damage to a third party’s property as well as defense costs in the lawsuit. Brokers may obtain a comprehensive policy that bundles general liability insurance with other types of coverages, such as contingent cargo and errors and omissions (“E&O,” which covers defense and indemnity costs from the broker’s alleged negligence in brokering the shipment—for example, if double brokering occurs).
Cyber Insurance. All parties in the supply chain should consider obtaining cyber insurance. As noted above, thieves are increasingly technologically savvy, using AI and other digital tools to impersonate shippers and brokers. Cyber insurance may cover costs incurred when thieves access credentials or digital information and then use that information to scam third parties. It may also cover costs to expel intruders from company computer systems or pay to recover data ransomed by thieves. Cyber policies are often custom and negotiated on a policyholder-by-policyholder basis, so companies should carefully review their offers of coverage and potential exclusions before buying a policy.
Conclusion
Events like cargo-theft—which are on the rise—can cause significant lost profits, extra expenses, and supply-chain disruptions. Commercial policyholders whose operations involve cargo should ensure they can protect against these events and resultant losses. Policyholders should carefully review their existing insurance policies to determine which coverages exist, and whether additional or modified terms are warranted in the event of a cargo-related loss.

The Impact of New Tariffs on U.S. Government Contractors

As global trade policies shift, U.S. government contractors must navigate the evolving landscape of tariffs and their implications. The recent introduction of new tariffs by the federal government has significant consequences for contractors working with federal agencies, particularly those in industries reliant on imported materials and components.
Understanding the New Tariffs
The latest tariffs target a range of goods, including steel, aluminum, electronics, and other critical components used in government projects. These tariffs, which ostensibly are aimed at protecting domestic industries, can lead to increased costs for contractors procuring affected materials from foreign suppliers.
Key Implications for Government Contractors

Increased Procurement CostsContractors may face rising costs due to tariffs on essential materials. This could impact budgeting for existing contracts and bid calculations for future government projects.
Compliance with the Federal Acquisition Regulation (FAR)The government’s procurement rules require contractors to comply with domestic sourcing preferences, such as the Buy American Act (BAA) and Trade Agreements Act (TAA). The new tariffs may alter sourcing strategies to maintain compliance and cost-effectiveness.
Contract Price AdjustmentsSome government contracts contain provisions allowing for price adjustments due to unforeseen cost increases. Contractors should review their agreements to determine whether they can request modifications to offset tariff-related expenses.
Supply Chain DisruptionsContractors dependent on international suppliers may experience delays or shortages. Identifying alternative domestic sources and reevaluating supply chain logistics are crucial to ensuring that project timelines remain on track.
Competitiveness in BiddingCompanies that rely on tariffed goods may find it harder to remain competitive in the bidding process. Developing strategies to mitigate cost impacts — such as leveraging exemptions, negotiating with suppliers, or shifting to domestic alternatives — will be essential.

Strategies to Mitigate Tariff Risks

Evaluate Supply Chain Alternatives – Exploring domestic suppliers or alternative international sources may help reduce dependency on tariffed goods.
Engage in Contract Review – Assessing contracts for potential relief mechanisms, such as price adjustment clauses, can provide financial flexibility.
Monitor Regulatory Changes – Staying informed about trade policies and potential tariff exemptions can aid in proactive planning.
Strengthen Negotiation Strategies – Working closely with suppliers to share cost burdens or secure bulk discounts can help offset increased expenses.

Conclusion
The introduction of new tariffs presents both challenges and potential opportunities for U.S. government contractors. By staying informed, revising procurement strategies, and leveraging available contractual protections, contractors can navigate these changes effectively. Legal counsel and procurement specialists can provide valuable guidance to ensure compliance and financial stability in this evolving landscape.

What is the Current Minimum Wage for Federal Contractors? (US)

