Responding to Recent Guidance on OMB’s Temporary Pause of Federal Financial Assistance Programs

Broad Scope of OMB Memo M-25-13 Could Affect Federal Contractors and Grant Recipients Across Industries

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Authors: Jessica C. Abrahams , Dana B. Pashkoff , John G. (Jack) Horan , Michelle Y. Francois , Asher Friedman Young

At a Glance

On January 27, 2025, the Office of Management and Budget (OMB) issued an internal memo (M-25-13) directing federal agencies to temporarily pause all grant, loan or federal financial assistance programs implicated by President Donald Trump’s executive orders. In response to a lawsuit alleging that M-25-13 violated the Administrative Procedure Act, a federal judge has since issued an administrative stay halting the temporary pause on open grants through Monday, February 3.
In an effort to clarify the scope of M-25-13, OMB issued revised guidance on January 28, clarifying that the pause would not apply “across-the-board,” but rather would be “expressly limited to programs, projects, and activities implicated by the President’s Executive Orders.”
On January 29, OMB rescinded M-25-13. It remains unclear what steps OMB will take going forward to align federal programs and spending with the administration’s agenda and policy positions.
Federal contractors and recipients of federal grant awards should stay apprised of additional agency guidance in the coming days and take all necessary steps to account for costs and expenditures related to federal funding, as they should be doing in the normal course. The proper segregation and allocation of costs will become especially important if relevant programs are suspended or ultimately terminated. As such, contractors and grant recipients should ensure expenses incurred are properly allocable and allowable under the terms of their federal funding agreements, particularly in the event that such funding is paused, suspended or terminated.

On January 27, 2025, the Office of Management and Budget (OMB) issued an internal memo (Memo M-25-13) directing all federal agencies to temporarily pause all activities related to obligation or disbursement of all federal financial assistance, and other relevant agency activities that may be implicated by President Donald Trump’s executive orders. The memo, which was supposed to go into effect at 5:00 p.m. ET that day, defined “federal financial assistance” as: (i) all forms of assistance listed in paragraphs (1) and (2) of the definition of the term at 2 CFR 200.1 (e.g., grants, cooperative agreements, direct appropriations, food commodities, loans and loan guarantees, interest subsidies, insurance, etc.); and (ii) assistance received or administered by recipients or subrecipients of any type except for assistance received directly by individuals. In response to a lawsuit filed in U.S. District Court for the District of Columbia on Tuesday, January 28, 2025, a federal judge issued an administrative stay to prevent federal agencies from implementing M-25-13 with respect to the disbursement of federal funds under all open awards until 5:00 p.m. ET on Monday, February 3, 2025. OMB subsequently rescinded Memo M-25-13 on January 29, 2025.

OMB’s Initial Guidance Memo

In an effort to “provide the Administration time to review agency programs and determine the best uses of the funding for those programs consistent with the law and the President’s priorities,” Memo M-25-13 instructed federal agencies to complete a “comprehensive analysis” of all of their federal financial assistance programs to identify programs, projects and activities that may be implicated by any of the President Trump’s executive orders. For each program, agencies were also required to (i) assign responsibility and oversight to a senior political appointee; (ii) review currently pending federal financial assistance announcements and, subject to program statutory authority, modify unpublished announcements, withdraw any announcements already published and, to the extent permissible by law, cancel awards already awarded that are in conflict with administration priorities; and (iii) ensure adequate oversight of federal financial assistance programs and initiate investigations when warranted to identify underperforming recipients, and address identified issues up to and including cancellation of awards.

Following issuance of Memo M-25-13, OMB clarified on January 28, 2025, that any program not implicated by President Trump’s executive orders would not be subject to the pause. The updated guidance issued that day further clarified that, in addition to Social Security and Medicare, mandatory programs like Medicaid and the Supplemental Nutrition Assistance Program would continue without pauses, as would “[f]unds for small businesses, farmers, Pell grants, Head Start, rental assistance, and other similar programs.”

