Federal Agencies Ordered to Pause Spending of Inflation Reduction Act, Infrastructure Investment and Jobs Act Funds

President Donald Trump via an executive order titled Unleashing American Energy directed federal executive agencies to pause disbursement of funds appropriated by Biden-era energy, environmental, and infrastructure programs. The directive marks the first step of the Trump-Vance administration’s efforts to roll back the former administration’s climate programs, and it temporarily halts payments to companies that received awards supported by certain buckets of federal funds.

The executive order freezes expenditure of funds appropriated by the Inflation Reduction Act of 2022 (IRA) or the Infrastructure Investment and Jobs Act (IIJA). During the freeze, agency heads are instructed to consider whether grants, loans, contracts, and other disbursements supported with those funds are consistent with the new administration’s energy policy. Before those funds can be disbursed again, agencies must follow a two-step process:

• Each agency head must submit a report to the directors of the Office of Management and Budget (OMB) and the National Economic Council (NEC) that includes recommendations to align disbursement processes, policies, and programs with the new administration’s policy. As outlined in the executive order, the Trump-Vance administration’s policy generally encourages use of domestic energy sources, promotes consumers’ “freedom to choose from a variety of goods and appliances,” aims to boost American workers and businesses, and limits regulations that apply to the energy industry.
• After agency heads submit their reports to OMB and the NEC, the director of OMB and the assistant to the president for economic policy must then approve the resumption of any disbursements by confirming they are consistent with the new administration’s policy.

PAYMENTS ARE PAUSED; DOES WORK CONTINUE?

Companies receiving funding appropriated under the IRA or IIJA may see agencies pause their payments in response to the executive order as newly appointed agency heads conduct the review that this executive order prescribes.

However, a pause in payments may not mean that federal agencies will pause work or even permit a pause in work under agreements funded by the IRA or IIJA. A company’s particular obligations will depend on the nature and terms of their award. For instance, under a traditional procurement contract, contractors should generally continue performance absent a stop-work order received directly from the responsible contracting officer.

Under other types of funding agreements, it is less clear whether an agency will suspend the award during the disbursement pause or expect performance to continue. Companies may consider communicating with their funding agencies to confirm the status of disbursements for their individual awards and, if paused, discuss the path forward regarding performance.

WILL PAYMENTS BE MADE?

In the event work continues during the payment pause, contractors and other types of award recipients may have a path forward that allows them to receive eventual payment for such work. However, whether the IRA or IIJA funding will be available will likely depend on whether the funded program is consistent with the Trump-Vance administration policy objectives described in the executive order. Additionally, the payment timeline for contractors and award recipients will likely depend on when—and if—the funding pause is lifted.

Finally, companies may have recourse if payments never come. For example, procurement contractors could consider remedies available under the Contract Disputes Act. Recipients of grants and other funding awards can also consider recourse available based on the terms of their agreements.

If work stops, funding recipients may face additional costs that are out of the scope of their initial award agreements, such as costs associated with pausing work or with early termination of supplier agreements. In the procurement context, those costs are arguably the result of a constructive change, and procurement contractors can turn to remedies in their contracts, such as the “Changes—Fixed Price” and “Changes—Cost Reimbursement” Federal Acquisition Regulation (FAR) clauses. [1]

However, contractors should be mindful that those clauses impose tight timelines for companies to assert their right to an adjustment: contractors must give the government notice that they intend to pursue a claim “within 30 days” of an order from a contracting officer that creates a constructive change. Other clauses that may provide bases for remedies—such as the Government Delay of Work clause and the Stop Work Order clause—impose similarly short 20- and 30-day deadlines. [2]

If work stops due to funding agreements governed by the Super Circular, a consolidation of eight of OMB’s financial circulars, companies’ costs are generally allowable until an award is suspended or terminated. [3] That includes costs incurred by a company that are not incurred in anticipation of a suspension—and could potentially include costs associated with supplier agreements that were incurred before a suspension was anticipated. Once a suspension or termination occurs, costs are allowable only if they are permitted by the notice of suspension or termination.

Funding recipients should carefully document any costs they incur if and when payments pause and should closely review any suspension or termination notice they receive to see whether that notice provides for costs.

TAKEAWAYS

• Upon the pause of payment, companies should work closely with funding agencies and legal counsel to preserve their rights.
• Companies should proactively review their agreements to identify relevant requirements for availing themselves of administrative or legal remedies.
• Companies can also review their agreements to assess their obligations to perform following a payment pause but in advance of any stop-work, suspension-of-work order, or suspension notice from the government.
• Although available recourse will vary, funding recipients should carefully track expenses, preserve copies of communications with the government, and be mindful of any notice requirements that their funding agreements impose.

STAY INFORMED

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