USAID Contractors Warn of Shutdowns, Lawsuits With Millions Owed

(Bloomberg) — Contractors owed tens of millions of dollars by USAID are warning they may have to shut down and risk lawsuits across the developing world, with one large firm even saying US banks won’t lend it more money over concerns the US government won’t honor its funding commitments. 

The allegations, which include threats of physical harm to overseas employees over unpaid debts, were made in new court filings Monday regarding one of several cases intended to undo the Trump administration’s 90-day freeze on foreign aid funding and work, which has thrown the global aid sector into turmoil.

The case is part of the legal backlash to the administration’s broader assault on the federal government workforce, which has had a particularly pronounced impact on the United States Agency for International Development and its so-called implementing partners. 

On Tuesday afternoon, a judge ordered the US government to pay what it owes by midnight Wednesday, a decision the US government appealed a few hours later. The plaintiffs have repeatedly said the Trump administration has ignored the court’s orders.

USAID managed roughly $43 billion in 2023 and works mainly through contractors that execute projects on its behalf around the world — with some firms doing hundreds of millions of dollars worth of development projects each year, mostly at low margins. 

President Donald Trump and his billionaire adviser Elon Musk, who leads the so-called Department of Government Efficiency, or DOGE, argue that USAID should be shut down. The administration has placed most of USAID’s 10,000 employees on administrative leave and canceled dozens of contracts — affecting projects from Africa to Ukraine and leading to hundreds of job losses across the US.

One plaintiff, DAI Global LLC, which is based just outside of Washington, in Bethesda, Maryland, said it has not received any payments on $115 million owed by USAID, with $70 million at least 30 days past due. The firm — which was founded in 1970 and led US-funded projects in Afghanistan and Iraq after the Sept. 11, 2001, terrorist attacks — has already “tapped out” a $75 million working capital facility, it said. 

The company has historically secured good commercial terms for loans because of its relationship with the US government, but now “four of the largest financial institutions in the US and Europe” are “unwilling to extend DAI any further working capital, because they have lost confidence that the US government can be counted upon to pay its legitimate bills.” 

DAI said it has been forced to go to a “non-bank lender that specializes in distressed situations” as a result of the US government not paying what it owes.

“It’s absolutely unprecedented,” said Zan Northrip, an executive vice president at DAI, in an interview. “In general, this is a sort of lessening of the confidence that lenders have in the US government as a client that can be relied upon to pay its bills.”

DAI, which has already furloughed more than 500 US-based staff, said it now risks fines, tax penalties and legal action from several vendors, and could face lawsuits if it’s forced to suspend as many as 4,000 additional overseas staff without pay in violation of local labor laws. 

A separate company, Chemonics International Inc., which has implemented more than 1,000 foreign assistance programs in more than 100 countries for the US over the last 50 years, said in mid-February it was still owed more than $100 million.

The plaintiffs in the case featuring DAI have repeatedly urged the judge to force the government to pay what it owes, and nonprofit organizations suing in a separate but related case have even asked to find the US in contempt of court — which the judge has not done. 

While the courts have ordered some USAID employees to be reinstated, USAID contractors say the agency is unable to function at current staffing levels and that payment approvals have been politicized and effectively halted.  

Democracy International, another contractor seeking funds owed by USAID, said in a similar filing it could also face lawsuits overseas if it can’t transfer money for salaries this week — with 17 employees in Tunisia already formally notifying the firm that they’ll seek legal relief if salaries aren’t paid by March 3. 

The organization said it is owed $3 million for services rendered before Jan. 24, has furloughed all of its 95 employees in the US, and now risks eviction from its headquarters and may seek bankruptcy protection. There are also risks to overseas staff.

“In Tunisia, for example, our senior staff/representatives are being threatened by vendors and other creditors with legal jeopardy or physical harm for failure to pay,” Eric Bjornlund, Democracy International’s chief executive officer, wrote in a declaration to the court, adding that staff now risk “arrest or reprisals due to their inextricable association with these USAID programs that are suddenly not keeping promises or meeting their obligations.”

–With assistance from Zoe Tillman.

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