The potential scope of Memo M-25-13 was broad, potentially impacting federal contractors and grant recipients across sectors in their work domestically and internationally. Memo M-25-13 followed a similar directive issued by the State Department on January 24, which ordered an immediate pause on new foreign aid spending through the U.S. Agency for International Development, as well as stop-work orders for existing grants and contracts (with limited exceptions for some military financing and emergency food assistance programs). Additionally, Memo M-25-13 built on Trump’s executive orders issued during the first week of his term, such as “Unleashing American Energy,” which ordered agencies to “immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (Public Law 117-169) or the Infrastructure Investment and Jobs Act (Public Law 117-58).” The full list of executive orders listed in Memo M-25-13 included:

Considerations for Federal Contractors and Grant Recipients

Although Memo M-25-13 was rescinded on January 29, the expectation is that further action will occur to align government programs and spending with the administration’s agenda. Significant uncertainty continues to exist regarding the long-term status of certain federal financial assistance programs. Among other things, the government may still issue stop-work orders and termination notices for contracts or grants expressly associated with programs mentioned in the executive orders (e.g., Inflation Reduction Act funding, Infrastructure Investment and Jobs Act funding, “environmental justice” programs, racial equity-focused projects, etc.).

However, until receiving a stop-work order or termination notice, federal contractors and grant recipients should continue fulfilling work under their federal contracts and grant awards. Under FAR 42.1303(c), stop-work orders should include: a description of the work to be suspended; instructions concerning the contractor’s issuance of further orders for materials or services; guidance to the contractor on action to be taken on any subcontracts; and other suggestions to the contractor for minimizing costs. Similarly, in the grant context, 2 CFR 200.340(b) states that federal agencies “must clearly and unambiguously specify all termination provisions in the terms and conditions of the Federal award.” Contractors and grant recipients should review their specific contracts and awards, respectively, to determine which termination provisions apply.

Importance of Documenting All Costs and Expenses

Upon receipt of a stop-work order, federal contractors should immediately take all reasonable steps to minimize the incurrence of costs allocable to the work covered by the order during the period of work stoppage. See FAR 52.242-15(a). Following the termination of a federal grant, recipients of federal awards are also responsible for complying with relevant regulations regarding closeout, post-closeout adjustments, and continuing reporting responsibilities, outlined at 2 CFR 200.344 and 2 CFR 200.345. In the event that a federal grant is suspended or terminated, payment adjustments must be made in accordance with 2 CFR 200.343, which allows costs to the recipient during suspension or after termination if:

The costs result from financial obligations which were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and
The costs would be allowable if the Federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect.

It is essential that federal contractors and grant recipients document all costs and expenses incurred in connection with a stop-work order, suspension or termination. Both the OMB Uniform Guidance provisions at 2 CFR Part 200 and the FAR Part 30 (Cost Accounting Standards) and FAR Part 31 (Contract Cost Principles and Procedures) provide vehicles for grant recipients and federal contractors to recover allowable termination and closeout costs in the event their awards are terminated. Specifically, 2 CFR 200.472(a) and FAR 31.205-42 provide that termination of a federal award or contract, respectively, “generally gives rise to the incurrence of costs or the need for special treatment of costs, which would not have arisen had the [federal award or contract] not been terminated.” If the grant recipient or contractor cannot discontinue certain costs immediately after the effective termination date, despite making all reasonable efforts, then the costs are generally allowable within the limitations of the provisions.

Accordingly, federal contractors and grant recipients should document all costs that might be allowable and recoverable under the relevant provisions, including expenses associated with stopping work, labor costs, settlement expenses (e.g., accounting or legal fees), claims under subawards or subcontracts, and potentially rental costs under unexpired leases (where shown to have been reasonably necessary for the performance of the terminated contract). Contractors and grant recipients should properly segregate expenses associated with their funding awards from other general operations or funding pools, as the successful recovery of allowable termination and closeout costs depends on how thoroughly an awardee has outlined and communicated its expenses to the relevant agency or pass-through entity.

What’s Next?

Federal contractors should maintain consistent communications with any subcontractors or subaward recipients and stay apprised of other developments related to Memo M-25-13, its rescission, and recent lawsuits filed by nonprofit groups and state attorneys general.

For More Information

We will continue to monitor future developments and are available to answer any questions related to any future OMB memoranda, executive orders, or other changes related to federal financial assistance programs.