2025 Mid-Year Government Contracts Policy and Regulatory Review

At a Glance

• Executive orders and agency directives targeting DEI: Federal agencies have issued various directives and class deviations to implement President Trump’s executive orders targeting diversity, equity and inclusion initiatives.
• Broad changes to federal regulatory and procurement policy: A series of executive orders and agency memoranda have driven President Trump’s deregulatory agenda, including actions to consolidate federal procurement under the General Services Administration and review the Federal Acquisition Regulation through the “FAR Overhaul” initiative.
• Legislative and regulatory updates affecting defense contractors: The One Big Beautiful Bill Act (OBBBA) and related executive actions have restructured defense procurement priorities, increased available military funding through FY 2029, and clarified legal and operational challenges in acquiring intellectual property (IP) and associated IP rights under defense and national security contracts.

Driven by a host of executive orders and directives, federal agencies have engaged in significant policymaking changes over the first six months of the second Trump administration. Many funding vehicles have been terminated for unclear reasons, including unstated changes in agency “priorities.” Remaining government contractors and grantees are subject to new federal requirements regarding diversity, equity and inclusion (DEI) and affirmative action policies, and have faced drastic shifts in federal funding priorities and procurement procedures, as evidenced by the class deviations and mass modifications received by many contractors. Additionally, the passage of the One Big Beautiful Bill Act (OBBBA) and efforts to advance a “comprehensive overhaul” of the Federal Acquisition Regulation (FAR) have the potential to create fundamental and uncertain changes to the federal contracting landscape. Government contractors should work closely with their contracting officers and legal counsel to navigate the impact of these recent legal and regulatory developments on their operations, compliance obligations and contracting opportunities. We briefly review some of these developments below.

Updates on Executive Orders and Agency Directives Targeting DEI

Over the first several months of his administration, President Trump has targeted diversity, equity and inclusion initiatives across federal agencies as well as federal contractors and grant recipients, despite declining to define the scope of illegal DEI beyond recent guidance from the Department of Justice. Beyond the executive orders, which we previously covered in the context of employers, higher education institutions, and all other education entities that receive federal funds, agencies have continued to issue directives and class deviations to implement the administration’s new priorities. 

FAR and FAR Supplement Class Deviations

To implement Executive Orders 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”) and 14168 (“Defending Women From Gender Ideology Extremism and Restoring Biological Truth to the Federal Government”), agencies have issued class deviations to remove certain terms from the FAR and FAR supplements related to equal employment opportunity and affirmative action programs. For example, on February 15, 2025, the General Services Administration (GSA) approved a class deviation to stop the enforcement of FAR affirmative action policies related to Executive Order 11246 (“Equal Employment Opportunity”), which was revoked by EO 14173. Specifically, the class deviation directs contracting officers not to include the following clauses or provisions in contracts going forward:

• FAR 52.222-21, Prohibition of Segregated Facilities
• FAR 52.222-22, Previous Contracts and Compliance Reports
• FAR 52.222-23, Notice of Requirement for Affirmative Action to Ensure Equal Employment Opportunity for Construction
• FAR 52.222-24, Preaward On-Site Equal Opportunity Compliance Evaluation
• FAR 52.222-25, Affirmative Action Compliance
• FAR 52.222-26, Equal Opportunity
• FAR 52.222-27, Affirmative Action Compliance Requirements for Construction
• FAR 52.222-29, Notification of Visa Denial

The Department of Justice and Department of Defense subsequently issued similar class deviations to ensure contracting officers would not take action to implement or enforce EO 11246. Importantly, however, none of the class deviations affect contractors’ obligations under FAR subpart 22.13 (Equal Opportunity for Veterans and its related clauses and provisions) and FAR subpart 22.14 (Employment of Workers and Disabilities), which remain binding. Federal contractors should work closely with their contracting officers and legal counsel to confirm their compliance obligations going forward, particularly as agencies continue to revise their general terms and conditions and FAR supplements.

