Foreign Aid Lockout Pushes Contractors to Brink of Insolvency

Funding shortfalls, furloughs, and the threat of closures have forced contractors and nongovernmental organizations to rethink their relationship with the federal government, after the US Agency for International Development cut off payments.

USAID broadly halted payments and credit to its partner organizations as part of a 90-day funding pause issued by President Donald Trump and Elon Musk. Far from a normal funding review, the chaotic stoppage could permanently alter the federal government’s relationship with organizations that do work overseas, contractors and NGO leaders told Bloomberg Government.

The agency has stiffed companies for work they did months ago, to the tune of hundreds of millions of dollars. NGOs face the threat of closure. And the waiver issued by Secretary of State and Acting USAID Director Marco Rubio, meant to allow lifesaving work to continue, hasn’t worked, because the agency’s employees aren’t responding to requests and its money still isn’t being sent to organizations.

Secretary of State Marco Rubio has also taken over as acting director of USAID.

(Photo by Kevin Dietsch/Getty Images)

Contractors are being asked to float the operations of the federal government on their own dime, said Steve Schmida, chief innovation officer at Resonance Global, which works with the agency. That could force companies to rethink their relationship with the federal government.

“This is not a high-margin business,” Schmida said in an interview. “Despite what everyone thinks, a typical USAID contractor earns about a 5% profit. If we had any idea that the full faith and credit of the federal government was going to be in question, we would not work for 5%.”

The stop-work orders followed Trump’s Jan. 20 executive order calling for a 90-day pause in US foreign assistance while officials review the programs. Rather than simply pausing foreign aid, Trump’s administration, led by Musk’s “Department of Government Efficiency” initiative, has cut off payments for work that was already done, Schmida said.

The State Department didn’t respond to a request for comment.

Furloughs, Possible Closures

Three USAID contractors are owed a combined $275 million for work performed in November and December, which would have been paid in January under normal circumstances, an employee of an agency contractor told Bloomberg Government, speaking on condition of anonymity to discuss sensitive information.

Contractors now have to figure out who they can afford to pay during the 90-day freeze. At least one contractor said they have to pay their staff overseas because of local labor laws, but they’ve stopped paying subcontractors and vendors due to the stop-work order. That contractor has furloughed or reduced the hours of all of its US-based employees to conserve cash for legally required payments overseas and to prioritize payments that secure life and property, they said.

NGOs also don’t have much cash on hand and can’t be expected to survive three months without revenue from USAID, said Tom Hart, CEO of InterAction, an organization that works with NGOs. Their closure would undermine programs Rubio supports, Hart said.

“There will be organizations that don’t survive the 90 days,” Hart said in an interview. “And so there will be programs — that the secretary would like to continue to be implemented by partners in the NGO and contractor community — that won’t exist when this process is through.”

USAID relies heavily on contractors and nongovernmental organizations. For example, the agency managed roughly $19 billion in aid in fiscal 2020 and only sought about $1.3 billion for its own operating expenses, according to archived budget documents. More recent budget documents published by the agency haven’t been available since its website went dark on Saturday.

The agency’s work includes PEPFAR, the international program to combat HIV/AIDS. It also includes food aid, democracy initiatives, and economic programs. Schmida’s company also works on fisheries conservation.

A Faulty Waiver System

The closure of USAID and its proposed merger into the State Department has been marked by a haphazard communication style, according to Schmida, Hart, and others. The agency barred employees from its Washington, D.C., office on Monday and announced Tuesday night that it planned to put nearly all employees on administrative leave.

An employee of one contractor said the only communication the company got was a stop-work order for every USAID project they had, simply requiring them to stop all activities and minimize costs.

They received no specific instructions — with one notable exception, the employee said. USAID required them to certify that all diversity, equity, inclusion, and accessibility activities were stopped. They also had to get written certification from all subcontractors saying they’d halted all DEIA activities. A USAID employee confirmed the agency asked for the anti-DEIA certification as part of the stop-work order.

Rubio offered a waiver for the stop-work order for life-saving humanitarian assistance, but the waiver process hasn’t worked because funding is still cut off, Hart said.

“Secretary Rubio is frustrated they’re not using the waiver process, but no one will respond to their phone calls about what qualifies,” Hart said. “And even for those who have gotten the paperwork, the money has stopped.”