Trump Administration 2.0 — What Government Contractors Should Expect

1. Policy Initiatives Incorporated Through the FAR

a. Minimum Wage

There has been a recent flurry of activity with regard to federal contractor minimum wage requirements that will need to be addressed by the incoming administration. The previous Trump administration effectively left an Obama administration executive order in place that required an increased minimum wage for certain employees of federal contractors. The Biden administration then issued Executive Order (“EO”) 14026, increasing the minimum wage for federal contractors even further. However, recent litigation has created a circuit split as to whether EO 14026 exceeded the president’s authority under the Federal Property and Administrative Services Act (“FPASA”), and thus, whether such orders and subsequent minimum wage implementations are lawful. In Bradford v. U.S. Department of Labor, the Tenth Circuit ruled that EO 14026 was within the scope of the FPASA, but more recently in Nebraska v. Su, a majority composed of two Trump-appointed judges ruled in a split Ninth Circuit decision that the minimum wage requirement went beyond the president’s authority. The incoming administration has generally indicated that it intends to raise wages for American workers. But as of the date of publication, the incoming administration has not yet commented on whether it intends to keep the current minimum wage requirement for federal contractors in place or to defend its authority under the FPASA to issue EOs relating to minimum wages for contractor employees. Given the split between the circuits (and there is a similar case still pending before the Fifth Circuit), and the incoming administration’s focus on maintaining executive power, it seems likely that there will be further activity in the minimum wage area. But it also seems likely that the current trajectory of an increasing minimum wage for federal contractors will change.

b. Social Collateral Policies

President-elect Trump has stated his belief that the federal government imposes bias against certain individuals and businesses through Diversity, Equity, and Inclusion programs. It is likely that his administration will reinstate some version of his previous EO 13950, “Combating Race and Sex Stereotyping,” which prohibited the inclusion of “race or sex stereotyping” and “race or sex scapegoating” in contractors’ diversity and inclusion policies and training. This EO was subsequently revoked by President Biden. Inspired by the Supreme Court’s decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, which struck down race-conscious affirmative action in college admissions, Trump could also rescind the affirmative action requirements of EO 11246, “Equal Opportunity.” That EO, which is implemented via FAR clause 52.222-26 and other related clauses, requires contractors to “take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex, sexual orientation, gender identity, or national origin.” The incoming administration could also take aim at requirements for contractors to maintain affirmative action programs for veterans and individuals with disabilities, although significant changes to these requirements would require action by Congress. Finally, the incoming administration could make changes to the patchwork of programs providing preferences in federal contracting and subcontracting to certain types of contractors, as these programs would likely be viewed by the incoming administration as a type of affirmative action. This includes the Small Business Administration’s 8(a) program, which provides a preferential status to small businesses owned and controlled by “socially and economically disadvantaged individuals,” as well as the Historically Underutilized Business Zone (HUBZone) Program, the Indian Incentive Program, and others.

c. Environmental Regulations

From the beginning, the Biden administration emphasized the actions of the federal government and the use of federal procurement in addressing climate change issues. This included the issuance of several EOs directing the federal government to take numerous actions relating to sustainability and environmental impacts. These included EO 14008, “Tackling the Climate Crises at Home and Abroad”; EO 14030, “Climate-Related Financial Risk”; and EO 14057, “Catalyzing Clean Energy Industries and Jobs through Federal Sustainability.” Under these EOs, the Federal Acquisition Regulatory Council published several proposed and final rules, which included substantial revisions to FAR Part 23 and FAR 52.223-23, which require agencies to consider sustainable products and services over nongreen products when available. Perhaps the highest profile proposed rule was FAR Case 2021-015, Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk, which would require federal government contractors to disclose their annual greenhouse gas emissions. However, Trump has repeatedly stated that he intends to eliminate the Biden administration’s climate change actions, including those relating to carbon emissions. This means it is likely that Trump will revoke President Biden’s EOs on climate change, and it is nearly certain that the proposed greenhouse gas disclosure rule will be abandoned. Although possible, it seems less likely that the incoming administration will revert FAR Part 23 back to its previous form (or eliminate it entirely), but it seems a safe bet that there will be significantly less emphasis on sustainability and environmental matters under the new regime.

