Nichols Liu Webinar – Latest Updates on Foreign Aid Freeze and Review

January 24, 2025 is a watershed date. In directing the immediate stop of activities measured in billions of dollars of foreign assistance for up to 90 days, Secretary of State Rubio has jeopardized the lives and well-being of millions of people in dire need around the world as well as the viability of many of the organizations that provide this support.

The stop-work directive was put into effect by USAID through a Notice on Implementation of Executive Order: Reevaluating and Realigning United States Foreign Aid, issued by the Office of Acquisition and Assistance (M/OAA) on the same date. Stop work orders and suspension notices began to pour into contractor and recipient offices.

According to the Notice, Contracting and Agreement Officers are instructed:

• • Not to modify, extend, exercise options, or renew existing awards
  • To issue stop-work orders, amendments, or suspensions for current awards later
  • To communicate whether awards will continue, be modified, or terminated after a review.

No new awards or funding solicitations will be issued until each activity has been reviewed and aligned with the President’s policy. Waivers to this pause have been approved for:

• • emergency food assistance programs and related administrative expenses,
  • temporary personal services contractor expenses,
  • legitimate expenses incurred before January 24, 2025, and associated with the stop-work, and exceptions approved by the Director of Foreign Assistance.

The Notice also states that Review standards will be developed within 30 days to ensure alignment with President Trump’s foreign policy agenda. The review is to be completed within eighty-five days of January 24, 2025.

In a Pub K conference call, Robert Nichols addressed questions raised by the stop work orders (FAR 52.242-15) and suspensions (2 CFR 700.14):

• • It is difficult to jam on the brakes on a USAID contract, grant or cooperative agreement. Implementers usually manage regular payments (rent, utilities, security services, etc.) that cannot be readily stopped and must comply with local labor laws requiring advance notices for layoffs.
  • Contractors/Recipients should make sure at the onset there’s an understanding with the CO/AO on how to treat these and other costs believed to be legitimate during the pause.
  • An important question to ask CO/AOs is the prospect of continuing to pay staff salaries and associated benefits (e.g. health insurance) during the pause as was done during the COVID 19 shut-downs, in order to preserve the workforce for when the pause is lifted.
  • The 90-day Stop Work Orders and Suspensions will impact cash flow and recovery of indirect costs, causing uncertainty in ongoing and planned corporate activities.
  • Indirect costs are “legitimate,” but will likely be recovered on a reduced base of direct costs. Responsible measures should be taken to appropriately reduce indirect costs commensurate with reduced work and associated direct costs.

As further discussed in the conference call, Rubio’s directive on the foreign assistance freeze also required Missions to produce for State’s Directorate of Foreign Assistance for review a list of all active, pending, or proposed grants, subcontracts, contracts, or subcontracts, and provide a clear and concise statement explaining if and how the current or proposed use of obligated funds advances President Trump’s policy. At this point, we believe the information being considered includes:

• • Alignment with Foreign Policy
    • Rubio’s 3 questions tied closely to foreign policy objectives: Does it make us safer, stronger, and more prosperous?
      • Likely targets include climate activities, women empowerment programs, gender-related programs and countries with limited strategic value.
      • Humanitarian assistance is also being reviewed, although emergency feeding programs have been approved to continue their operations.
    • We also heard in the chat that one organization was asked to provide input on “How does this award counter “Chinese influence?”

• •  Efficiency
    • Not clear at this point
    • Innovation and the use of technology will be prioritized
    • Localization may be a consideration as its seen as a more efficient use of development dollars
    • Faith-based organizations with presence in-country may also being prioritized
    • Private sector engagement will also be a theme
    • A more accountable relationship with PIOs
    • The “aid industrial complex,” in general, is a target of reform given its high overhead and the intent to diversify the partner base.

Rubio’s worldwide cable on the freeze also states that the review process will involve State’s Director of the Office of Foreign Assistance (F) and the Office of Budget and Planning (BP) to work with the Office of Management and Budget (OMB) in making the determinations. The review is to be completed within 85 days and reported out to the President.

Pub K has learned that Peter Marocco is set to head the Directorate of Foreign Assistance, overseeing the review over the next 90 days. Marocco’s extensive experience with the first Trump Administration includes serving as the Deputy Assistant Secretary for the Bureau of Conflict and Stabilization at the State Department, Deputy Assistant Administrator for African Affairs at the Department of Defense, and Assistant to the USAID Administrator in leading the Bureau for Conflict Prevention and Stabilization. A recent article in Politico linked here provides additional details on what he’s been up to since departing USAID.

Nichols Liu’s Strategic and Government Affairs practice is available to support contractors and recipients prepare for the program review and compliance aspects of other Executive Orders, as well as engage policymakers on issues arising from the EOs.

Readers may watch the recording of the call below and access the slides for Robert Nichols Pub K conference call here.