Major new lawsuit filed by USAID contractors, NGOs challenges aid freeze

The companies and nongovernmental organizations that run USAID’s global programs have been devastated by the Trump administration’s foreign aid freeze and stop-work orders. For them, it’s not just politics — it’s survival. Mass layoffs, sweeping furloughs, and the looming threat of collapse have pushed them to the brink. Aid advocates have been waiting for the courts to step in — and now, the legal fight is gaining traction. A newly filed lawsuit, backed by major for-profit contractors and NGOs, is taking direct aim at the freeze. With USAID programs stalled and the agency being systematically dismantled, the situation has reached a breaking point. The companies and NGOs responsible for implementing USAID programs worldwide have been crippled by the freeze, but the consequences extend beyond these organizations, leaving millions of people without access to lifesaving humanitarian and development assistance. With this lawsuit, the legal challenges are ramping up. Some of the damage to USAID implementers is detailed in a lawsuit filed on Tuesday that asks the courts to rule the administration’s actions unconstitutional and unlawful and reverse the foreign aid freeze. The plaintiffs include the Global Health Council, the Small Business Association for International Companies, HIAS, Management Sciences for Health, Chemonics International, DAI Global, Democracy International, and the American Bar Association. Given the significance of the arguments, this lawsuit — along with a similar one filed on Monday on behalf of two nonprofits that receive United States foreign assistance — could ultimately reach the Supreme Court. “We believe that this is likely to be appealed to the Supreme Court,” said Robert Nichols, a partner at the Nichols Liu law firm, at an event Monday. Nichols has been working on some of these legal issues but is not part of the team at Arnold & Porter that is representing the plaintiffs in this case. The suit “is going to carry water for this industry, this sector.” Until now, many organizations impacted by the freeze — including major contractors — have remained silent, potentially fearing that suing the U.S. government could jeopardize future contracts. The calculus has now shifted. The complaint argues that the administration’s “unlawful and unconstitutional exercise of executive power” has “created chaos in the funding and administration” of USAID and other foreign assistance programs, causing “grievous irreparable harm to plaintiffs and other grantees, contractors and partners.” According to the lawsuit, the president and other administration officials have sought to dismantle an independent agency established by the U.S. Congress and withhold billions of dollars of foreign assistance appropriated by Congress. The lawsuit names President Donald Trump; Secretary of State Marco Rubio; Peter Marocco, acting USAID deputy administrator for policy and planning; Russell Vought, director of the Office of Management and Budget; USAID; the Department of State; and the Office of Management and Budget as defendants. “One cannot overstate the impact of that unlawful course of conduct: on businesses large and small forced to shut down their programs and let employees go; on hungry children across the globe who will go without; on populations around the world facing deadly disease; and on our constitutional order,” the complaint says. The lawsuit presents a detailed timeline of the administration’s actions regarding foreign aid — from the executive order pausing funding during a 90-day review to State Department and USAID directives halting most existing work, and official statements confirming frozen payments. It argues that these actions exceed the executive branch’s authority and defy congressional funding mandates. The plaintiffs ask the court to unfreeze foreign aid funds, declare the executive order and its implementation unlawful, and block the administration from dismantling USAID. The facts of the case Much of U.S. foreign assistance is delivered by grantees, contractors, subcontractors, and other partners, many of whom have worked with USAID for decades. The administration has issued a series of vague directives to implement Trump’s executive order pausing foreign aid, and the complaint asserts that the “reality on the ground is even more dire than those directives would suggest.” USAID and the State Department have suspended nearly all payments to existing partners, including for work completed before Trump took office, throwing organizations into turmoil and leading to thousands of job losses. While the stop-work order memo from Rubio indicated it would only freeze new obligations, the reality is that almost all disbursements to partners have been halted, the lawsuit argues. In a court declaration filed on Monday in a separate case, Marocco said that USAID “has generally paused all expenditures in connection with foreign aid” for both new and existing programs. While the State Department has issued some waivers, including for food aid and lifesaving humanitarian assistance, the lawsuit claims there is no formal waiver process, and what exists is “opaque and illusory.” Even funds that technically qualify for waivers have been slow to flow — or in some cases remain frozen. A USAID inspector general report released on Monday found that the agency’s dismantling has severely weakened its ability to vet humanitarian awards for terrorist ties and monitor aid. “Far from combating waste, fraud, and abuse in U.S. foreign-assistance programs, Defendants’ actions have exacerbated it,” the lawsuit states. What is owed A key part of the legal case concerns the administration’s refusal to pay for completed work, placing a severe burden on implementers. Democracy International, a small business, is owed nearly $3.4 million for work completed before the stop-work orders and aid suspension. DAI is awaiting more than $120 million, and Chemonics has about $103.6 million in outstanding invoices for work performed in 2024. USAID has also not paid tens of millions more dollars to other plaintiffs in the lawsuit. The impact Democracy International medical aid programs in Bangladesh have been halted, as has a program tracking violence against Christian communities in Burkina Faso, leaving them more vulnerable to attacks. DAI cybersecurity programs for Ukraine, zoonotic disease tracking in Bangladesh, and shelter programs for minors seeking protection from criminal gang recruitment in Central America have all been halted. Chemonics, which runs the Global Health Supply Chain Program — a procurement and supply management project, the largest USAID project ever — had $240 million in contractual commitments for medicines and health supplies before the stop-work order. Another $150 million in health products are stranded in warehouses, with $88.5 million in transit at risk of expiring, being damaged, or stolen. The lawsuit warns that if those medical products are not delivered, as many as 566,000 people — including 215,000 children — could die from HIV/AIDS, malaria, and unmet reproductive health needs. Other plaintiffs will shutter up to 1,226 primary health care clinics and have postponed antimalarial campaigns, which must be conducted before the rainy season to be effective. “These programs cannot simply be restarted on command. USAID’s partners are hemorrhaging resources and employees,” the lawsuit says. The toll Democracy International has furloughed all of its 95 U.S.