Legal Updates for Government Contractors under Trump’s Executive Orders

Immediately after taking office, President Trump and the new administration have wasted no time issuing Executive Orders (EO) and federal guidance impacting government contractors. This overview provides insights about what updates have been released so far and how they could affect government contractors immediately and in the future.

The developments surrounding these executive actions are moving quickly, and additional changes are on the horizon. While the information in this document is accurate as of its publication, contractors should stay informed of the latest updates before making any decisions based on this information.

Federal funding freeze and potential furloughs

A now-rescinded memo from the Office of Management and Budget (OMB) instructed all federal agencies to temporarily freeze most grants, loans, or other financial assistance programs while agency leaders reviewed them to identify any that may violate the new policies and priorities established by recent Executive Orders, such as those regarding foreign aid, DEI, and gender ideology. While the freeze is no longer in effect, federally funded programs are still under review, and the possibility for a future freeze on spending remains a possibility. Contractors that receive and rely on such federal funding may need to furlough employees and reduce or suspend operations during such a pause in funding. Once the analysis of how federal funding recipients match up with the goals of the Administration is completed, some organizations may become ineligible for federal funding until their operations are brought into alignment with the goals of the new Administration, which could cause further loss of work for contractors.

Major changes to affirmative action and DEI requirements

Immediate Impact on Government Contractors

Recent Executive Orders have eliminated the requirement for government contractors to comply with affirmative action obligations and to maintain Affirmative Action Plans. However, they must continue tracking veteran and disability employment due to statutory obligations: the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act, respectively.

Federal contractors will be required to certify they do not and will not engage in any illegal discrimination, including DEI, as part of the contracting process. If this certification is found to be false and a company is still engaging in DEI activity, they can face penalties under the False Claims Act.

What happens next?

Federal agencies have been given a 60-day timeline to terminate all Diversity, Equity, and Inclusion (DEI) positions, action plans, initiatives, and related grants or contracts. To determine the impact and cost of such policies, and to help determine the next steps for the administration, agencies must also provide a report to OMB with detailed lists of DEI-related positions, expenses, contractors, and grant recipients involved in DEI. As part of this reporting, agency and department leaders were instructed to create a list of all federal contractors that have provided DEI training or materials to agency or department employees. There is no clear indication yet of what this list may be used for going forward.

Once the reporting period concludes, the administration may make additional changes to enforcement activities, contracts (including set-asides), grants, consent orders, and litigating positions to bring the ongoing activities of the government into compliance with the new policy established by these Executive Orders. All departments and agencies have been directed to make efforts to end private sector DEI activity, as well. However, none of these changes impact the requirements for any employer, including government contractors, to comply with federal anti-discrimination laws, including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act.

Return to office for government contractors?

Federal department and agency leaders have been instructed to order all government employees back to in-person work full-time. The Office of Personnel Management (OPM) released guidance recommending a 30-day timeline to comply with the order. While this only applies to government employees now, it is highly likely that this requirement will expand to reach government contractors as federal employees make their way back to the office. This could spell trouble for companies where employees have become more and more spread out across the country as a result of COVID.

Rescinding the nondisplacement of qualified workers under service contracts executive order

President Trump rescinded the order granting employees working on a Service Contract Act (SCA) contract the right of first refusal for employment when the contract transitions between federal contractors. However, the new order does not immediately overturn the terms of any existing contracts, instead it directs agency officials to use their authority to comply with the rescission. Contracting Officers may remove language requiring the right of first refusal from existing SCA contracts.

Navigating the federal hiring freeze

As of January 20, 2025, most Federal agencies fell under a 90-day hiring freeze, excluding military personnel of the armed forces and positions related to immigration enforcement, national security, or public safety. The Internal Revenue Service (IRS) is the only agency that has been placed under an indefinite hiring freeze. The Director of the OMB and the Administrator of the United States DOGE Service (USDS) have been instructed to create and submit a plan to reduce the size of the Federal Government’s workforce at the end of the 90-day period. The order implementing the freeze specifically prohibits using a government contractor to get around the freeze, as some agencies did in the past when faced with a similar hiring freeze. However, once the reduction plan is introduced, there may be additional opportunities for contractors following the downsizing of the federal workforce.

What is the purpose of DOGE?

The stated purpose of DOGE is to eliminate what the Trump Administration calls wasted spending and to increase the government’s productivity by updating and modernizing its technology, software, and network infrastructure. Federal agencies have each been directed to create a “DOGE team,” with at least four employees to provide insights and implement DOGE’s goals within their organization.

While increased scrutiny on government inefficiency could lead to a reduction in non-essential or costly contracts, there are also new contracting avenues that may open as this technology modernization takes shape. With such an emphasis on technology and software, contractors who can provide these services will likely see new opportunities materialize after the reporting period at the end of the 90-day hiring freeze.

AI and developing technologies

As the government continues to focus on efficiency and technological development, artificial intelligence has been a key point of interest for the new administration, with an emphasis on removing barriers and regulations to promote innovation. Tech leaders within the government have been directed to create an action plan to achieve global AI dominance by July 22, 2025. With federal AI guidance scaled back following the rescission of several Biden-era Executive Orders, businesses should review their state-specific AI oversight laws to ensure compliance.

Immigration and employment authorization

As part of a sweeping immigration reform, the new administration has called for stricter processes surrounding employment authorization. Employers may also see an increase in I-9 audits, or ICE raids in the workplace. Recordkeeping for employment authorization documents should be accessible and accurate to avoid running afoul of any auditing timelines, which generally provide only three days for businesses to produce their documentation.