The recent Temporary Restraining Order (TRO) to unfreeze USAID funding has revealed a complex situation, with the government outlining its legal justifications, resisting compliance, and launching a new “Payment Integrity Review Process.” A status report filed by the government, along with a declaration from Pete Marocco, Deputy Administrator of USAID and Director of Foreign Assistance at the State Department, sheds light on the administration’s actions and their potential consequences as the legal battle continues to wage.
Legal Justification and Stop-Work Orders
The government’s report asserts that USAID contracts, grants, and cooperative agreements contain stop-work or suspension terms, granting them the authority to freeze funding. While some State Department awards may lack explicit terms, the government argues it retains implicit authority. Marocco’s declaration details the response to the TRO, including a pause on payments pending a case-by-case review of foreign assistance programs.
New “Payment Integrity Review Process”
The payment freeze will continue as the administration implements a new “Payment Integrity Review Process.” Marocco cites “insufficient controls or review” in the payment process, particularly for grantees using letters of credit. He claims that USAID staff were unable to identify payment associations with specific awards or programs in response to the initial Executive Order. The new review process aims to prevent fraud and ensure accountability, limiting a grantee’s ability to “rapidly drain the full amount of an award without proper oversight or accountability to the authorizing agency.”
Payment Data and Terminations
Since the TRO issuance on February 13, 2025, Marocco reports that USAID has made at least 21 payments totaling over $250 million, with an additional $112.9 million paid by the State Department. However, 489 USAID contracts, grants, and related instruments have been terminated, impacting programs related to:
- DEIA oriented awards
- Programs with “Unnecessary Reliance” on 3rd party consultants and contractors with accountability issues
- Operating Expenses (OE) and/or general waste
- Initiatives unrelated to USAID’s core mission or delivery of life-saving aid
- “Regime change,” “civic society,” or “democracy promotion” efforts
- Sustainability and climate change programs
- Projects inconsistent with unrelated Executive Orders or presidential decrees
Potential for Reimbursement and Future Outlook
Marocco’s declaration states that implementers believing they are entitled to reimbursement for past work or wish to pursue remedies can submit claims through established mechanisms. However, it is unlikely that stop-work orders or suspensions will be lifted until the alignment review is complete. Marocco argues that lifting the freeze and then potentially reimposing it would be costly and could deplete program funds.
Impact and Implications
The administration’s actions have far-reaching implications for USAID’s partners and beneficiaries. The uncertainty surrounding payment, funding, and program implementation poses existential challenges to firms and organizations as well as direct impact on beneficiaries of the projects and the achievement of development goals. The focus on specific program areas for termination signals a significant shift in priorities, potentially impacting vulnerable populations and global initiatives. The long-term effects of the “Payment Integrity Review Process” on grantee relationships and program effectiveness will be the slow-down of cash flow as understaffed functions at State/USAID undertake reviews usually conducted by auditors.
Legal Battle Going Forward
The legal conflict surrounding the USAID funding freeze has escalated significantly, with both sides digging in their heels and preparing for a protracted court battle. Following the release of the government’s status report and the declaration from Pete Marocco, Deputy Administrator of USAID, the plaintiffs have responded with a forceful legal challenge. The AIDS Vaccine Advocacy Coalition and the Global Health Coalition, the plaintiffs in the case, have filed an “Emergency Motion to Enforce and to Hold Restrained Defendants in Civil Contempt.” They argue that the government’s claims of legal justification for terminating, suspending, and halting work under existing awards are contradicted by evidence and directly violate the Temporary Restraining Order (TRO) issued by the court. The plaintiffs are seeking to have the defendants held in civil contempt and subjected to penalties.
The government, in its status report, maintains that it is acting within its statutory and regulatory authority regarding awards not explicitly addressed in the TRO. However, recognizing the limitations the TRO places on its actions, the government is seeking either a modification of the TRO to exclude its asserted authorities or a conversion of the TRO to a preliminary injunction, which would allow for an immediate appeal.
The courts response to the plaintiffs “Emergency Motion to Enforce and to Hold Restrained Defendants in Civil Contempt” was to reassert the terms of the TRO, but stopped short of holding the defendants in contempt. Legal experts anticipate that the appeal process, if initiated, could ultimately reach the Supreme Court. In the meantime, the ongoing legal uncertainty will continue to impact USAID operations and grantees. Payments to grantees are well below glacial speed, and the government’s stance suggests they will likely continue at this pace pending the legal outcome. This situation may force grantees, recipients and contractors to file claims, disputes, and requests for equitable adjustments to navigate the funding challenges.
Read the Feb. 13, 2025 TRO here.
Read Pete Marocco’s Declaration here.
Read the Washington Post article (behind paywall) on the Administration’s response to the TRO here.and the New York Times (behind paywall) perspective here. Politico reports on the court’s latest response here.
