U.S. Policy Shift On Foreign Aid: Key Legal Issues For USAID Contractors, NGOs, And Life Sciences Companies

Key Takeaways:

• Executive Order 14169, issued on January 20, 2025, placed a 90-day pause on foreign aid while its alignment with U.S. foreign policy was reviewed.¹
• On March 10, 2025, Secretary of State Marco Rubio announced that the review had concluded, with 83% of the programs run by the United States Agency for International Development ("USAID") having been cut, representing some 5,200 contracts.² Numerous lawsuits have been brought disputing the termination of these contracts.
• On July 1, 2025, USAID was officially closed, with remaining programs being transferred to the State Department.
• These changes have had, and will have, significant humanitarian consequences.^3,4,5 Companies and NGOs that relied on billions of dollars in annual USAID funding are also continuing to be impacted.
• This client alert addresses how companies can navigate the new landscape, both in their direct relationships with U.S. agencies, and with respect to their contractual counterparties.

Factual overview

On January 20, 2025, an Executive Order titled "Reevaluating and Realigning United States Foreign Aid" introduced a 90-day pause in foreign assistance programs pending review.⁶

On January 24, Secretary of State Rubio enforced the pause with a memorandum calling for stop-work orders on existing foreign aid.⁷ Although a temporary waiver for certain aid projects was granted on January 28, most aid activity remained halted.⁸

By February 6, over 10,000 USAID employees were placed on leave, leaving just a few hundred remaining staff.⁹

On July 1, USAID officially ceased operations. A limited number of programs and staff were transferred over to the State Department.¹⁰

On July 24, relatedly, the president signed into law the Rescissions Act of 2025, clawing back almost $9 billion allocated to humanitarian organizations, including USAID.¹¹

In light of these developments, contractors and grant recipients affected by the payment suspensions, stop-work orders, and cancellations have challenged these actions in U.S. courts.

On September 26, the Supreme Court indefinitely stayed the decision of a lower court that had ordered the Trump Administration to spend nearly $5 billion in foreign aid appropriated by Congress. The high court's stay order allows the Administration to keep these funds frozen.¹²

Possible challenges to terminations by USAID

On February 18, senior officials indicated that USAID was terminating contracts on two broad bases: the termination clauses in those contracts or, where that was not possible, an alleged implied term providing for termination for convenience.¹³ It is far from clear, however, whether such a term can be implied into all Government contracts.¹⁴ Moreover, even though federal procurement contracts often include termination for convenience clauses, permitting termination when it is "in the Government's interest,"¹⁵ there are limits to when termination-for-convenience clauses can be invoked, such as where there is evidence of bad faith, an abuse of contracting discretion, a violation of the Constitution's separation of powers (where, for example, the terminations effect an across-the-board cancellation of a congressionally mandated program), or the decisions were otherwise arbitrary or capricious for the purposes of the Administrative Procedure Act.¹⁶

Whatever the basis for termination, it may be possible to challenge termination decisions through, for instance, the Civilian Board of Contract Appeals or the United States Court of Federal Claims.¹⁷ Under the Tucker Act, the United States government has waived its sovereign immunity against claims for pecuniary damages based on an "express or implied contract with the United States," on the basis they must be brought in the United States Court of Federal Claims.¹⁸ Challenges to the underlying policies, but not the terminations themselves, can be brought in federal courts under the Administrative Procedure Act.¹⁹ A number of lawsuits challenging Executive Order 14169 and its consequences are currently working their way through the court system.

Possible challenges with respect to contracts with other counterparties

The termination of over 5,000 USAID contracts is having significant downstream effects. For instance, the Stop TB Partnership—a large international coalition focused on eliminating tuberculosis around the world—has warned that it may have to end partnerships with up to 140 organizations as a result of the Trump Administration's policy changes.²⁰

Affected entities should review their agreements for terms that allocate the risks associated with policy changes at USAID. Specifically:

• Contractual dependencies: Do any clauses impose obligations that require cooperation from USAID specifically?
• Contractual performance: More generally, is performance of contractual obligations, that for instance mandate a certain volume of manufacturing or sales, realistic following the closure of USAID and the cuts to U.S. foreign aid spending? This may not be the case where a significant portion of the funding for a given activity was provided directly or indirectly by USAID.
• Force majeure and similar provisions: How do force majeure or other "unexpected event" clauses address USAID policy changes?
• Termination and suspension rights: On which bases does the contract permit unilateral termination, cancellation, or suspension?
• Renegotiation mechanisms: Are there any provisions that would allow the parties to modify their rights and obligations, in view of recent policy changes?

