Recent developments in government contracting include a notable US Court of Federal Claims decision involving US Agency for International Development (USAID) contract terminations, a significant Federal Acquisition Regulation (FAR) deviation implementing Executive Order 14398, new Defense Production Act (DPA) actions by the administration, and an Office of Management and Budget (OMB) memorandum aimed at increasing the use of commercial products and services in federal procurement.
These developments reflect continued policy-driven shifts in procurement, enforcement, and acquisition strategy, with practical implications for contractors operating across the federal marketplace.
COFC Allows USAID Contractor Claims for Improper Mass Terminations to Proceed
The US Court of Federal Claims recently denied the government’s motion to dismiss breach of contract claims brought by USAID contractors arising from widespread contract terminations. The plaintiffs allege that USAID engaged in bad faith and abuse of discretion by executing mass terminations without individualized assessments.
The court found that the contractors sufficiently pleaded that the terminations were not based on legitimate programmatic needs but instead reflected a broader policy-driven action. The decision suggests that even where the government has broad termination rights, those rights are not unfettered and must be exercised consistently with contractual obligations and good faith.
This decision is an important reminder that termination for convenience rights, while expansive, are not immune from judicial scrutiny, particularly where contractors can point to evidence of pretext or coordinated agency action divorced from contract-specific considerations. Contractors facing termination actions, especially in clusters or across portfolios, should carefully evaluate whether the agency has articulated a defensible, individualized rationale. If the case proceeds beyond the pleading stage, it could further shape the contours of bad faith claims in the termination context.
FAR Council Issues Deviation Implementing Executive Order 14398
The FAR Council has issued a government-wide deviation implementing Executive Order 14398 through new FAR clause 52.222-90. The clause introduces new contractual obligations and enforcement mechanisms applicable to a broad range of federal contracts.
The clause applies to all contracts and subcontracts above the micro-purchase threshold, currently $15,000 for most contracts, where the place of delivery or performance is the United States. Contracting officers must include the clause in all solicitations issued on or after April 24, 2026, and in resulting contracts exceeding the threshold.
At the same time, agencies are directed to make every effort to bilaterally modify existing contracts by July 24, 2026. If a contractor declines, the contracting officer may consider whether the contract no longer meets agency needs, potentially leading to termination for convenience. Contracting officers retain discretion for modifications regarding contracts expiring by December 31, 2026.
The clause includes an explicit mandatory flowdown provision. Contractors must incorporate the substance of the clause, including the flowdown requirement itself, into all subcontracts at any tier, including those for commercial products and services, where performance occurs in the United States. The FAR has also been revised to include failure to comply with FAR 52.222-90 as a basis for suspension or debarment, significantly increasing compliance stakes.
The deviation reflects an increasing use of procurement levers to implement Executive Branch policy priorities, with immediate and potentially significant operational impacts for contractors. The combination of rapid implementation timelines, mandatory flowdown requirements, and explicit suspension and debarment consequences raises the stakes for compliance, particularly for companies with complex subcontracting structures. Contractors should be proactive in assessing how the clause will be operationalized, including revisiting subcontract templates, compliance controls, and negotiation strategies for bilateral modifications.
Additional discussion of this development is available through our LawFlash here.
Administration Issues New DPA Actions
The administration has issued several new DPA presidential actions, reflecting continued reliance on DPA authorities to support national priorities. When DPA authorities are leveraged, agencies can act faster and more independently without waiting for interagency coordination and can access funding and waivers of certain statutory requirements.
The recent actions include new determinations aimed at strengthening supply chains in critical sectors, including energy, advanced manufacturing, and strategic materials.
The continued use of DPA authorities signals that the federal government remains focused on reshaping and securing key segments of the industrial base, often with direct implications for contractor performance priorities and resource allocation. These determinations follow in the footsteps of last year’s previously discussed US Department of Defense acquisition overhaul.
Companies operating in affected sectors should anticipate increased use of priority ratings and potential conflicts between commercial and government demand. In addition, DPA-driven investments may create opportunities for contractors positioned to support domestic capacity expansion, but they may also bring additional compliance, reporting, and oversight requirements. Monitoring these developments and understanding how they intersect with existing contractual obligations will be critical in the months ahead.
OMB Issues Memorandum to Increase Use of Commercial Products and Services
OMB recently issued Memorandum M-26-12, directing agencies to significantly increase their reliance on commercially available products and services in federal procurement. The memorandum implements Executive Order 14271 and reiterates the longstanding statutory preference for commercial solutions under the Federal Acquisition Streamlining Act while introducing new review, reporting, and oversight requirements for non-commercial procurements.
Notably, OMB highlights that, despite existing policy, more than two-thirds of fiscal year 2024 federal contract spending was for non-commercial products and services, including substantial spending on common services that could potentially be procured commercially.
Memorandum M-26-12 reflects a clear policy push to curb what the administration views as overreliance on customized, cost-reimbursement contracting in favor of commercial, fixed-price solutions. For contractors, this guidance may create opportunities for firms offering commercial off-the-shelf or minimally modified solutions while increasing scrutiny on traditional government-unique offerings.
At the same time, agencies will face heightened expectations to justify non-commercial procurements, which could affect acquisition planning, competition strategies, and contract structuring. Contractors should consider how their offerings are positioned under FAR Part 12 and whether they can credibly qualify as commercial in an environment where that designation is likely to receive closer attention.
Looking Ahead
These developments collectively underscore a continued shift toward policy-driven procurement, increased use of contractual mechanisms to advance Executive Branch priorities, and heightened scrutiny of contractor compliance and positioning. As agencies implement new clauses, expand use of DPA authorities, and push toward commercial acquisition models, contractors should expect evolving requirements that may affect contract performance, supply chain management, and business strategy.
Close monitoring of these developments, along with proactive assessment of contractual and compliance implications, will remain important as these initiatives take effect.