d. Buy American

In his platform, Trump indicated that he intends to increasingly prioritize domestic manufacturing. Specifically, items that are considered “critical” to the American supply chain will likely be required to be manufactured domestically. In some ways, these efforts could be consistent with those of the Biden administration, which made significant changes to strengthen the implementation and enforcement of the Buy American Act (“BAA”), 41 U.S.C. Chapter 83, which generally requires contractors to deliver U.S.-manufactured supplies and use U.S.-manufactured construction materials on federal contracts. For example, the incoming administration could attempt to further strengthen and expand the reach of the BAA by limiting exemptions for products manufactured in countries that have entered into free trade agreements with the United States that require nondiscriminatory treatment in government procurement. Such an action would be consistent with Trump’s stated desire to reform America’s current trade agreements to favor U.S. manufacturing and restrict overseas manufacturing. The incoming administration could also attempt to “one-up” the Biden administration by further increasing the required percentages of domestic content for supplies and construction materials to qualify as BAA-compliant, or further limiting the availability of BAA waivers. In addition, in his platform, President-elect Trump described a “Buy American and Hire American” policy that will “[ban] companies that outsource jobs from doing business with the Federal Government.” If Trump follows through on this policy proposal, the incoming administration could push through new procurement regulations and FAR clauses limiting opportunities for contractors that employ workers overseas or that rely on foreign subcontractors or suppliers.

2. Increased Defense Spending

With Trump regaining the presidency and Republicans in control of both houses of Congress, government contractors reasonably can expect an increase in defense spending. Trump’s platform indicates a desire to build an Iron Dome Missile Defense Shield for the United States, in addition to “reviving our Defense Industrial Base” and building a “bigger, better, and stronger” military. The platform also includes a plan to invest in cutting-edge research and advanced technologies. All of these statements point to the likelihood of increased defense spending, especially on military technologies, which would be consistent with the increases witnessed during the previous Trump administration. At the same time, Trump has consistently endorsed an “America First” message that will likely result in a more isolationist, domestic-focus national security and foreign relations policy. As a result, the United States is likely to cut back on its support to Ukraine and potentially other allies, thereby potentially reducing sales for certain defense contractors.

3. Department of Governmental Efficiency

Trump has appointed Elon Musk and Vivek Ramaswamy to lead the newly created Department of Government Efficiency (“DOGE”). DOGE will not be an official government agency, so it is not yet clear how it actually will operate, but right now it is envisioned that DOGE will serve in an advisory capacity to the president and the Office of Management and Budget. As per statements by both Musk and Ramaswamy, DOGE’s objective is to reduce unauthorized discretionary spending, programs they deem inconsistent with congressional intent, and the federal workforce. They have indicated their goal is to cut $500 billion in spending and to use the president’s authority to implement reductions in force — as opposed to the firing of individual government employees — to reduce the federal workforce. These actions — if implemented — could have a two-fold effect on government contractors. On the one hand, reductions in force of government employees will likely slow the functioning of impacted agencies. One consequence of this could be an increase in the time contractors spend waiting on their government customers to implement contractual administrative actions or to respond to contractor concerns. It also likely will slow the procurement process, as the limited pool of government employees would also need to focus on administering existing contracts and may not be able to dedicate sufficient time to the process of evaluating proposals and making award decisions. On the other hand, reductions in force may result in increased contracting opportunities for contractors, as the federal government looks to fill gaps in its performance by outsourcing more tasks to private contractors.

The Vinson & Elkins Government Contracts team will continue to monitor the incoming administration’s activities and will provide updates as regulatory changes occur. If you have questions, please contact your V&E attorney.

* Gabrielle Gunshol and Madi Torrez are law clerks in Vinson & Elkins’ Complex Commercial Litigation group, based in Washington, DC.