Recent initiatives by the US Department of Energy to rescind federal awards under the Bipartisan Infrastructure Act, the Inflation Reduction Act and other programs have likely accelerated the litigation train in some novel areas.
Below we discuss some potential remedies that may be available to companies facing termination of their awards by the DOE, including some potential issues that have not been previously litigated.
On May 15, Energy Secretary Chris Wright issued a memo in which he announced the department’s intent to “conduct focused reviews of awards and other forms of financial assistance” in furtherance of its duty to identify and avoid “fraud, waste and abuse.”
The memo stated that the DOE will utilize its audit rights to review selected awards to evaluate whether “the individual projects are, among other things, financially sound and economically viable, aligned with national and economic security interests, and consistent with Federal law and this Administration’s policies and priorities and program goals and priorities (Standards).”
The memo further indicated that, at its discretion, the department may take action, including termination of awards, if it concludes that an individual project does not meet its standards.
The DOE indicated that it had already started evaluating 179 awards that total over $15 billion in financial assistance, and there could certainly be more awards identified for evaluation in the future.
Subsequently, on May 30, the DOE announced that it had terminated 24 awards totaling over $3.7 billion. According to the department, 16 of the 24 projects were approved between Election Day and Jan. 20, and primarily included funding for carbon capture and sequestration and decarbonization initiatives.
Although no particularized details were provided about the individual awards being terminated, the DOE asserted in its May 30 announcement that “the previous administration failed to conduct a thorough financial review before signing away billions of taxpayer dollars.”
These 24 award terminations unlikely are the last ones we will see from the DOE. Shortly after the review initiative was announced on May 15, several awardees received proposed modifications to their awards requiring recipients to acknowledge the department’s rights to submit data requests and the recipient’s obligation to timely respond to such requests.
Federal regulations provide that “[f]ederal agencies or pass-through entities must not impose any other access requirements upon recipients and subrecipients.”[1] Accordingly, the award modifications appear to be an acknowledgement of the DOE’s audit and other access rights rather than a substantive change; however, it remains to be seen whether the department will assert that the modification grants it broader rights than it had at the time of award.
Concurrently, the DOE submitted data requests to the recipients requesting detailed information concerning the awards, and requesting responses by June 16. We are unaware of any actions taken by the department in response to these data requests or the information that it received.
The department’s actions in terminating numerous federal awards, and its stated intention to review and possibly terminate more awards in the future, raise a number of questions. Recipients that have their awards terminated are not without any remedy. Although this is an evolving area of the law, a recipient’s potential remedies are discussed below.
Remedy Under Federal Grant Regulations for a Terminated Award
Setting aside the question of whether the DOE’s terminations of awards is lawful, federal grant regulations expressly provide that an awardee is entitled to termination costs.[2] In general, costs incurred prior to termination that cannot be avoided or discontinued, despite making all reasonable efforts, are generally allowable.
However, costs continuing after termination due to the negligent or willful failure of the recipient or subrecipient to immediately discontinue the costs are unallowable.[3] In addition, the regulations provide for special treatment for certain types of costs that would not have been incurred but for the termination.
In the event there is a dispute concerning whether a cost is allowable and should be reimbursed under a terminated award, the department has established an administrative appeal process, providing that a final determination by the cognizant contracting officer may be appealed to the senior procurement executive for either the DOE or the National Nuclear Security Administration.
The appeal must be received by the DOE within 90 days of the receipt of the final determination by the contracting officer.[4]
Challenging a Termination as Unlawful
The government’s right to terminate a federal grant differs significantly from its right to terminate a contract. Under federal procurement regulations, the government may terminate a contract for the government’s convenience when an authorized official determines that termination is in the government’s best interests.[5]
Conversely, the government’s right to terminate a grant is governed by Title 2 of the Code of Federal Regulations, Section 200.340, which provides four ways in which a federal award may be terminated. This section states:
- The Federal award may be terminated in part or its entirety as follows:
- By the Federal agency or pass-through entity if the recipient or subrecipient fails to comply with the terms and conditions of the Federal award;
- By the Federal agency or pass-through entity with the consent of the recipient or subrecipient, in which case the two parties must agree upon the termination conditions. These conditions include the effective date and, in the case of partial termination, the portion to be terminated;
- By the recipient or subrecipient upon sending the Federal agency or pass-through entity a written notification of the reasons for such termination, the effective date, and, in the case of partial termination, the portion to be terminated. However, if the Federal agency or pass-through entity determines that the remaining portion of the Federal award will not accomplish the purposes for which the Federal award was made, the Federal agency or pass-through entity may terminate the Federal award in its entirety; or
- By the Federal agency or pass-through entity pursuant to the terms and conditions of the Federal award, including, to the extent authorized by law, if an award no longer effectuates the program goals or agency priorities.[6]
Further, the regulations mandate that “[t]he Federal agency or pass-through entity must clearly and unambiguously specify all termination provisions in the terms and conditions of the Federal award.”[7]
In response to recent grant terminations in other programs, courts have interpreted the federal grant termination provision to not allow the government to unilaterally terminate an award for its convenience, or simply because the government changes its priorities. As the US District Court for the Southern District of New York held last month in Metropolitan Transportation Authority v. Duffy:
- Section 200.340 does not create a default ability by the federal government to terminate an award over the award recipient’s objection, whenever an agency determines its priorities have changed. It requires a change in agency priorities to be set forth as a term and condition if the agency wishes to reserve to itself the right to rescind the award based on a change in priority.[8]
Here, we do not have visibility into the DOE’s basis for terminating the 24 awards on May 30, other than its blanket claim in the announcement that “the previous administration failed to conduct a thorough financial review before signing away billions of taxpayer dollars.”
