A New Two-Step Dance: Supreme Court Decision Complicates Relief for Government Grant and Contract Terminations

Organizations challenging an agency’s termination of a grant or government contract based on an allegedly illegal government policy need to master a two-step dance, according to a recent U.S. Supreme Court decision. Under the Court’s highly fractured decision in National Institutes of Health v. American Public Health Association (No. 25A103), plaintiffs challenging both the terminations of their individual government grants or contracts and the policy on which the terminations were based must generally file separate suits in the U.S. Court of Federal Claims under the Tucker Act and in federal district court under the Administrative Procedure Act (“APA”). The new Tucker Act-APA two-step is complicated—indeed, Justice Jackson in dissent criticized it as a “labyrinth”—and may make it harder for litigants to obtain relief. Significantly, because the Court of Federal Claims generally lacks authority to provide equitable relief for contractual breaches, the Supreme Court’s channeling of challenges to individual grant or contract terminations to that court may prevent grant or contract recipients from obtaining the relief they want most—the reinstatement of their grants or contracts. But the Court’s splintered decision in the context of fast-moving preliminary litigation on its emergency docket leaves many open questions, making it more important than ever for organizations whose grants or contracts have been terminated to consult closely with counsel about potential avenues for relief.

In this article, we provide an overview of the Supreme Court’s decision in NIH and its implications for grant recipients and federal contractors.

Procedural History of the Supreme Court’s Decision

To comply with Executive Orders issued by the Trump administration, the National Institutes of Health issued internal guidance regarding its funding of scientific research. Those guidelines specify that NIH will no longer fund research related to COVID-19, gender identity, or diversity, equity, and inclusion objectives. Based on those guidelines, NIH terminated numerous existing grants.

Various plaintiffs sued, challenging the NIH guidance and their grant terminations under several theories, including that NIH violated the APA. Applying the APA’s standard of review, the U.S. District Court for the District of Massachusetts declared both the guidance and the individual grant terminations “breathtakingly arbitrary and capricious” and thus vacated them. Am. Pub. Health Ass’n v. NIH, Nos. 25-10787-WGY, 25-10814-WGY, 2025 WL 1822487, at *16 (D. Mass. July 2, 2025). The district court made clear that it expected the government to pay the plaintiffs the amounts due under their grant agreements “forthwith.” The U.S. Court of Appeals for the First Circuit denied the government’s request to stay the district court’s order to keep it from having effect pending appeal.

The Supreme Court’s Decision

After being rebuffed by the First Circuit, the government requested that the Supreme Court stay the district court’s order. In a fractured, 4-1-4 decision, the Supreme Court granted the government’s request in part. It stayed the district court’s vacatur of the termination of the research grants at issue, but it left standing (for now, at least) the district court’s vacatur of the guidance documents on which NIH staff had relied in terminating those grants.

If that outcome—the policy is invalidated but the individual termination actions taken in reliance on that policy stand—sounds counter-intuitive to you, you’re not alone. Eight of the nine Justices disagreed with it. Four (the Chief Justice and Justices Sotomayor, Kagan, and Jackson) would have denied the government’s stay request in full, which would have left the district court’s invalidation of NIH’s guidance and grant terminations standing. Four other Justices (Thomas, Alito, Gorsuch, and Kavanaugh) would have granted the government’s stay request in full, thus reinstating NIH’s guidance and grant terminations.

Only Justice Barrett supported splitting the difference, but because she was the median vote between two equally divided blocs, her views carried the day to create the controlling opinion. While the other justices appear to have viewed the plaintiffs’ challenges to the NIH guidance and the grant terminations based on that guidance as inextricably interrelated, Justice Barrett viewed the challenges as separate claims with distinct remedies.

Justice Barrett’s Opinion

To understand Justice Barrett’s (and thus the Court’s) position, a little background on sovereign immunity, the APA, and the Tucker Act is warranted. Absent a waiver of sovereign immunity, individual plaintiffs generally cannot sue the federal government. The APA waives the government’s sovereign immunity from claims that challenge allegedly unlawful agency actions and seek “relief other than money damages.” 5 U.S.C. § 702. By contrast, the Tucker Act waives the government’s sovereign immunity from certain claims for money damages, including claims based on an “express or implied contract with the United States.” 28 U.S.C. § 1491(a)(1). The Tucker Act, however, generally requires plaintiffs to file such claims in the Court of Federal Claims (with an exception for cases where the amount in controversy does not exceed $10,000, which can be filed in federal district court). Id.; see also id. § 1346(a)(2).

Citing the Supreme Court’s April 4, 2025 decision in Department of Education v. California, 145 S. Ct. 966 (2025), which stayed a district court order that had enjoined the government from terminating education-related grants, Justice Barrett concluded that challenges to the NIH grant terminations effectively sought to enforce the government’s payment obligations under the grant agreements themselves. Therefore, according to Justice Barrett, the plaintiffs had to pursue those challenges in the Court of Federal Claims under the Tucker Act because they were based on contracts with the government. However, Justice Barrett concluded that the plaintiffs’ challenges to the guidance underlying the grant terminations should be treated like any other APA challenge to an allegedly unlawful agency rule, meaning that federal district court was the proper forum for the guidance challenges.

