Redstone Government Consulting Blog | REAs, Claims & Terminations

Executive Order Impacting Funding on Contract or Grant Work

The President issued an Executive Order (EO) on January 20, 2025, 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 117058). This relates to programs for issuing grants, loans, contracts, or any other financial disbursements of such appropriated funds. The Office of Management and Budget issued a guidance memo on January 28 and rescinded the memorandum on January 29.

I wrote an article in 2022, “The Future Does Not Look Good For COVID-Related REAs.” Well, it looks like things may have changed. On October 2, 2024, the Armed Services Board of Contract Appeals (ASBCA) issued its decision in the Appeals of Chugach Federal Solutions, Inc. ASBCA Nos. 62712, 62713, and 62877. In this case, the Board “rule[d] the government … failed to carry its burden to establish the sovereign acts defense.”

Lessons Learned from a recent Armed Services Board of Contract Appeals (ASBCA) case – Platinum Services, Inc. ASBCA Nos. 62199, 62200.

Bottom Line Up Front

The contractor (Platinum Services, Inc. – PSI), the Army, and even the Board all agree the services were rendered, however, since an official certified claim was not filed within six years from the date of the initial invoicing, the Government does not have to pay.

The government can terminate a contract, in whole or in part, through special contract clauses referred to as "termination clauses." Contract termination can happen for reasons such as lack of funding, bid protests, changes in military strategy, technological advancement, federal operations, or national political agenda that change the government's needs. However, what are the different types of termination proposals and forms required? This article will sort out the maze of what needs to be done and submitted.

The Government can terminate its contracts, in whole or in part, through special contract clauses referred to as “termination clauses.” Terminations can be frequent occurrences and can happen for numerous reasons, such as lack of funding, bid protests, changes in military strategy, technological advancement, federal operations, or national political agendas that change the government’s needs. FAR 49.201(a) [Termination of Contracts] states, “…A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit….” This compensation decision, unfortunately, is made through the government’s lens. A contractor must be focused on telling their story and providing proof through adequate documentation of claimed costs.

Yes, the door just opened for potential relief from unanticipated inflation on fixed-priced contracts, but what’s beyond the door is still unclear. This year’s National Defense Authorization Act (NDAA) includes Section 822, Modification of Contracts to Provide Extraordinary Relief Due to Inflation Impacts, which builds upon DoD’s September 9, 2022, inflation guidance through use of FAR Part 50, Extraordinary Contractual Actions and the Safety Act, requests submitted to your contracting officer to provide an upward adjustment (increase contract value) and this can be done for prime and subcontractors. Note that this NDAA section does not create an obligation for the Government to pay for unanticipated inflation, but it is a “discretionary” expenditure where the Government may pay for the effects of unanticipated inflation. What remains to be seen is exactly how and how much will be provided to your contract(s).