A sweeping executive order issued on January 20 has left many nonprofit organizations scrambling to maintain operations. In a Venable webinar, Diz Locaria, a partner in the firm's Government Contracts group, discussed the suspension "[of] literally thousands of awards to nonprofits." The 90-day pause on U.S. foreign aid has led to delayed payments, shuttered programs, and legal uncertainty.
"Some contractors and grant recipients had invoices already submitted that … were paused as well. And in many cases, many of those remain outstanding today," Locaria said. The State Department and USAID have been hit particularly hard, along with USAID. A questionnaire sent to recipients asked pointed questions that have prompted concerns throughout the nonprofit sector.
Executive Order on DEI Sparks Compliance Confusion and Legal Risk
A second executive order, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, has created concern and confusion among grant recipients and contractors. Locaria explained that while anti-discrimination laws have not changed under the Trump administration, the new requirement for organizations to certify that they do not promote DEI introduces new legal risk as some violations could be prosecuted under the False Claims Act.
This has already prompted some nonprofits to "pull information from their websites, public facing things, so they don't become a target." A preliminary injunction issued in February enjoined both the DEI certification requirement and a provision mandating that agencies recommend organizations for investigation. Yet, as Locaria cautioned, certifications have still surfaced in agency communications via emails as well as in RFP and RFQ documents.
Contract Terminations, Gender Policy Reversals, and Financial Assistance Pauses Compound the Crisis
The nonprofit sector has also been impacted by other executive actions, including a gender policy order aimed at "restoring biological truth" and eliminating the use of pronouns in official correspondence. Locaria noted some agencies even instructed even private entities to avoid pronouns in their email signatures. Meanwhile, an OMB memo dated January 27 led to a nationwide pause on federal financial assistance, triggering a lawsuit in Rhode Island and weeks-long payment delays.
"We're still seeing some residual effects of that," said Locaria. Another flashpoint was a National Institutes of Health (NIH) policy that retroactively capped indirect cost rates at 15% for higher education institutions, prompting immediate litigation and a permanent injunction. "It was significant…because it was completely rewriting the uniform guidance on how indirect rates are supposed to be calculated," Locaria said. Despite recent temporary legal decisions, nonprofits remain caught between conflicting state and federal rules, enforcement threats, and mounting compliance obligations.
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