Among the scores of executive orders coming from the Trump administration is a 90-day pause in foreign development assistance. Another freezes regulatory action. Still another imposes a hiring freeze. See the pattern? It’s all causing a pause in contracting, even cancellations. The Federal Drive with Tom Temin got more from the executive vice president for policy at the Professional Services Council, Stephanie Kostro.

Interview transcript:

Stephanie Kostro Thanks for having me, Tom. And I love the ones that you’ve picked here to discuss today. This first one on pausing U.S. foreign aid wasn’t entirely a surprise. The Trump administration previously, eight years ago, had also looked long and hard at foreign assistance. This executive order that was released among the first tranche of executive orders signed by President Trump did direct a 90-day pause in foreign development assistance and directed a review of all foreign assistance program under the State Department and the U.S. Agency for International Development. What is important to remember for all of us is that executive orders in and of themselves do not require you to stop work. There’s a whole host of actions that it triggers that then will lead to impacts on contractors. And I’ll give you this as an example. The executive order was signed among the first EOs the President signed. And then last Friday, the 24, Secretary of State Rubio sent out a cable directing all missions around the world and all offices there at State and USAID to issue stop work orders on contracts and grants. Then, of course, the contracting corps, the acquisition professionals have to issue those stop work orders. So it’s been a very, very busy weekend since this guidance came out from the State Department on Friday.

Tom Temin Yes. And the contracting corps tends to be a bunch that follows the rules. That’s the way contracting is done. And so when they’re given orders to cancel, they may not like it. And I’ve talked to a couple over the weekend just socially that said, yeah, I’m canceling contracts, but they do what they’re told and they know that they have the convenience of the government as a backstop.

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Stephanie Kostro That’s exactly right, Tom. And it’s important to highlight that for this foreign assistance piece, they are stop work orders. They are not contract cancellations. I’ve heard elsewhere in the government there are terminations for convenience, which means the government’s convenience, of course. But for the State Department and USAID, this is a stop work order guidance, piece of guidance. And what we have done at PSC, we’ve got more than 400 member companies and a good segment of those are international development companies. And so what we’ve put together is a checklist. If you receive a stop work order, what are the sequence of actions you need to take to make sure that you are as full as possible at the back end?

Stephanie Kostro And I’ll give you an example, Tom. When the government issues a stop work order to a prime contractor, you really have to start tracking costs incurred because of the work stoppage. You look at the impacts on workforce, you look at the impacts on your supply chain, on your vendors, on your subcontractors, and you track all of those because at one point, if the work restarts, there is an opportunity for you to claim reimbursement for those costs. And this is governed by part of the FAR where you can actually go back and get some of those costs reimbursed. I will say, however, when you have a work stoppage like this, small businesses suffer incredibly. It can be existential for them. And so as we move forward with this policy, with this review, what State Department and U.S. are doing to look at foreign assistance, it’s important to keep in mind that this can have long term impacts on industry.

Tom Temin Yes, in especially in the case of USAID, the contractors are operating overseas and they might they’re often local companies, local nonprofits, local NGOs that are not resource rich. It’s not like you’ve got Leidos doing all of this.

Stephanie Kostro There is that. There’s also the fact that you have a very specialized workforce that if you let them go or furlough them, they may find employment elsewhere and not come back to the work that once it restarts. And so I also want to add, Tom, there are things that are not covered by the stop work order guidance, for example, foreign military financing for Israel and Egypt is exempted from the stop order guidance, as is emergency food assistance. So there are elements that are not included in this guidance that came out on Friday, but it is having a significant impact on the industry that supports State and USAID.

Tom Temin We are speaking with Stephanie Kostro. She’s vice president for policy at the Professional Services Council. And then it’s a different kind of freeze, it’s a freeze on what the government itself is doing when it comes to the regulatory freeze. And tell us more about what you see there and how that affects industry.