-based employees and placed 92% of its 176 overseas staff on unpaid administrative leave because USAID has not paid money owed. The organization has also canceled all benefits, including health insurance, terminated consultants, shut down all but one of its overseas offices, and otherwise downsized. DAI has furloughed 383 U.S.-based staff in the past 10 days, reduced salaries for senior staff, deferred payments to hundreds of vendors, terminated subcontracts, and breached the terms of hundreds of leases and other contractual arrangements. Many of DAI’s staff cannot pay for their housing, education, and medical care as a result. Chemonics has furloughed 750 U.S.-based staff members — about 63% of its workforce — reduced hours for remaining employees, and plans to furlough more at the end of the month. It can only cover health care benefits for furloughed employees through March. Management Sciences for Health has furloughed half of its staff, reduced hours for the remaining employees, fired consultants, and may be forced to let go of 1,000 employees abroad. HIAS has laid off more than 500 international staff members, shuttered its program offices, and deferred payments. The complaint makes clear that many of the plaintiffs face dire financial distress, pushing them closer to bankruptcy. It warns that many USAID and State Department partners “will simply not be around to carry on their projects even if Defendants decide to turn funding for foreign assistance back on.” The argument The lawsuit argues that the administration’s actions violate the Constitution and multiple laws, primarily by overstepping the authority granted to the president and administration officials. It cites violations of the Constitution’s separation of powers doctrine, which establishes distinct responsibilities for each branch of government to limit anyone from encroaching over the core authority of the other. In this case, the administration does not have the right to dismantle USAID, an independent agency created by Congress, nor can it ignore congressional mandates regarding foreign assistance money, the lawsuit says. The lawsuit also contends that the president, secretary of state, and USAID administrator cannot choose not to spend congressionally appropriated foreign assistance funds, as doing so violates the Impoundment Control Act, which asserts the Congress’ role in determining government funding. The 2024 Appropriations Act explicitly directs USAID and the State Department to spend funds for particular foreign assistance purposes, making the administration’s refusal to comply a clear violation of federal law, the lawsuit alleges. The case further argues that these actions are a violation of the Administrative Procedures Act, as the government did not “examine the relevant data” and articulate a “rational connection between the facts found” and its blanket freeze on foreign aid, as the law requires. The government has not provided any evidence to justify its claims or explain why a broad freeze — rather than a more orderly and targeted process — was needed to achieve its goals. The lawsuit also asserts that the government failed to consider the implications of its actions, including the fact that programs cannot simply be restarted if funding is restored. “Defendants’ actions are arbitrary and capricious. Defendants have failed to adequately justify their actions; have failed to consider key aspects of the problem, reasonable alternatives, and the substantial reliance interests at stake; have relied on factors Congress did not authorize them to consider; and have failed to acknowledge or justify their change of position,” the lawsuit says. The legal challenges Three lawsuits, all filed in the past week, now challenge the Trump administration’s efforts to freeze foreign aid and dismantle USAID. In addition to the latest one filed Tuesday, a case filed on Monday brought by the AIDS Vaccine Advocacy Coalition, or AVAC, a New York-based nonprofit that works to end HIV/AIDs, and the Journalism Development Network, or JDN, a Maryland-based nonprofit, presents similar arguments to this latest lawsuit, challenging the constitutionality of the foreign aid freeze. Both cases have been assigned the same judge — Loren AliKhan. AliKhan is also assigned to other cases challenging the constitutionality of other federal funding freezes and issued a temporary restraining order in a case last week halting the administration’s efforts to freeze domestic funding. Another lawsuit, filed last week on behalf of two unions representing USAID employees, resulted in a temporary restraining order issued by Judge Carl Nichols that prevented the administration from placing 2,200 employees on leave as planned. The ruling also reinstated previously furloughed employees and blocked the administration’s efforts to rapidly recall overseas personnel. Notably, government lawyers have since filed a notice of correction, admitting factual errors in their arguments before Judge Nichols during a Friday hearing for that case. They now acknowledge that 2,140 employees had already been placed on leave before the hearing — far higher than the 500 originally stated. As reported by Devex, they also incorrectly represented the scope of the freeze, initially claiming that only new obligations were paused, when in fact payments on existing contracts were also stopped. Marocco, who heads the State Department’s Office of Foreign Assistance and has been put in charge of USAID operations — including both the waiver and review process – submitted a declaration in that lawsuit on Monday. He asserted that placing most of USAID’s staff on administrative leave and halting funding in a “pencils down” approach was necessary because USAID staff failed to provide information on time and, in some cases, approved payments without authorization, the statement says. It also states that given the scale of foreign programs that did not align with the president’s objectives, “an ad hoc review of these conflicting programs would unduly burden the execution of the President’s other foreign policy priorities. A blanket pause with a waive-in process was the more efficient and effective path.” A hearing is scheduled in that case on Wednesday. Beyond these three lawsuits, more legal challenges are expected, including a potential flurry of individual contractual lawsuits seeking payment for unpaid contracts and agreements.