Assuming that is the basis relied upon by the department, case law suggests that unless the agreements reserved the right for the DOE to terminate the awards if the government later determined that it failed to conduct a thorough financial review, whether or not correct, the terminations would not be lawful.
Remedies Available if the Terminations Were Not Lawful
There are two avenues potentially available to a recipient seeking to challenge a DOE award termination. One possibility is to challenge the termination as unlawful under the Administrative Procedures Act in federal district court.[9]
Under the APA, the remedy being sought is to have the termination declared unlawful. If the plaintiff prevails under the APA, the result would be that the termination would be set aside, and performance under the award could proceed.
Another possibility is to pursue contractual remedies under the Tucker Act at the US Court of Federal Claims.[10] The Tucker Act waives sovereign immunity for contract disputes with the government, and gives the Court of Federal Claims exclusive jurisdiction over such actions.
To determine which court would possess subject matter jurisdiction over any claims, courts must look to the complaint to determine: (1) the source of the rights upon which the plaintiffs base these claims, and (2) the type of relief sought in the case.[11]
In general, the Tucker Act would apply to suits seeking to enforce rights that are contained in a grant agreement, and in which a plaintiff seeks relief that is largely monetary in nature and backward-looking.[12]
Conversely, a suit that seeks to enforce statutory rights independent of the terms of a grant agreement are properly brought under the APA. As the Metropolitan Transportation Authority court held:
- This Court under the APA, not the Court of Claims under the Tucker Act, has the authority to review the relevant statutes and regulations and to determine whether the Secretary’s actions are lawful or not. … This is not a case in which the terms and conditions of some individual grant are at issue such that Plaintiffs seek an order to enforce a contractual obligation to pay money.[13]
To date, we have seen a number of decisions from federal district courts issuing orders under the APA. Notably, in many of those cases, the government has challenged subject matter jurisdiction in the district courts, asserting that the plaintiffs’ claims are limited to Tucker Act claims for contract remedies in the Court of Federal Claims.
And the US Supreme Court’s April 4 order in US Department of Education v. California, staying a district court’s temporary restraining order prohibiting the termination of certain grants, has called into question the applicability of the APA to grant terminations.[14]
Thus far, there have been no decisions issued by the Court of Federal Claims addressing a recipient’s remedies for a terminated grant. The Court of Federal Claims would appear to have jurisdiction over actions that challenge decisions disallowing certain claimed termination costs under Section 200.472, as well as any action that challenges whether a termination is a proper exercise of contractual rights under the award.
Although there have not been any cases addressing whether an improper termination of a grant amounts to a material breach of contract, there is a line of cases from the Court of Federal Claims and the US Court of Appeals for the Federal Circuit holding that the government’s much broader right under procurement law to terminate a contract for its convenience is not limitless, and that an improper termination for convenience is a material breach of contract.[15]
The result of such a holding is that a plaintiff is entitled to breach of contract damages, and is not limited to its termination costs under the termination for convenience clause. The DOE’s mass terminations appear to make such a case ripe for the Court of Federal Claims consideration.
[1] 2 C.F.R. § 200.337(c).
[2] 2 C.F.R. § 200.472.
[3] 2 C.F.R. § 200.472 (a)(2).
[4] 2 C.F.R. § 910.128.
[5] 48 C.F.R. §§ 52.249; 52.212-4(l).
[6] 2 C.F.R. § 200.340(a).
[7] 2 C.F.R. § 200.340(b).
[8] Metro. Trans. Auth. v. Duffy, ___ F.Supp.3d ___-; 2025 WL 1513369 at *28 (May 28, 2025); citing Climate United Fund v. Citibank, N.A., ___ F.Supp.3d ___, ___, 2025 WL 1131412, at *16 (D.D.C. Apr. 16, 2025).
[9] 5 USC. §§ 701-706.
[10] 28 USC. § 1491.
[11] Megapulse, Inc. v. Lewis, 672 F.2d 959, 968 (D.C. Cir. 1982) (To determine the essence of a claim, a court considers: (1) “the source of the rights upon which the plaintiff bases its claims,” and (2) “the type of relief sought (or appropriate)).”
[12] Solution in Hometown Connections, et al. v. Noem, at al., ____ F. Supp. 3d ___, 2025 WL 1530318 (D. Md. May 29, 2025) (finding that the district court lacked subject matter jurisdiction under the APA “because the source of the rights for these claims is the [ ] Plaintiffs’ Grant Agreements and the relief sought by the Plaintiffs related to these claims is largely monetary in nature and backward-looking.”).
[14] Dep’t of Educ. v. California, ___ US ___, 145 S. Ct. 966, 968, ___ L.Ed.2d ___ (April 4, 2025) (slip op.) (holding that the Court of Federal Claims had exclusive jurisdiction over claims seeking an order where the terms and conditions of individual grants were at issue).
[15] Krygoski Constr. Co., Inc. v. United States, 94 F.3d 1537, 1541 (Fed.Cir.1996) (“When tainted by bad faith or an abuse of contracting discretion, a termination for convenience causes a contract breach.”); Torncello v. United States, 231 Ct.Cl. 20, 47, 681 F.2d 756, 772 (1982).
