5 key questions about the US foreign aid halt, funding freeze

The flurry of announcements and changes to the U.S. foreign aid landscape, including work stoppages, likely funding cuts, and massive layoffs have flown fast and furious in the first week of Donald Trump’s presidency, spurring a whirlwind of inquiries about how to make sense of it all. Some of the answers to questions are evolving rapidly, or haven’t been determined yet, but Devex has begun to address some of the critical concerns posed by aid implementers and those involved in foreign aid distribution, including through a Devex Pro Briefing event on Monday, where top experts share their insights about the impacts of this administration’s early actions and what should be done. Here is what is known so far: What is the review process? To date, the guidance indicates that a review framework will be established within 30 days to evaluate all foreign aid programs. By 85 days after the Jan. 24 stop-work order, all the reviews should be finalized. Once the review is completed, USAID contract and agreement officers will communicate decisions and take steps to either resume, change, or terminate programs and funding. An email to implementing partners from Jami Rodgers, USAID’s senior procurement executive, acknowledged that there are costs and scheduling changes due to the funding freeze. It noted the agency will negotiate “equitable adjustments” as a result of the stop-work orders, suspension notices, or termination settlements. All solicitations or pre-award discussions or negotiations will stop immediately, and formal amendments may be issued to public calls for proposals or notices of funding opportunities. When the review of existing programs is complete, USAID will announce how and whether previously announced funding opportunities or requests for proposals will proceed. Within 90 days, heads of agencies must determine whether to continue a program. Funds could resume earlier but they must first undergo the approval process for each program. The criteria for this review is unclear. Some sources have expressed concern to Devex about the transparency of the process, others questioned whether a review would be truly undertaken or whether this was a facade to cut foreign aid funding. According to a source familiar with the situation, USAID appears to be sidelined in the review process, which is concerning. Pete Marocco, the head of the Office of Foreign Assistance, is driving the process, the source said. How are waivers working? Staff at USAID and the State Department have submitted waivers to try and exempt programs from the funding freeze and stop-work order, and while the exact process is still somewhat unclear, some waivers have been granted. A FAQ document by USAID Acting Administrator Jason Gray, shared some details, including that all waiver requests should be submitted by 3 p.m. daily using a provided spreadsheet from USAID’s Bureau for Planning, Learning, and Resource Management. Missions must submit requests through their regional bureaus. In the waiver requests, USAID staff members should include “clear programmatic outcomes that explain why this action needs to be urgently disbursed/obligated within the 90-day review period.” The outcomes should be directly linked with administration priorities, lifesaving assistance, or national security, according to the guidance. If the request is for institutional contractors, the waiver must explain why the work cannot be done by direct hires. Requests must first go to the Office of the Administrator for approval before being sent to the director of the State Department’s Office of Foreign Assistance for review. Any answers to state department questions should go through USAID staff. Getting waivers through has proved difficult, though some have now been granted, notably for emergency humanitarian assistance. The State Department also said that waivers had been approved to protect U.S. personnel overseas, repatriate illegal immigrants, enforce non-proliferation agreements, and more. It said that exceptions were reviewed and in some cases approved within hours. “They’re doing this rack and sack,” said Marcia Wong, who until recently was deputy assistant administrator for humanitarian assistance at USAID. The process is an Excel spreadsheet and people are not sure what void it is going into, she said. What do implementers need to do? The first step is to comply with specific stop orders and halt all work. In some cases, organizations must communicate that they are complying with the stop-work order. Even as programs are shut down, they should ensure work products are preserved, documentation is maintained, and keep an audit trail for completed work. They must also justify ongoing expenses that could still be paid out — particularly for contracts — including rents, salaries for idle staff members, compliance with local labor laws, and more, several experts suggested at the Devex event. Exactly what ongoing expenses would be covered for grantees is less clear. Keeping detailed records should help recover costs when the time comes, Jason Matechak, a principal at Impresa Legal Group, said at the Devex event. However, Robert Nichols, a partner at Nichols Liu, a law firm, cautioned that although agreement officers might assert certain costs are recoverable based on belief or hope, this might not reflect the actual situation. “What this administration is going to do in terms of actually paying costs remains to be seen,” he said. “I would not be surprised at all if they tried to do a rescission just to make funds unavailable,” so that the agency can trigger the clause that says payment is subject to funding availability. Organizations should prioritize business continuity as the review unfolds, Nichols said, by complying with government obligations, minimizing costs, and protecting their cash. They should conduct a cash flow analysis to determine spending priorities, especially as some lenders are already restricting credit over concerns that contracts won’t be honored and debts won’t be repaid. As implementers prepare for the review, they should take an honest look at their programs and evaluate whether they are likely to align with the administration’s priorities to prepare for possible cancellation, Matechak said. The review criteria will likely judge whether it aligns with the new administration’s policy priorities — making America safer, stronger, or more prosperous — and if the money is spent efficiently, Nichols said. Being proactive and well-prepared may help ensure programs make it through the review and restart more quickly, he added. What is the difference between contracts and grants? Contracts, grants, and cooperative agreements will be treated differently, and in general, contractors will have more recourse and clearer provisions about what happens during this pause. While some USAID grant agreements include a suspension award clause, they lack a detailed explanation of what happens when grants are suspended or how recipients amend their agreements, said Olga Wall, CEO of Avallon Consulting. Fundamentally, grants and cooperative agreements are viewed more as USAID providing a gift to an organization to carry out a specific objective, rather than hiring a company to do its work, as is the case with contractors. Organizations with grants could decide to terminate the grant instead of waiting out the pause, she said. The U.S. government can cut off grant funds at any time and there is no mechanism to sue the government under the Contract Disputes Act, Nichols said. Will there be legal challenges? “There is potential the way this is going for a lot of claims in litigation,” Nichols said. There are likely to be contract-related disputes, and organizations should ensure they maintain clear, auditable records of all stop-work efforts in case legal action becomes necessary. Nichols explained that the Supreme Court has established that if a contract exists with available appropriations, a contractor is entitled to payment in accordance with the contract’s terms. It remains unclear, however, how grant holders could assert their rights, as pursuing legal remedies is more difficult, Nichols said. While it is possible to sue the administration to seek an injunction to reverse the funding freeze — as was done with a recent broad domestic federal funding halt — it remains complex, Nichols said, adding that his firm is exploring the matter.