This exercise should assist in understanding rights and obligations where the policy changes have already had an impact, and in identifying any relationships that are vulnerable to such impacts.

Affected entities may also want to verify the adequacy of dispute resolution clauses providing for amicable settlement, mediation, arbitration, or litigation. Some entities may no longer be able to fulfill certain obligations—or may choose not to—in light of policy changes. Foley Hoag has extensive experience assisting clients with issues like those described above, including disputes arising in the context of the closure of USAID. If you would like to discuss any of these topics, please do not hesitate to contact the authors of this client alert.

Footnotes

1. "Reevaluating and Realigning United States Foreign Aid," Exec. Order No. 14169, 90 Fed. Reg. 4753 (20 Jan. 2025).
2. M. Schreiber, "Rubio announces that 83% of USAID contracts will be canceled," NPR (10 Mar. 2025).
3. P. Taylor, "The turbulence and the toll of the USAID freeze," Institute of Development Studies (3 Feb. 2025).
4. N. Peyton, "UN food agency shuts Southern Africa bureau during drought, citing low funding," Reuters (3 Mar. 2025).
5. J. Zuniga, "IAPAC Condemns USAID HIV and Humanitarian Contract Terminations," International Association of Providers of AIDS Care (27 Feb. 2025).
6. "Reevaluating and Realigning United States Foreign Aid," Exec. Order No. 14169, 90 Fed. Reg. 4753 (20 Jan. 2025).
7. F. Tanis, "U.S. puts virtually all foreign aid on 90-day hold, issues 'stop-work' order," NPR (Jan. 24, 2025).
8. A. Walker and K.K. Lai, "A Timeline of Cuts, Legal Orders and Chaos at U.S.A.I.D." New York Times (5 Mar. 2025).
9. Id.; C. Hayes, "Judge blocks Trump plan to put thousands of USAID staff on leave," BBC (8 Feb. 2025).
10. "USAID programs now being run by State Department as agency ends operations," ABC News (July 1, 2025).
11. H.R. 4 – Rescissions Act of 2025 (July 24, 2025).
12. "Supreme Court keeps in place Trump funding freeze that threatens billions of dollars in foreign aid," AP News (Sep. 26, 2025).
13. Declaration of Pete Marocco, Civil Action No. 25-00402, February 18, 2025, para. 11.
14. The authority relied upon by the administration concerns contracts governed by the Armed Services Procurement Regulations specifically. See Declaration of Pete Marocco, Civil Action No. 25-00402, February 18, 2025, para. 11, (citing K-Con, Inc. v. Sec'y of Army, 908 F.3d 719, 724 (Fed. Cir. 2018)).
15. 48 C.F.R. 52.249-1 (authorizing termination for convenience when termination is "in the Government's interest"); see also 48 C.F.R. 49.502(a)-(b); 48 C.F.R. 52.249-4; 48 C.F.R. 52.249-6(a)(1).
16. See Administrative Procedure Act, § 10.
17. Claims can be made through judicial review in the Civilian Board of Contract Appeals or the United States Court of Federal Claims. See, e.g., 48 C.F.R. 49.201 (providing rules for settlement of certain contract claims); and 2 C.F.R. 200.343 (effects of suspension and termination).
18. U.S.C. § 1491(a)(1).
19. See, e.g., First Amended Complaint for Declaratory and Injunctive Relief, Glob. Health Council v. Trump, 1:25-cv-0042. (D.D.C.); see also Glob. Health Council v. Trump, 153 F.4th 1.
20. "Services to Millions of People Collapse as USAID Cuts Contracts Worldwide," Reuters (Feb. 27, 2025).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.