Stephanie Kostro Yeah, Tom, this is not an unusual step for an administration to take when they are of a different party than the previous administration. Going back to even the Carter administration, we have seen a freeze on the regulatory actions as the incoming team looks at what they want to continue, are their proposed rules that they want to just let wither and go away. Are there recently finalized rules that they want to take another look at? What I find fascinating is that we also have something called the Congressional Review Act process. And this is where the Hill gets involved. And they look back the last 60 days, and I believe that as legislative days are, you’re really looking back into the last summer of what rules had been finalized. And does Congress need to take action? So I’m sure the White House and Congress, they’re talking about what they might want to roll back. The question that I have for government officials is the Biden administration in their last few days released a whole bunch of proposed rules on things like controlled unclassified information, how it’s treated. There is a FAR council rule on organizational conflicts of interest on some small business issues related to multiple award contracts. Those deadlines are coming up in March. And so what we are suggesting to our members and what we are doing ourselves is putting together comments as though that date is unchanged unless and until we hear otherwise. So there’s a lot of movement. Even though it’s frozen, there’s a lot of scurrying going on in the background to review all of these proposed rules and recently passed final rules. And so we are trying to stay abreast of all of them. And so if you’ve got any questions, I encourage folks in your audience to reach out to trade associations, because we’re talking to folks in the executive branch daily about the status of some of these things.

Tom Temin Yeah, it can be a confusing picture because if you’re going to rescind the established rule and some of them did become finalized late in the Biden administration, then of course, new rulemaking and all of that entailment is required to undo a rule that has been finalized. Interim rules, rules that are proposed may be easier to dislodge. And then there’s congressional oversight of rules. So you’ve got a kind of a brew here, and you’ve got it’s like looking at alphabet soup. You got to pick the right letters out to know what you got to do here.

Stephanie Kostro Yeah. We often say that things come down as in a flurry. This is more of a tornado or a hurricane. Where there’s a lot of swirl. And we’re eager to see what comes out of the back end. We are working with executive branch folks to say, hey this particular rule deserves some extra scrutiny in terms of its impact on contractors. But I think we are all waiting with bated breath to see what emerges from the storm.

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Tom Temin Yes. You might see Uncle Henry in the bathtub floating by if you look out the window.

Stephanie Kostro Or somebody on a bike with a small dog in a basket.

Tom Temin Something like that. We’re dating ourselves. And then I’m wondering with the return to the office, and again, I know feds personally that have said, yep, they’re telling me five days coming back. What about contractors that might have been on site or that might have been able to telework? What are you hearing there? And do the agencies even have space to fit people in?

Stephanie Kostro That’s exactly the question that we are asking agencies themselves. And thanks for raising this. You mentioned earlier that there’s a hiring freeze in the executive branch, not including military personnel, but federal civilians. There’s a hiring freeze, but there’s also this executive order that’s called to return to in-person work. And I’ve heard from friends and colleagues at agencies that they are expected to go back full time. Remote work is no longer an option. And there is a space issue, as you know, with COVID. And I can’t believe it’s five years ago now with the onset of COVID a lot of workers started to work from home, offices were downsized, and there was space for contractors to work onsite as required. When contractors put together their bids to do work, there is sometimes the assumption there or it was spelled out in requirements that their folks would be on site. With federal civilians now coming back into the official spaces of the government. It is dislodging some of those contractors and they have to go back to their company, which doesn’t have space for them. They had not budgeted for things like parking or additional elements of real estate implications. And so this is really putting a squeeze now on what are contractors doing and where can they sit to do their work. This is particularly important for services contractors because a lot of them were hired to be onsite and to provide real support within these agencies. And now they’re heading back to their home offices.

Tom Temin So the contractors have been in the offices and not the federal employees. Now, the federal employees then you’re saying, are pushing out the contractors who have to go to the contracting places, the companies, headquarters or offices. And those two are squeezed. It’s like a big giant game of musical chairs.

Stephanie Kostro It is a game of musical chairs. And one of the things to note, Tom, is that some of these people in the contractor world were hired during COVID. They may not actually be anywhere close to their companies headquarters. They may actually have been hired here in the Washington area to go into Washington based agencies, but their company is actually headquartered in another state that’s far away. And so where do those folks go? Can they do their work from home? Do they have to be in an office space themselves? These are all questions that we are asking. But it really does have implications for the contractor workforce. Even though the executive order doesn’t mention contractors. I would say, however, on the hiring freeze executive order, it specifically says that contracting outside the federal government to circumvent the intent of that memo is prohibited. So it did mention contractors in the hiring freeze, but it was, hey, there’s a freeze on hiring civil servants and the civilian workforce. You can’t get around it by hiring contractors to do that work.

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