Federal Funding, OMB, and the Impact of Recent Court Orders: What Now?

Key Takeaways

• The Trump Administration must immediately restore frozen funding during and in accordance with the Temporary Restraining Order.
• The order may impact programs and contracts that were suspended or terminated.
• Contractors should contact their contracting officers to confirm the impact of the order on their contracts.

On January 31, the government contracts team at DWT sought to offer practical guidance to federal grant recipients and contractors following the Trump Administration's issuance and subsequent recission of a January 27, 2025, OMB memorandum that temporarily paused federal agency grants, loans, and other financial assistance programs.

Although the OMB memorandum was rescinded, there was sufficient concern regarding the policies in that memorandum that the attorneys general in 23 states filed a lawsuit challenging the Executive Orders and the actions of OMB. On January 31, 2025, U.S. District Judge John J. McConnell found merit in those concerns and issued a Temporary Restraining Order which stated that while the TRO is in place, the Administration "shall not pause, freeze, impede, block, cancel, or terminate Defendants’ compliance with awards and obligations to provide federal financial assistance to the States, and Defendants shall not impede the States’ access to such awards and obligations, except on the basis of the applicable authorizing statutes, regulations, and terms."

The states subsequently filed a motion to enforce the TRO because there was evidence that the Administration and federal agencies in question "in some cases have continued to improperly freeze funds and refused to resume disbursement of appropriated federal funds." This week (February 10), Judge McConnell granted the states' motion, explaining:

The Defendants now plea that they are just trying to root out fraud. But the freezes in effect now were a result of the broad categorical order, not a specific finding of possible fraud. The broad categorical and sweeping freeze of federal funds is, as the Court found, likely unconstitutional and has caused and continues to cause irreparable harm to a vast portion of this country. These pauses in funding violate the plain text of the TRO.

Judge McConnell then further ordered that the Administration and federal agencies:

1. Must immediately restore frozen funding during the pendency of the TRO until the Court hears and decides the Preliminary Injunction request.
   
   
2. Must immediately end any federal funding pause during the pendency of the TRO.
   
   
3. Must immediately take every step necessary to effectuate the TRO, including clearing any administrative, operational, or technical hurdles to implementation.
   
   
4. Must comply with the plain text of the TRO not to pause any funds based on pronouncements pausing funding incorporated into the OMB Directive, like Section 7(a) of the Unleashing Executive Order, and the OMB Unleashing Guidance. The TRO requirements include any pause or freeze included in the Unleashing Guidance.
   
   
5. Must immediately restore withheld funds, including those federal funds appropriated in the Inflation Reduction Act and the Infrastructure Improvement and Jobs Act. The directives in OMB M-25-11 (the OMB Memo) are included in the TRO.
   
   
6. Must resume the funding of institutes and other agencies of the defendants (for example, the National Institutes of Health) that are included in the scope of the Court's TRO.

This clarification of the TRO is potentially welcome news to federal contractors whose funding has been frozen, or whose programs and, specifically, contracts may have been suspended or terminated following the issuance of the OMB Memo. We would recommend that contractors contact their contracting officers to confirm the impact of this order on any recent or anticipated contract actions.

If you have any questions regarding these developments, please reach out to our government contracts team.