On the grant hook: why Ukrainian businesses may sue USAID operators

On Monday, February 3, employees of the central office of the United States Agency for International Development (USAID) in Washington received emails informing them that they might no longer need to report to work. Meanwhile, Elon Musk wrote on social media platform X that U.S. President Donald Trump had "agreed to his proposal to shut down the USAID program." Later, during a visit to El Salvador, Secretary of State Marco Rubio declared himself the acting head of the agency, accusing his predecessors of "violating subordination."

The Trump administration’s war against USAID is not an anti-Ukrainian move but rather a redistribution of a highly profitable government service market in the U.S. The suffering of Ukraine – or of grant recipients in other countries – is of little concern in this campaign. Most likely, this shake-up will lead to the disappearance of several international organizations that have built businesses for decades using American taxpayer money, including Chemonics, IREX, and DAI.

So what should Ukrainian clients of these organizations do – resign themselves to the situation or look for solutions? And is there a way out? Yes, there is – not just for them, but for Ukraine as a whole.

Olha Shaverina, head of OIAIP (Office for Identification, Authorization, and Implementation of Ukraine’s Reconstruction Projects) and partner at Mind Project Office, explains the possible path forward exclusively for Mind.

Initially, the project freeze was announced for three months, meaning until the end of the U.S. fiscal year. Optimistically, everything was expected to return to normal by September. However, given the latest news about USAID’s reorganization, the pause could extend for up to a year and a half – until the next U.S. fiscal year – while a replacement system is built (if one is built at all).

Who will suffer in Ukraine?

First and foremost, companies that have already signed grant contracts and begun their implementation. That is, those who have placed orders for equipment and made advance payments. Since the American grant system primarily operates on a compensatory (revolving) payment model, where grantees are reimbursed for their expenses, the unexpected financial burden will now fall directly on the enterprises.

Given the amounts involved in grant contracts, affected grantees will need to find an additional $200,000–500,000 in their financial plans. Ideally, $1 million or more.

Currently, much attention is being given to NGOs and media outlets in Ukraine that relied on USAID funding. However, these are just the most visible cases. There are also other grant recipients, including:

• Enterprises that signed grant contracts for equipment purchases, which are custom-made and/or imported, and have already paid an advance. Now, they must find the funds for full payment by the end of this year, and some even much earlier.
• Banks that signed grant contracts for reimbursement of financial products and services, such as leasing and factoring.
• Companies that have already purchased equipment through leasing programs and must now fulfill their obligations to banks.
• Insurance companies that signed grant contracts for the reimbursement of insurance payments and military risk coverage.

How should businesses and the state respond in this situation?

The system of allocating such grants has one important feature: grant contracts are not signed directly with USAID but with international organizations (companies) that manage the agency’s funds. Therefore, all obligations under agreements with grant recipients lie with these organizations, not USAID. This is an opportunity that Ukrainian companies and the state can take advantage of.

First, Ukrainian grant recipients who are now unable to fulfill their obligations due to the suspension of USAID funding can file lawsuits against the international administrator companies with which they have signed grant agreements funded by USAID resources.

This should be done immediately, as there is a high probability that these organizations will soon initiate bankruptcy proceedings. For now, they still have funds to settle legal claims, and it is essential to formally register claims.

Such organizations are quite wealthy, even highly liquid, as they have received a percentage of the total program budget for administering USAID’s international aid programs. According to Elon Musk, USAID’s annual budget exceeds $70 billion.

Second, to prevent the suspension of projects related to enterprise modernization and operations financed by USAID during court proceedings, Ukrainian banks should begin providing credit support for such contracts, and the government should establish a loan interest compensation program.

The amount of state compensation from the Ukrainian budget will be up to 1 billion UAH, which is equivalent to the budget of an average grant program in Ukraine.

Thus, instead of losing the market, we will have liquid companies and projects, profit for the banking system, and, as a result, budget revenues. These funds will return to the state as taxes from functioning businesses rather than bankrupt ones and as income for banks from the profits they earn.