DOJ Memo: Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination

In a memo issued on July 29, 2025, the Department of Justice (DOJ) provided additional guidance for recipients of federal funding regarding “the application of federal antidiscrimination laws to programs or initiatives that may involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (‘DEI’) programs.” Although the memo specifies the guidance as “non-binding suggestions to help entities comply with federal antidiscrimination laws,” it signals a significant expansion of the types of activities that DOJ might deem to violate applicable antidiscrimination laws going forward. For example, the memo identifies “sex-based selection for contracts” as an unlawful practice, suggesting that “any contract selection process that uses sex or race as a tiebreaker or primary criterion, such as policies favoring ‘minority- or women-owned’ businesses” may result in the loss of federal funding. We cover the July 29 DOJ memo in more detail in this client alert, highlighting its impact on educational institutions and federal grant recipients. Not only are many colleges and universities themselves government contractors and grantees, but many of the impacts felt by educational institutions are equally applicable to other entities that receive government funds. 

Federal contractors and grant recipients should stay apprised of further class deviations, directives and enforcement actions from DOJ and other agencies, and potentially engage with legal counsel to evaluate their compliance obligations and risk profiles, particularly when state laws appear to conflict with federal changes. 

Changes to Federal Regulatory and Procurement Policies

Over the past several months, President Trump has issued a series of executive orders substantially altering the federal government’s regulatory and procurement policies. These executive orders — and their corresponding presidential memoranda and agency directives — hold significant implications for government agencies, government contractors and federal grant recipients, signaling a new deregulatory environment. We summarize several of these executive orders and directives below. We have also issued a client alert regarding Executive Order 14332, “Improving Oversight of Federal Grantmaking,” which introduces significant changes to how federal agencies review, award and manage discretionary grants. 

Executive Orders (EOs) Targeting Regulatory Policy

Agency Directives Implementing Relevant Executive Orders

Presidential Memorandum: “Directing the Repeal of Unlawful Regulations”

In a presidential memo issued to executive agency and department heads on April 9, 2025, “Directing the Repeal of Unlawful Regulations,” President Trump directed agencies to repeal any regulation that “clearly exceeds the agency’s statutory authority or is otherwise unlawful.” The memo is intended to implement Executive Order 14219, which ordered all agencies to broadly identify seven classes of regulations to be repealed or modified in consultation with OMB “to commence the deconstruction of the overbearing and burdensome administrative state.” The “classes” of regulations set forth in EO 14219 include:

(i) unconstitutional regulations and regulations that raise serious constitutional difficulties, such as exceeding the scope of the power vested in the Federal Government by the Constitution;
(ii) regulations that are based on unlawful delegations of legislative power;
(iii) regulations that are based on anything other than the best reading of the underlying statutory authority or prohibition;
(iv) regulations that implicate matters of social, political, or economic significance that are not authorized by clear statutory authority;
(v) regulations that impose significant costs upon private parties that are not outweighed by public benefits;
(vi) regulations that harm the national interest by significantly and unjustifiably impeding technological innovation, infrastructure development, disaster response, inflation reduction, research and development, economic development, energy production, land use, and foreign policy objectives; and
(vii) regulations that impose undue burdens on small business and impede private enterprise and entrepreneurship.

The memo further instructs federal agencies to “immediately take steps to effectuate the repeal of any regulation, or the portion of any regulation, that clearly exceeds the agency’s statutory authority or is otherwise unlawful.” Notably, the memo calls for agency heads to finalize the repeal of rules without notice and comment where doing so is consistent with the “good cause” exception in the Administrative Procedure Act (permitting agencies not to utilize notice-and-comment procedures where “impracticable, unnecessary, or contrary to the public interest”). 

Agencies have begun to act on the memo; and contractors should expect additional regulations to be repealed or amended in the coming months pursuant to EO 14219, potentially affecting their compliance obligations and operations.

