The recent executive order issued on February 26, 2025, titled the Department of Government Efficiency Cost Efficiency Initiative, marks a significant shift in how the federal government manages contracts, grants, and loans. The order establishes stricter oversight and cost-cutting measures intended to enhance transparency and efficiency in federal spending. A central feature of this initiative is the requirement for agencies to implement technological systems that will track every payment issued under covered contracts and grants. These systems must include written justifications for all payments, submitted by the approving employees, ensuring a higher level of accountability in government spending.

For federal contractors, this initiative could have widespread implications. With agencies now mandated to review all existing contracts and grants within 30 days, contractors should prepare for potential modifications, renegotiations, or even terminations if their agreements are deemed inefficient or misaligned with the administration’s priorities. The order specifically calls for a focus on reducing overall federal spending and reallocating resources, with particular scrutiny on contracts involving educational institutions and foreign entities. This means that businesses working with the government must be prepared to justify their costs, prove their value, and ensure compliance with any new requirements that may emerge from this review process.

Another major provision of the executive order is the temporary freeze on government credit card usage. For 30 days, agency employees will not be able to make purchases with government-issued credit cards unless they are involved in critical services such as disaster relief or emergency response. While this measure is primarily aimed at reducing unnecessary government expenditures, it could cause temporary disruptions for contractors who rely on timely purchases or reimbursements to fulfill their obligations. Businesses engaged in providing goods or services to federal agencies may need to anticipate delays in payments and procurement approvals as agencies adjust to these new restrictions.

Additionally, the order includes a review of federal property leases and the potential disposition of government-owned real estate deemed unnecessary. This could impact contractors who lease office space, provide facility management services, or have agreements tied to government properties. If agencies decide to terminate leases or consolidate operations, businesses providing support services to federal buildings may see a reduction in contract opportunities or be required to adjust their service models to fit the government’s new cost-saving strategies.

A key concern for contractors will be the increased oversight and justification requirements for payments. Agencies are now expected to establish mechanisms that allow the agency head to pause and review payments that lack proper written justifications. While this measure is designed to prevent waste and abuse, it may introduce additional delays in the disbursement of funds. Contractors should ensure their invoicing and payment processes are as clear and well-documented as possible to minimize any disruptions.

One ambiguity in the executive order concerns the exception for military-related spending. The order states that it does not apply to the uniformed services as defined in 20 C.F.R. 404.1330, a regulation that pertains to Social Security benefits and defines uniformed service members as individuals serving in the Armed Forces, etc. However, this definition does not explicitly exclude the military as an institution or the Department of Defense’s procurement and contracting activities. If the intention was to exclude military contracts from review, a reference to Title 10 of the U.S. Code or an explicit mention of the Department of Defense would have provided more clarity.. Contractors in the defense sector should be particularly mindful of this ambiguity and consider seeking clarification on how the order will be applied to military-related spending.

Disclaimer: This blog post is for informational purposes only and does not constitute legal, financial, or business advice. While we strive to provide accurate and up-to-date information, federal policies and interpretations may change. Contractors should consult legal or procurement professionals for specific guidance on how this executive order may impact their contracts or business operations.