As federal contractors enter a new era marked by unprecedented volatility and shifting government priorities—driven in part by new mandates from the Department of Government Efficiency (DOGE)—2025 is already proving to be a defining year. In a recent webinar hosted by GovSpend, attorney Maria Panichelli, partner at McCarter & English and an expert in federal contracting law, outlined the growing risks contractors face and, more importantly, how to survive them.
From mass contract terminations to unpaid invoices and mounting regulatory uncertainty, Maria’s message was clear: contractors must be informed, proactive, and legally prepared. This blog recaps the most critical insights from A Contractor’s Guide to Surviving 2025: How to Handle Terminations for Convenience, Suspensions/Stop-Work Orders, Unpaid Invoices, Claims, and More!
The Current Landscape: Chaos and Confusion
Federal agencies are facing significant internal disruptions. Layoffs, reorganizations, and mounting pressure to reduce spending have created ripple effects throughout the contractor community. Many businesses are reporting delayed payments for work that has already been completed and approved.
These delays have been exacerbated by a February 2025 Executive Order, which introduced a cost-efficiency mandate. Under this directive, agencies must now record and justify every payment in a centralized database before disbursing funds—a well-intentioned measure that has resulted in bureaucratic slowdowns across the board.
Maria emphasized that in most cases, these payment issues are not rooted in bad faith. Instead, they often stem from confusion, administrative bottlenecks, or a lack of clear internal guidance. That said, contractors must remain assertive. If you’re not being paid, don’t wait silently. Follow up, document every communication, and if necessary, take formal action to protect your rights.
Unpaid Invoices: What Contractors Should Do
When payments stall, the first step is to confirm that you’ve submitted a proper invoice—as defined under FAR Part 32 and the Prompt Payment Act. Any missing or incorrect details could give an agency a reason to delay processing.
If your invoice meets all requirements and you’re still not seeing progress, it’s time to reach out to the Contracting Officer (CO). Do so professionally and persistently. In many cases, they may not even be aware of the holdup.
If communication fails and the payment remains unfulfilled, contractors may file a Contract Disputes Act (CDA) claim. Not only can this process recover the unpaid amount, but it may also entitle you to interest penalties. As Maria noted, even agencies referencing the Executive Order to justify nonpayment may still be violating statutory obligations.
Terminations for Convenience (T4C): Understanding the New Normal
One of the more dramatic trends in 2025 is the sudden spike in contract terminations for convenience (T4C). These are not a reflection of poor performance. Instead, they’re a result of shifting political priorities, changing missions, or budget realignments. Agencies are reassessing what’s “essential,” and contracts that once seemed secure are being canceled overnight.
Maria pointed to several drivers behind this wave of terminations, including executive orders targeting DEI (Diversity, Equity, and Inclusion) initiatives, green energy programs, and foreign aid contracts, as well as agency memos scrutinizing the value of consulting services and major spending partners. In some cases, high-profile contractors have seen dozens—if not hundreds—of contracts terminated in just a few weeks.
What to Do If You Receive a Termination Notice
Receiving a termination notice can be alarming, but it’s important to act swiftly and strategically. Covered under FAR 49, if you receive a termination notice, the prime contractor has specific duties that it needs to follow. First, halt all work related to the terminated portion of the contract. Subcontractors should also be notified and demobilized as necessary. Let the Termination Contract Officer (TCO) know about any special circumstances that preclude stopping the work. You’ll need to segregate and track any costs incurred as a result of the termination, including staff time, materials, and administrative overhead.
Government property or inventory in your possession must be safeguarded, and any questions or concerns about the effective termination date or contract language should be raised promptly with the TCO. Ensure the TCO’s directions are followed and that the TCO is kept abreast of any legal proceedings that might arise related to the terminated portion of the contract. A key step of the termination process is preparing and submitting a Termination Settlement Proposal (TSP). While contractors technically have up to one year to file, Maria advised moving sooner rather than later—especially in today’s uncertain funding environment.
Critically, she warned attendees to read termination notices carefully. Many agencies are issuing letters with incorrect contract clauses or pressuring contractors into no-cost settlements, even when significant costs have already been incurred. These notices must be contested in writing to avoid waiving your rights.
Getting Paid After Termination: What You Can Recover
The good news is that T4C doesn’t mean you’re left empty-handed. Under FAR Part 49, contractors may be entitled to recover:
- The value of completed work not yet paid for
- Costs directly tied to the terminated work
- Reasonable settlement expenses, including legal and accounting services
- A portion of profit (unless the contract was operating at a loss)
However, exactly what you can claim depends on your contract type. Firm-fixed-price, cost-reimbursement, and commercial contracts are subject to different recovery formulas and documentation standards. Working with legal counsel or a qualified federal contracts consultant is often essential to maximize recovery.
Stop-Work Orders and Suspensions: What They Really Mean
Not all disruptions come in the form of termination. Stop-work orders and suspensions of work are being used more frequently in 2025 as agencies pause performance to reassess budgets or administrative structures.
Although these directives don’t cancel your contract, they effectively freeze progress for a 90-day period. The contractor has to immediately comply with the terms of the stop-work order. Within that 90-day period, the contracting officer shall either cancel the stop-work order or terminate the work. Maria explained that contractors should pay attention to the clauses in their contract, as well as timelines, and immediately reduce or stop incurring additional costs, notify affected subcontractors, and begin tracking all delays and additional expenses. These records will be critical if and when the contract resumes or is later terminated.
Importantly, if performance is resumed, the contractor may be eligible for an equitable adjustment—but only if the claim is submitted within 30 days of the work resuming.
Tariffs and Supply Chain Disruptions: Limited Relief
In addition to internal government turmoil, many contractors are also dealing with price spikes and material shortages due to newly imposed tariffs. Unfortunately, most federal contracts do not allow for price adjustments in response to market conditions—unless certain protective clauses are included.
If your contract contains an Economic Price Adjustment (EPA) clause or references FAR 52.229-3, you may be able to seek relief for after-imposed taxes or duties. However, these clauses are rare, and recovery is limited. Contractors are encouraged to request EPA clauses in future solicitations to hedge against volatility.
Final Takeaways: How to Survive and Succeed in 2025
Navigating 2025 as a federal contractor demands vigilance, legal awareness, and proactive communication. Maria closed the webinar with a strong call to action: stay informed and protect your rights before they’re compromised.
Whether you’re facing unpaid invoices, a termination notice, or contract ambiguity, remember that silence can cost you. Document everything. Engage your legal team early. Communicate with contracting officers respectfully but persistently. And above all, don’t assume that the government’s actions—no matter how formal—are always correct or final.
The full presentation and webinar recording are available here. Connect with a GovSpend team member to learn more about our comprehensive public sector intelligence across the Federal and SLED markets.
- For legal advice or case-specific support, reach out to Maria Panichelli directly.
- For federal market insights, strategic consulting, and support services for government contractors, contact Archisha Mehan at FedConsult.
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