Other Justices’ Opinions

Although Justices Thomas and Alito voted to grant the government’s stay application in full, they did not explain their reasoning. Justices Gorsuch and Kavanaugh (who also voted to grant a full stay) issued opinions explaining that, like Justice Barrett, they viewed the Court’s Department of Education decision as compelling the conclusion that the grant-termination challenges must be routed to the Court of Federal Claims. As for the district court’s vacatur of NIH’s guidance, Justices Gorsuch and Kavanaugh explained in a footnote that, in their view, the only injury supporting the plaintiffs’ standing to obtain relief against the policies was the termination of their pre-existing grants. Therefore, in their view, the guidance challenges should also be viewed as based on the plaintiffs’ contracts with the government, meaning that the claims had to be brought in the Court of Federal Claims.

The Chief Justice, joined by Justices Sotomayor, Kagan, and Jackson, issued a brief opinion expressing the view that the APA empowered the district court to vacate both NIH’s guidance and the grant terminations that resulted from that guidance. Justice Jackson penned a separate opinion criticizing the Court for creating (in her words) a “bizarre claim-splitting regime.” In Justice Jackson’s view, the Court was “preserving the mirage of judicial review” while effectively depriving plaintiffs of a meaningful remedy, given limitations on the relief that the Court of Federal Claims can provide (an issue explored further below). Invoking the Calvin and Hobbes comic strip, Justice Jackson stated that the Court in this and other recent cases had deployed a “Calvinball jurisprudence with a twist”: “There are no fixed rules,” Justice Jackson wrote, except that “this Administration always wins.”

Implications

The distinction NIH draws between challenges to contract or grant terminations and challenges to the agency policies underlying those terminations has important implications for parties considering challenges to such terminations and policies:

1. Assuming the amount in controversy exceeds $10,000, the party must take a two-step approach, splitting its claims and likely delaying the timeframe for relief. The party must challenge the contract or grant termination under the Tucker Act in the Court of Federal Claims while challenging the allegedly unlawful agency policy under the APA in federal district court (or, perhaps, in a federal court of appeals, if a special jurisdictional statute applies).

2. In such dual-track litigation, the party needs to consider 28 U.S.C. § 1500. That provision bars the Court of Federal Claims from exercising jurisdiction over “any claim for or in respect to which the plaintiff . . . has pending in any other court any suit or process against the United States.” The Supreme Court has held that “[t]wo suits are for or in respect to the same claim” within the meaning of § 1500 “if they are based on substantially the same operative facts, regardless of the relief sought in each suit.” United States v. Tohono O’Odham Nation, 563 U.S. 307, 317 (2011).

• The Federal Circuit has held that, under § 1500, a later-filed action does not divest the Court of Federal Claims of jurisdiction. See Metzinger v. Dep’t of Veterans Affairs, 20 F.4th 778, 786 n.8 (Fed. Cir. 2021) (citing Tecon Eng’rs, Inc. v. United States, 343 F.2d 943, 949 (Ct. Cl. 1965), and Brandt v. United States, 710 F.3d 1369, 1379 n.7 (Fed. Cir. 2013)). That means that, under Federal Circuit precedent, a party can avoid § 1500’s jurisdictional bar by first filing its Tucker Act claim in the Court of Federal Claims and then later filing its APA claim in federal district court. But the reverse order—filing the APA claim first and then filing in the Court of Federal Claims—could trigger § 1500’s jurisdictional bar.
• The Supreme Court has never squarely addressed the merits of the Federal Circuit’s order-of-filing rule, and it is unclear whether the Court would adopt it if presented with the issue. Cf. Tohono O’Odham Nation, 563 U.S. at 315 (noting, in the Supreme Court’s last major decision interpreting § 1500, that the order-of-filing issue was “not presented in this case”). Indeed, in response to a footnote in Justice Jackson’s opinion that briefly addresses § 1500, Justice Barrett’s opinion in NIH states that “§ 1500 bars [Court of Federal Claims] jurisdiction over claims pending in other courts when those claims arise from substantially the same operative facts,” without mentioning the Federal Circuit order-of-filing workaround for avoiding § 1500’s jurisdictional bar. But because § 1500 was not directly at issue in NIH, it is difficult to confidently draw any inference from Justice Barrett’s and Justice Jackson’s opinions about how they (much less other justices) would rule on the order-of-filing question if squarely presented with it.

3. Parties considering bringing a challenge to an agency’s termination of a grant or contract under potentially illegal agency guidance should coordinate closely with their counsel to assess their likelihood (and likely timing) of obtaining meaningful relief and to frame their claims to maximize their odds of obtaining such relief.