Among the flurry of Executive Orders signed by President Trump since he took office is an March 14, 2025 Executive Order rescinding 18 prior executive orders and actions, including Executive Order 14026, a Biden-era order increasing the minimum wage for federal contractors to $17.75. Now that Executive Order 14026 has been rescinded, many federal contractors have been left wondering what the current minimum wage is for their employees.
Recent History on Federal Contractor Minimum Wage
The status of the federal contractor minimum wage has been in flux for some time. In 2014, President Obama issued Executive Order 13658, which provided for a $10.10 per hour federal contractor minimum wage that would subsequently increase on an annual basis for inflation. Years later, on April 27, 2021, President Biden signed Executive Order 14026, which increased the minimum wage for federal contractors to $15.00 per hour, to be adjusted periodically for inflation. Executive Order 14026 built upon the prior Obama-era order, but President Biden’s order provided broader coverage, higher thresholds and superseded the Obama-era order to the extent it was inconsistent with the provisions in President Biden’s order.
Shortly after President Biden issued Executive Order 14026, the U.S. Department of Labor (“DOL”) issued regulations implementing the order and the Federal Acquisition Regulatory Council amended the federal procurement regulations accordingly. Per the order and those regulations, as of January 1, 2025, the minimum wage for federal contractors under Executive Order 14026 was $17.75 per hour.
In recent years, Executive Order 14026 has been challenged in multiple courts, resulting in a split in authority regarding its validity. Specifically, the U.S. Court of Appeals for the Ninth Circuit held in November 2024 that President Biden lacked authority to issue the order. However, Executive Order 14026 was upheld by the Fifth and Tenth Circuits. In January 2025, the U.S. Supreme Court declined to address the split. Notably, since President Trump rescinded Executive Order 14026, on March 28, 2025, the Fifth Circuit vacated its previous ruling upholding it.
Where We Stand Today
Currently, the DOL rule implementing Executive Order 14026 remains on the DOL website, but the DOL has made clear that it will no longer enforce the now-rescinded order or the DOL regulations implementing it, and that the DOL intends to go through the regulatory process to officially effectuate its revocation.
Although President Biden’s order is no longer effective, President Trump’s March 14 Executive Order did not rescind the Obama-era Executive Order 13658. Accordingly, the lower minimum wage and narrower scope set forth in the 2014 order presumably remains in effect. As such, until the DOL provides more guidance, all indications are that the current federal contractor minimum wage is $13.30 per hour, under the terms of Executive Order 13658.
Until further regulatory action is taken, the rescission of Executive Order 14026 leaves some uncertainty about contractors’ obligations. Federal contractors with questions regarding their current obligations should consult with legal counsel to determine how they may be impacted by President Trump’s March 14 order. Further, contractors thinking about changing wages in response to Executive Order 14026’s rescission should review state wage law requirements and any collective bargaining agreements before doing so to ensure continued compliance with all other applicable requirements.

How Far Do They Reach? Four Issues Entities Should Consider When Analyzing the Trump Administration Executive Orders Related to Diversity, Equity, and Inclusion