Memo M-25-31: Consolidating Federal Procurement Activities

On July 18, 2025, OMB issued Memo M-25-31, “Consolidating Federal Procurement Activities.” The memo is intended to facilitate the implementation of Executive Order 14240 by providing guidance to agencies and contractors regarding the administration’s procurement priorities. Consistent with EO 14240, the memo reinforces GSA’s role as the central procurement authority for common goods and services across federal agencies. In the coming months, agency contracting officers will be required to use existing government-wide contract vehicles (e.g., GSA schedules, Best-in-Class contracts) for commercial products and services unless a formal exception is granted by the head of the agency. Accordingly, the FAR Council is expected to issue model deviation language for FAR 8.004, requiring agencies to use existing contracts when commercial products are available (expanding from current language that merely encourages the use of commercial procurement vehicles).

The memo further instructs agencies to identify opportunities for consolidation based on products and services that do not vary by agency mission, constitute highly commercialized offerings with no customization required, are easy to standardize, or allow for the achievement of economy and efficiency through reduced variation in offerings and services.

To maximize access to federal contracting opportunities despite consolidation efforts, federal contractors should consider expanding their offerings to GSA vehicles or partnering with existing GSA contract holders. Contractors should also monitor agency-specific implementation plans and engage early with contracting officers to strategically position their products and align their efforts with the principles outlined in EO 14240 and Memo M-25-31.

FAR Overhaul Initiative

Pursuant to EO 14275, “Restoring Common Sense to Federal Procurement,” the federal government has begun a “Revolutionary FAR Overhaul” (RFO) to “return the FAR to its statutory roots, rewritten in plain language, and remove most non-statutory rules.” Over the past several weeks, the FAR Council has issued model deviation guidance on a rolling basis to be adopted by agencies until the FAR is officially revised through formal rulemaking in the coming year. To date, the FAR Council has issued “streamlined” versions of FAR Part 1 (“Federal Acquisition Regulation System”), Part 6 (“Competition Requirements”), Part 10 (“Market Research”), Part 11 (“Describing Agency Needs”), Part 18 (“Emergency Acquisitions”), Part 29 (“Taxes”), Part 31 (“Contract Cost Principles and Procedures”), Part 34 (“Major System Acquisition”), Part 35 (“Research and Development Contracting”), Part 36 (“Construction and Architect-Engineer Contracts”), Part 39 (“Acquisition of Information and Communication Technology”), and Part 43 (“Contract Modifications”). Each “streamlined” page also includes a “practitioner album” link with an overview of the changes made, “accelerators” to assist contracting officers in navigating the relevant FAR part, and supportive resources from Defense Acquisition University and other training centers. 

By and large, the changes to these “overhauled” FAR parts are procedural and focus on removing duplicative language, rather than substantively altering the FAR provisions themselves. For example, the revised version of FAR Part 10 (Market Research) combines former “Policy” and “Procedures” sections into a single “Market research requirements” section, while simplifying requirements for market research and streamlining documentation requirements for agencies. The model deviation issued for FAR Part 36 (Construction and Architect-Engineer Contracts) is an outlier in this respect, making substantive changes such as removing applicability provisions, pre-award site inspection requirements, and minimum workforce expectations (i.e., potentially allowing for greater subcontracting in construction contracts). 

Notably, GSA and OMB have also developed a series of legislative proposals in support of the RFO, transmitted to Congress for consideration in upcoming legislative sessions. The 16 legislative proposals include more substantive and significant changes to the FAR, including increasing the Simplified Acquisition Threshold to $10 million for commercial purchases and $50 million for Special Simplified Procedures, increasing the micro-purchase threshold from $10,000 to $100,000, and increasing the task and delivery order protest threshold for civilian multiple award contracts to $35 million (on par with DoD’s threshold). Another significant proposal would revise the mandatory use of Cost Accounting Standards (CAS) by raising the threshold of their applicability from $2 million to $35 million, effectively carving out half of currently covered entities from CAS requirements going forward.

Federal contractors should consult with their contracting officers to confirm whether their respective agencies have implemented the model deviations, and whether those model deviations impose (or remove) notable compliance obligations going forward. Contractors — and prospective government contractors — should also closely follow OMB’s legislative proposals to revise the FAR once Congress returns to session in September 2025.

Defense Industry Developments

The Trump administration has also sought to reshape and streamline the federal defense procurement process by rolling back regulations and leveraging commercial acquisition strategies. Congress also allocated significant increased funding to the Department of Defense (DoD) as part of the OBBBA, presenting new opportunities for defense manufacturers and technology contractors in the coming years.