• In APA suits, parties generally must overcome the threshold barrier of establishing that the challenged agency guidance qualifies as “final agency action.” 5 U.S.C. § 704. Courts apply a two-part test in determining whether an agency action is “final.” First, “the action must mark the consummation of the agency’s decisionmaking process—it must not be of a merely tentative or interlocutory nature.” Bennett v. Spear, 520 U.S. 154, 177–78 (1997) (citation modified). Second, “the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.” at Id. 178 (citation modified). Justice Barrett’s opinion notes that it is “not obvious” that the guidance at issue in NIH actually qualifies as final agency action challengeable under the APA, but she did not decide that issue because she did not read the government’s stay application as raising it. Justice Barrett’s comment raises the possibility that the NIH plaintiffs ultimately might lose on their APA claim because the challenged guidance is insufficiently “final” to be subject to APA review.
  • Therefore, similarly situated parties in other cases also need to consider whether the agency policies they challenge satisfy the APA’s finality requirement.
  • To satisfy that standard, parties should try to establish, among other things, that agency staff treated the guidance as binding in making contract or grant termination decisions. See, e.g., Nat’l Treasury Emps. Union v. Vought, No. 25-5091, 2025 WL 2371608, at *8 (D.C. Cir. Aug. 15, 2025).
  • In addition to pursuing APA claims, parties should consider whether they can challenge the agency guidance at issue on constitutional grounds. Case law generally allows parties to obtain declaratory or injunctive relief against unconstitutional agency actions, even if they do not qualify as “final agency actions” challengeable under the APA. See at *18.
• Even assuming a policy calling for contract or grant terminations is final agency action challengeable under the APA, a party needs to consider whether the relief available in an APA suit will be meaningful. The typical remedy under the APA is an order “set[ting] aside” the unlawful agency action. 5 U.S.C. § 706(2). Justice Barrett’s opinion emphasized that an order setting aside or vacating an agency guidance document does not automatically reinstate grants or contracts terminated based on that guidance. What happens if a court under the APA vacates unlawful agency guidance but the agency nevertheless continues to take actions regarding individual contracts or grants that are consistent with the policies outlined in the now-voided guidance? Could the court provide additional relief to ensure that its vacatur order has practical effect, or must the plaintiffs resort to the Court of Federal Claims (assuming they could even make out a claim there)? For plaintiffs that do turn to the Court of Federal Claims, how might the APA judgment affect the Court of Federal Claims litigation? Might it have preclusive effect, barring the plaintiffs or the government from relitigating any issues that were decided in the APA action? Further, is a favorable APA judgment a prerequisite for potentially obtaining relief in the Court of Federal Claims when a government grant or contract is terminated based on an allegedly arbitrary and capricious agency policy, and, if so, how will that affect the timeline for Court of Federal Claims litigation? At this point, the answers to those questions are unclear, although Justice Barrett’s opinion does suggest that plaintiffs seeking monetary relief must go to the Court of Federal Claims.
• To prevail in a suit against the government in the Court of Federal Claims under the Tucker Act, as relevant here, plaintiffs must establish that they are entitled to money damages based on a money-mandating source of law, such as a statute or government contract. See Me. Cmty. Health Options v. United States, 590 U.S. 296, 322–24 (2020). As Justice Jackson’s opinion emphasizes, while the Court of Federal Claims can provide monetary damages for contractual breaches, it likely cannot order reinstatement of a wrongfully terminated grant or contract because the court generally cannot provide such equitable relief. Further, because standard clauses in the Federal Acquisition Regulation (52.249-2 and 52.249-6) allow the government to terminate procurement contracts unilaterally for its convenience, and because the government similarly often retains broad discretion to terminate (or decline to continue funding) grants, it is exceedingly difficult for plaintiffs to successfully challenge a contract or grant termination, at least absent evidence of bad faith or a clear abuse of discretion. See JKB Sols. & Servs., LLC v. United States, 18 F.4th 704, 709 (Fed. Cir. 2021).¹ And while the Court of Federal Claims has jurisdiction over claims under statutes that mandate monetary compensation, the Supreme Court has recognized that such statutes are “rare.” Me. Cmty. Health, 590 U.S. at 324. Therefore, litigants seeking to challenge contract or grant terminations before the Court of Federal Claims generally face significant hurdles. They will need to coordinate closely with their counsel on potential strategies for overcoming those obstacles.

Conclusion

Again, the new Tucker Act–APA two-step that the Supreme Court’s NIH decision imposes on organizations challenging government grant or contract terminations under allegedly illegal agency policies is complicated. But V&E attorneys experienced in navigating claims in the Court of Federal Claims and other courts can help organizations dance through such matters without inadvertently stepping on their own toes.

¹ Here, we are focused on government termination of contracts and grants for “convenience” or reasons other than contractor default or non-compliance. Challenges to default terminations are not required to satisfy the same standard as a challenge to a termination for convenience. See, e.g., Consol. Indus., Inc. v. United States, 195 F.3d 1341, 1343–44 (Fed. Cir. 1999) (“The contracting officer has broad discretion to determine whether to terminate a contract for default and we will only overturn that decision if it is ‘arbitrary, capricious or constitutes an abuse of discretion.’” (citations omitted)).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.