What the DOGE "Cost Efficiency Initiative" Executive Order Means for Government Contractors and Grantees

On February 26, 2025, President Trump issued Executive Order 14222 entitled, “Implementing the President’s ‘Department of Government Efficiency’ Cost Efficiency Initiative” (hereinafter, the “E.O.”), as well as an accompanying fact sheet describing the E.O.’s goals. The E.O.’s stated purpose is to spur “transformation in Federal spending on contracts, grants, and loans” by encouraging transparency and ensuring accountability to the American public. To do so, the E.O. requires agencies to review their contracting policies, procedures, and personnel; prepare guidance on promoting efficiency in contracting; and prior to that guidance being developed and issued, halt all new awards unless prior approval from the appropriate Agency Head is obtained. This Legal Update details the E.O.’s requirements and how they could impact contractors in the coming weeks.

Requirements Related to Contracts and Grants

The E.O. begins by requiring agencies to “build a centralized technological system” that records “every payment issued by the agency” to “covered contracts and grants.” “Covered contracts and grants” include discretionary spending through Federal contracts, grants, loans, and related instruments. However, excluded from the E.O.’s definition is direct assistance to individuals, as well as “expenditures related to immigration enforcement, law enforcement, the military, public safety, and the intelligence community,” and other “critical, acute, or emergency spending,” as determined by the relevant agency head.

The “technological system” will require the agency employee approving the payment for the covered contract or grant to provide “a brief, written justification.” Notably, the E.O. requires these justifications to be publicly posted to the extent practical.

In addition to building this “technological system,” the E.O. requires agencies to:

(a) review, within 30 days, all existing covered contracts and grants and to terminate or modify (including through renegotiation) them where appropriate and permitted to reduce or reallocate spending;

(b) review, within 30 days, all contracting policies, procedures, and personnel and suspend all new contracting officer warrants during that review (unless the agency head determines approval is necessary);

(c) following the review described in (b), issue guidance on promoting efficiency and the Trump administration’s policies in procurement; and

(d) pause any new contract awards until the new guidance is issued.

Notably, the E.O. also requires agency employees to treat “as frozen for 30 days” any credit cards as well as mandates agencies create an inventory of real property, to include identifying any termination rights and recommending whether to exercise such rights.    

There are certain exceptions to the E.O.’s requirements. For example, Agency Heads can:  exempt certain payments from requiring the inclusion of a justification in the “technological system”; approve new contracts on a “case-by-case" basis prior to the issuance of the E.O.’s required guidance; and exempt certain credit card expenditures from the freeze.

What does this mean for contractors and grantees?

While the E.O.-mandated reviews have yet to be conducted and the extent of exceptions has yet to be seen, in the short term, many new contracts and grants will be put on hold. Existing contracts, grants, and leases may be terminated or downsized through renegotiation. And even short of that, given cuts to government contracting personnel, contracting actions, including payment on outstanding invoices, are likely to be delayed.

Contractors, grantees, and lessors should consider taking the following actions:

• Monitor any agency guidance that is issued in connection with this E.O. to determine how it may affect your contracts and grants;
• Proactively remind your customer why your contracts are essential to the government and should be fully funded;
• Seek interest for past due invoices. Under the Prompt Payment Act, contractors are entitled to interest (and, potentially, penalties) for overdue invoices;
• Review your contracts and agreements for your rights to costs in the event of government-caused delays or suspensions, and account for increased costs that may arise. These costs, and associated interest, may be recoverable from the government under standard contract clauses; and
• Review the termination provisions in your contracts and agreements. Certain contracts and agreements, such as firm leases, typically do not grant the government the ability to terminate for convenience, and those that do typically entitle the contractor to certain termination costs.