The Trump Administration Executive Orders related to Diversity, Equity, and Inclusion (“DEI”), Executive Order 14170 (Reforming the Federal Hiring Process and Restoring Merit to Government Service) and Executive Order 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity) (the “EOs”), have given businesses and other organizations (including universities) much to think about regarding their DEI initiatives. This includes entities that do business with the federal government, entities that do business with state and local governments, and entities with operations outside the United States. As the landscape continues to shift, below are four issues every organization should consider as they perform their DEI reviews:
1. Conflicting State Law or State Contractual Requirements
Let’s start with a quick refresher. The U.S. Constitution provides the following regarding conflicts between federal law and state law:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding.
This is known as the “Supremacy Clause.” The Supremacy Clause is the primary constitutional foundation for what has come to be known as the federal “Preemption Doctrine.” Courts have interpreted the Supremacy Clause, which itself focuses on “laws,” to provide federal regulations and valid Executive Orders (i.e., constitutional Executive Orders) the same preemptive effect.
However, many entities currently are facing a different challenge: What to do if the state/federal conflict is not clear. The possibility of a not clear state/federal conflict is not at all far-fetched, especially where the definition of “illegal DEI” still is unsettled. (See a prior blog by our colleague for a refresher on what is “illegal DEI” according to the EOs.) While OPM on February 4, 2025, provided industry with “further guidance ending DEI Offices, Programs, and Initiatives,” which included examples of “illegal DEI,” many questions still remain unanswered. These unanswered questions make it harder for businesses to determine whether a state/federal conflict actually exists.
In the absence of a clear state/federal conflict, businesses may find themselves in a bind, with competing yet different state and federal obligations. Businesses, for example, may need to continue submitting state-required reports consistent with state requirements knowing that those same reports are looked upon unfavorably by the Federal Government. Where possible, businesses should work with their state or local government partners (e.g., contracting officers) to determine the appropriate path forward in light of the EOs.
2. Whether the Executive Orders Apply to Corporate Parent/Subsidiary/Affiliate Entities
Typically, the default rule is that Federal Acquisition Regulation (“FAR”) clauses apply to the entity executing the award document (the contracting entity). When a new requirement is announced, a common concern of contractors is whether the forthcoming FAR clause will reach into their corporate parents, subsidiaries, or affiliates. The DEI-focused EOs will be implemented, at least in part, by new contract or grant terms incorporated into federal awards. Based on history, entities should have an answer to this question during the rulemaking process.
We have seen this same concern unfold twice recently. The first instance was when Section 889 of the Fiscal Year National Defense Authorization Act came into being. The scope of that rule applied to the “entity,” which raised questions regarding whether the rule applied to affiliates entities. The Section 889 Interim Rule clarified that it would not:
The 52.204-25 prohibition under section 889(a)(1)(A) will continue to flow down to all subcontractors; however, as required by statute, the prohibition for section 889(a)(1)(B) will not flow down because the prime contractor is the only “entity” that the agency “enters into a contract” with, and an agency does not directly “enter into a contract” with any subcontractors, at any tier.
A similar concern arose regarding Executive Order 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors). EO 14042 explicitly stated that affiliates would be covered by the FAR clause if employees of the entity shared office space with the contracting entity. If the FAR Council intends the forthcoming DEI-focused FAR clauses to apply to affiliates, we would expect that point to be explicitly stated in the proposed and final rule.
Until there is additional clarity on this point, it is important for entities to respond to any certification requests in an accurate, clear, and straightforward manner, particularly regarding whether your compliance efforts include affiliates.
3. The Applicability of the Executive Orders to Entities that Do Business Outside the United States
As discussed above, the default rule is that FAR clauses apply to the contracting entity, not to its affiliates. The related default rule is that FAR clauses apply to the contracting entity irrespective of whether the entity performs its work in the U.S. or abroad. Whether the DEI-focused EOs apply to entities doing business outside the United States will depend on the approach taken by the FAR Council. FAR 52.222-26 (Equal Opportunity), for example, explicitly states that it does not apply to “work performed outside the United States by employees who were not recruited within the United States.” This means the requirements apply to employees performing outside the United States only if they were recruited in the United States.
On the other hand, FAR 52.222-50 (Combating Trafficking in Persons) requires a compliance plan for all services performed outside the United States. Again, similar to the discussion above regarding affiliates, we expect the FAR Council include explicit language regarding oversees application.
We acknowledge that we may sound like a broken record on this point, but, until we have more clarity, it is important for entities to respond to any certification requests in an accurate, clear, and straightforward manner, particularly regarding whether your compliance efforts include any affiliates performing work outside of the United States.
4. Impact on Universities
The Executive Orders make clear the federal government is focused not only on goods and services providers, but also on the higher education sector. Because many major universities receive federal grants and loans, these institutions are subject to a number of federal contract clauses and regulations, as well as OIG investigations and False Claims Act suits. Additionally, many colleges and universities also are government contractors, which means they soon will see the forthcoming contract clauses requiring them to (i) certify the termination of all DEI programs and (ii) acknowledge that that certification is “material” for False Claims Act purposes. Both clauses will materially increase the risk to Higher Ed.
Even if a college or university is not a contractor or direct recipient of federal funds, the federal government nonetheless plans to aggressively identify, investigate, and enforce compliance with all civil rights laws, including the laws the Government (and many courts) read as preventing any preferences based on sex or race. Higher education institutions should thoughtfully consider the impact of the EOs on their respective institutions and should be seriously considering the several activities below.
Next Steps
There still are many open questions regarding how entities should go about implementing the DEI EOs. In this time of uncertainty, below are several activities entities should be considering:

Cataloging and evaluating state, local, and foreign contracts to identify requirements that could run afoul of the EOs.
Evaluating the level of risk the entity is willing to take in areas of uncertainty.
Cataloging and evaluating DEI programs, initiatives, and activities, as well as internal and external communications regarding DEI initiatives (e.g., scrubbing website, CSR reports, internal announcements, etc.). And, ultimately, eliminating those programs, initiatives, and activities that run afoul of federal law and/or the EOs.
Briefing leadership on the steps needed to comply with the EOs and the potential risks associated with the agreed upon path forward for the respective entity, including from the False Claims Act. (For more on this risk, see the blog published by our colleague here.)
Working with experienced in-house or outside counsel and communications experts to craft policies and communications that demonstrate an intent to comply with the EOs. This includes preparing template responses to the forthcoming modification requests, stop work orders, suspensions, and/or terminations.

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).