On April 9, 2025, President Trump issued Executive Order 14265, “Modernizing Defense Acquisitions and Spurring Innovation in the Defense Industrial Base.” The EO directs DoD to expedite acquisition pathways by utilizing preferences for commercial solutions, using its Other Transactions Authority (OTA), reviewing internal functional support roles, and reviewing internal regulations to eliminate or revise “unnecessary supplemental regulations” to promote expedited and streamlined acquisitions. The EO also calls for the review of all Major Defense Acquisition Programs and directs DoD to consider cancelling programs exceeding 15% cost overruns or schedule delays, elevating the importance of timely delivery for contractors. Federal contractors should also consider highlighting their most innovative and efficient commercial offerings in their proposals going forward to align with the priorities outlined in EO 14265.

To carry out EO 14265, DoD has subsequently published a notice of request for public comments from small businesses, noting the important role that small businesses will play in delivering innovative technologies to federal military forces. Specifically, DoD requested input from small businesses on how to most effectively implement the EO, seeking feedback on revisions to DoD regulations that might positively impact small businesses, opportunities to restructure the acquisition workforce “to support incentivizing and rewarding risk-taking in innovation towards commercial solutions and streamlined acquisitions,” and comments on the Joint Capabilities Integration and Development System to streamline the acceleration of acquisitions.

Impact of the OBBBA Reconciliation Bill

In addition to significant changes to various tax provisions, employer programs and higher education, the OBBBA, signed into law by President Trump on July 4, 2025, includes approximately $150 billion in increases for defense and national security agencies. In particular, Sections 20001-20013 of the OBBBA include significant funding for shipbuilding and munitions programs, increases in funding for cybersecurity initiatives at DoD, and enhanced resources related to DoD readiness more generally (e.g., modernization and capacity initiatives, equipment upgrades, operations funding, etc.).

Importantly, the increased defense funding is available for obligation through FY 2029, reducing time-limit restrictions and expanding potential opportunities for contractors. Federal defense contractors — along with those in related technology, manufacturing and logistics roles — should prepare for additional contracting initiatives in the coming years.

Intellectual Property Guidebook for DoD Acquisition

On April 30, 2025, DoD released its Intellectual Property (IP) Guidebook for DoD Acquisition. The Guidebook provides guidance on the implementation of IP laws and regulations in the context of DoD contracts, explains legal and operational challenges in acquiring IP and associated IP rights, and promotes partnerships between DoD and industry actors. The Guidebook is divided into several sections that trace the timeline of IP development and management in DoD contracts, outline fundamental concepts of IP and special categories of DoD data, describe developing and implementing a complete and executable IP strategy, and discuss managing and maintaining an IP strategy following project delivery. 

The Guidebook emphasizes the importance of early and tailored development of an IP strategy to align with program objectives, including identifying primary engineering and business goals with the relevant agency. The Guidebook also encourages defining specific use cases to determine what technical data and software rights are needed, when these items are needed, and what purposes they will serve. Defense contractors should closely review the Guidebook and should be prepared to justify restrictions on technical data and software with detailed marking and substantiation, while communicating openly and frequently with their government counterparts. 

What’s Next?

Federal contractors should continue to stay apprised of additional changes to the FAR and agency-specific procurement policies, particularly as agencies begin implementing more discrete guidance from OMB resulting from President Trump’s executive orders. Various executive actions and departmental policies have also been halted (and occasionally reinstated) by district courts resulting from lawsuits across the country, highlighting the importance of staying current on the legal status of agency actions and regulatory changes. 

As agencies continue to review their existing contracts and grant agreements to align with new administration priorities, federal funding recipients should also be prepared to respond quickly and in detail to suspension and termination notices, as discussed in this client alert.

We encourage federal contractors and grant recipients to contact counsel to engage in compliance risk assessments, particularly as agencies potentially pursue enforcement actions with greater frequency going forward. 

For More Information

Faegre Drinker’s government contracts team will continue to monitor additional regulatory and legislative developments in the coming months.