Trump's Second Month: How Are Numerous Legal Challenges Impacting the Administration's Changes to Federal Procurement?

Mar 24, 2025Michelle Bovy

By Marcos Gonzalez of GovSpringLegal a Government Contracts Firm

In Part I, we analyzed how President Trump’s executive orders (“EO”) and directives defined the Administration’s stance towards federal procurement—implementing policies such as America First tariffs and what that may mean for domestic sourcing, abolishing Diversity, Equity and Inclusion (“DEI”) initiatives through contract terminations and regulatory reform, and implementing broad-scale cost cutting through the Department of Government Efficiency (“DOGE”). But, the implementation of Trump’s EO’s and directives have been met with staunch opposition and a myriad of legal challenges which leave the Government Contracts community with little clarity.

This article reviews the latest updates to key legal challenges to the Trump Administration’s EO’s and directives that contractors should be aware of in evaluating the status of their existing contracts and understanding the scope of their obligations. We also highlight litigation trends that will likely arise as a byproduct of the current legal challenges.

Federal Funding Freeze

To execute the Trump Administration’s goals outlined in the numerous EOs issued during Trump’s first week in office, the Office of Management and Budget (“OMB”) issued a memorandum on January 27 to pause all obligations and disbursements of all federal financial assistance and other activities implicated in the EOs. Although this memorandum was later revoked on January 29, President Trump clarified that the “federal funding freeze” was not wholly removed, and two legal challenges were filed to challenge this action. On January 28, the National Council for Nonprofits filed a complaint with the District Court for the District of Columbia (“D.C. District”) to prevent the implementation of the freeze. The action asserts that grant recipients have a reliance interest in the grants they received, arguing that the Memorandum was arbitrary and capricious under the Administrative Procedure Act (“APA”). In addition, the Plaintiff argues that the Memorandum wrongly conditions funding on the political viewpoints of grant recipients, noting that the portions of the memorandum prohibiting the promotion of “gender ideology”—among others—run afoul of the First Amendment.

Three days after the National Council for Nonprofits filed its request for a preliminary injunction, twenty-three states and the District of Columbia filed suit [MG1] in the District Court for the District of Rhode Island to prevent any freeze or withholding of federal funds. In this 102-page Complaint, the States Attorneys General request a Temporary Restraining Order. Of note is the Plaintiff’s reliance on Loper Bright Enterprises[1] in defense of its argument that the OMB is not entitled to judicial deference. In addition to arguing the Memo is arbitrary and capricious under the APA[2], the Plaintiffs also argue that the refusing to disburse grants authorized by Congress is a usurpation of Congressional power and an unconstitutional violation of the separation of powers.[3] The Plaintiffs also argued that amendments to the conditions of federal funding commandeer state power by imposing surprise, retroactive conditions on funds received by states.[4] Lastly, among other subsidiary arguments, the Plaintiffs argue that the memorandum constitutes a refusal to carry out the law, and thus a violation of the Constitution’s Take Care Clause.[5]

In response to these requests for preliminary injunctions, both courts granted a temporary restraining order (“TRO”) to the plaintiffs on January 31 and February 3 respectively, ordering the Trump Administration to restore the federal funding. Curiously, in the case brought by the States, the Government argued the request for a TRO was moot, since OMB formally rescinded the Memo on January 29. Even though OMB had rescinded the Memo, the Judge noted that the White House Press Secretary, Karoline Leavitt, had asserted that nothing had changed regarding the memo, even after formal recission; based on this admission in a public White House Press briefing, the Judge refused to find that the Plaintiff’s request was mooted by the formal recission of the TRO. In its decision granting the TRO, the Judge notes that OMB offered no legal authority for the unilateral executive action rescinding Congressionally authorized funds. The Judge also noted that the Plaintiffs were likely to prevail on Constitutional and other Statutory bases.

Even after the court granted the Plaintiff’s TRO in the States’ case, there was evidence that Agencies had continued to freeze federal funds, under the pretext of fighting fraud. In response to the Government’s unwillingness to abide by the TRO, the judge issued another order on February 10 clarifying his original order. This clarification reaffirmed the Trump Administration’s obligations under the original order: unfreeze frozen funding, end all funding pauses, restore withheld funds, and comply with the TRO’s text. On March 6, the Judge issued another order to extend the TRO.

As a continuing resolution was passed on March 14 to prevent a government shutdown, contractors could receive funding under their existing contracts and grants, albeit with likely delays. Nevertheless, the proceedings so far—and other recent judicial standoffs—foretell uncertainty regarding full compliance by the Administration, even as the courts announce doubts about the legal viability of unilateral funding recissions. Given the Trump Administration is expected to continue contesting both TRO’s, contractors should prepare for future pauses on funding either at a government-wide level or an agency-specific freeze. ACCESS FULL ARTICLE