Trump 2.0’s Mass Contract Cancellations Could Cost the Government Billions in Lawsuits

The Trump administration has initiated widespread federal contract terminations under the government’s convenience clause, heavily impacting USAID contractors. While contracting officers have broad discretion, terminations executed in bad faith or without independent judgment may constitute an abuse of discretion.

Affected contractors have challenged these actions, citing potential violations of the Impoundment Control Act. A U.S. District Court issued a temporary restraining order, but an exception for termination-for-convenience clauses limited its impact. Legal precedents suggest mass terminations driven by policy rather than case-by-case assessments may be contestable under the Contract Disputes Act. Contractors should explore legal options to recover lost profits and mitigate disruptions to international aid programs.

Trump 2.0’s Mass Contract Cancellations Could Cost the Government Billions in Lawsuits

The second Trump administration has recently initiated widespread terminations of federal contracts as a cost-cutting strategy under the government’s convenience clause, significantly impacting contractors, particularly those working with USAID. While federal contracting officers have broad discretion to terminate contracts for convenience, this authority is not unlimited. If a termination is executed in bad faith or through an abuse of discretion, it may be considered a breach of contract, potentially entitling affected contractors to lost profits.

Several contractors and grantees have challenged these terminations, arguing that they violate the Impoundment Control Act, which requires congressional approval to withhold appropriated funds. In response, the U.S. District Court for the District of Columbia issued a temporary restraining order (TRO) preventing USAID from enforcing terminations on contracts existing as of January 19, 2025. However, the TRO included an exception permitting terminations in accordance with contractual provisions, such as termination-for-convenience clauses, effectively limiting its impact. The government responded to a contempt motion by asserting that the TRO did not prevent contract terminations for convenience, further weakening the order’s effectiveness.

The primary legal question centers on whether the mass contract terminations constitute an abuse of discretion by contracting officers. Although proving bad faith in termination cases is difficult—requiring “well-nigh irrefragable” evidence—federal courts have ruled that terminations may constitute an abuse of discretion when contracting officers fail to exercise independent business judgment.

In TigerSwan, Inc. v. United States (2014), the U.S. Court of Federal Claims determined that a contracting officer’s failure to make an independent decision could indicate an abuse of discretion, reducing the typical deference given to such decisions. Similarly, in N. Star Alaska Hous. Corp. v. United States (2007), the court ruled that contracting officers must exercise their own judgment when deciding on terminations rather than simply implementing broad policy decisions.

Given that the Trump administration’s mass terminations appear to be politically driven rather than based on individual contract assessments, affected contractors may have strong grounds to argue that these actions lack the independent discretion required for valid terminations for convenience. This could open the door for legal challenges under the Contract Disputes Act, potentially allowing contractors to recover anticipated earnings, including lost profits.

Beyond the legal implications, the mass cancellations of USAID contracts could have significant consequences for international development programs, humanitarian aid efforts, and private sector businesses that rely on government contracts. USAID-funded initiatives often support critical projects related to global health, education, and infrastructure development, and abrupt terminations may disrupt ongoing programs, delay essential services, and create financial instability for contractors.

Contractors affected by these terminations should carefully assess their legal options and consider whether they can successfully challenge the government’s actions based on an abuse of discretion. Given the complexity of government contract law, securing experienced legal counsel is crucial for navigating potential claims. Pillsbury’s Government Contract Claims & Terminations team continues to monitor these developments and stands ready to assist contractors in evaluating possible legal actions and pursuing compensation where warranted.