What Builders Can Do while Federal Funds are Still Frozen

Uncertainty continues to cast a shadow over infrastructure and climate projects as federal agencies resist court orders to release funding. Federal contractors are grappling with the consequences, including paused and terminated work, as Trump’s directive to halt federal money remains embroiled in legal challenges.

President Donald Trump’s January 20 “Unleashing American Energy” order instructed federal agencies to stop disbursing funds from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Despite court orders halting the directive, agencies have maintained the freeze while assessing project compliance with the new administration’s agenda.

For instance, the Washington DOT has experienced funding freezes for bridge work and court-mandated culvert replacement projects, among other initiatives, according to the Washington State Standard.

A notable example involves newly appointed Transportation Secretary Sean Duffy, who initiated a review of the California High-Speed Rail Authority’s adherence to its federal agreements, as reported by Mass Transit. This move jeopardizes $4 billion in federal funding for the project.

On February 21, a federal judge heard arguments regarding whether to further prevent the Trump administration from freezing trillions in federal grants and spending. This lawsuit, filed by 22 attorneys general, was reported by NPR.

Agencies Resist Orders to Release Funds

Two lawsuits temporarily blocked an Office of Management and Budget memo implementing Trump’s order via a restraining order on January 29. However, agencies have continued the freeze, contending that the restraining order has a limited scope, said Jackie Unger, partner and Government Contracts Group lead at Washington, D.C.-based law firm PilieroMazza, during a February 12 webinar.

“Agencies continue to freeze funds, they’ve refused to resume disbursement of appropriated funds and they’ve continued to issue stop-work orders and terminate contracts,” Unger said.

The judge in the February 21 case later ruled that the agencies’ actions violated the restraining order and clarified that it prohibits all funding freezes based on OMB’s memo and Trump’s executive order, NBC reported.

“The clarification may give contractors the ability to challenge agency actions in response to the executive orders, if they’re seeing impacts from those,” Unger said.

The Ongoing Legal Battle

The government has appealed the restraining orders to the First Circuit Court of Appeals, according to Unger. However, the courts have so far denied requests for an immediate stay, which would have reinstated the funding freeze. As the issue progresses through the legal system, the full implications of Trump’s order may not become clear for months.

Handling Stop-Work Orders

A federal contracting officer can issue a written stop-work order at any time, typically under the Federal Acquisition Regulation 52.242-15 clause, for a 90-day period, said Lauren Brier, partner at PilieroMazza, during the webinar. While the officer can extend this period, reasonable justification is required, and both parties must agree, providing contractors an opportunity to push back.

Contractors are entitled to standby costs, including overhead or costs directly resulting from the stop-work order. However, they must mitigate expenses by, for example, furloughing employees, managing lease costs, and demobilizing jobsites.

“Once a stop-work order is issued, the contractor has an immediate duty to mitigate costs,” Brier said. “You can’t just have people sitting on your payroll for the 90-day period and expect the government to make that payment.”

The contracting officer must make an equitable adjustment in the delivery schedule and contract price, Brier noted. Requests for equitable adjustment, which may cover attorney’s fees, administrative costs, and internal expenses, are typically due within 30 days of the stoppage being lifted.

However, “there’s no regulatory requirement for the government to respond, so they can sit on that,” Brier said. To navigate potential delays, Brier offered several best practices for dealing with stop-work orders:

• Notify your contracting officer immediately of your intent to file a request for equitable adjustment.

• Take steps to mitigate costs and keep thorough records of these actions.

• Document your compliance with the stop-work order.

• Consider filing a formal claim instead of a request for equitable adjustment to ensure timely processing of cost requests.

  
  

“Another thing that we are suggesting clients do is when they receive a stop work notice, that they reserve their right to challenge the high-level directive to stop work,” Brier said. “Because a lot of these courts are starting to determine these funding freezes as illegal or unlawful, potentially these stop works that are flowing from these executive orders are similarly unlawful.”

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