You received a stop-work order from the Government – What do you do next?

The Trump Administration, during its first weeks in office, has suspended or terminated a large number of federal contracts, and an even larger number of contracts may now be at risk of suspension or termination. The General Services Administration (GSA) also has been taking steps to terminate leases for government offices and facilities. Government contractors need to understand their rights in this challenging environment.

Procurement contracts are subject to the Federal Acquisition Regulations (the “FAR”), and almost always include standard FAR clauses that allow the Government to terminate or freeze the contract for the Government’s own convenience, without any default by the contractor.

A stop-work order is a written order from the contracting officer that requires a contractor to stop all or part of the work on a government contract for ninety days (or longer, if the parties agree to an extension). A contractor receiving a stop-work order has to immediately comply with the terms of the order, and take reasonable steps to mitigate costs related to the work covered by the order. If the stop-work order is not canceled within ninety days, the contracting officer will either cancel the stop work order or terminate the contract. After the stop-work order is cancelled or expires, the contractor then has thirty days to request an equitable adjustment or submit a claim for payment for costs incurred based on the stop-work order. If the contract is terminated, the contractor is entitled to reasonable costs in any termination settlement agreement.

A contracting officer also may suspend work and freeze a contractor’s performance on a procurement contract. Suspensions of work can suspend, delay, or interrupt all or part of the work for a period of time that is determined by the contracting officer. A suspension of work order may be in writing, but does not have to be. If a contracting officer constructively suspends work without a written suspension order, it is important for the contractor to memorialize the suspension in writing to the Government within a short period following the onset of the suspension.

When terminating a contract for its convenience, the Government has to provide written notice to the contractor that the termination is for convenience, and the notice must state the effective date of the termination. Although the Government cannot act in bad faith in making a decision to terminate a contract for convenience, it is a very high burden for the contractor to overcome a legal presumption that the Government took its action in good faith.

Even if the contractor does not allege bad faith by the Government in exercising its right to termination, the contractor still has a right to receive fair compensation for work performed and for preparations made for the terminated portions of the contract, including a reasonable allowance for profit. To pursue a remedy, the contractor must submit a “termination settlement proposal” within one year of the effective date of termination – unless an extension is granted by the contracting officer. The parties will then try to negotiate the terms of a termination settlement, which may include reasonable profit for work that has been completed. Contracting officers have discretion to take fairness considerations into account in settlement negotiations, but a termination settlement agreement must adhere to cost principles and procedures set forth in FAR Part 31. If the parties are unable to reach agreement, then the contracting officer will issue a final decision, which can be appealed to the agency’s contract review board or to the U.S. Court of Federal Claims.

The Contract Disputes Act establishes the process by which contract disputes are resolved with the Government. Under this law, a contractor must submit a claim, in writing, to the contracting officer within six (6) years after accrual of the claim. The written claim must demand payment of a sum certain – which in some circumstances is a surprisingly difficult exercise. Claims exceeding $100,000 must be certified by an individual authorized to bind the contractor. Under most circumstances, the contracting officer has sixty days to issue a final decision on a filed claim — unless the contracting officer notifies the contractor within those sixty days of a different time period for issuing the decision. The contracting officer’s decision can be appealed to the particular agency’s appeal board within ninety days, or to the U.S. Court of Federal Claims within twelve months. If the contracting officer fails to issue a final decision within sixty days (or within such other time period the contracting officer previously established), the claim is considered to be a “deemed denial,” allowing the contractor to appeal the denial.

Separate and distinct from procurement contracts are grants and cooperative agreements by which government agencies make awards to non-governmental entities. These grants and agreements are referred to collectively as “federal financial assistance,” and are governed by Subparts A through F of 2 C.F.R. § 200. “Grants’ do not anticipate substantial involvement of a Government agency to carry out the activity in the agreement, while “cooperative agreements” have agency involvement.

Government grant officers can only terminate a federal financial assistance award for convenience if the terms and conditions of the award permit termination for convenience, and if the “award no longer effectuates the program goals or agency priorities.” Costs associated with a termination or suspension are only allowable if the federal executive agency expressly authorizes them in the notice of termination or notice of suspension. However, suspension costs or post-termination costs are allowable if the arise from financial obligations which were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and if the costs would be allowable if the award was not suspended or expired normally at the end of the period of performance in which the termination takes effect. Recipients are typically entitled to termination settlement costs that the recipient is unable to discontinue after the termination date. Each agency has its own process for making objection to terminations of a financial assistance award, and for hearings and appeals

If faced with an actual or anticipated government contract termination, federal contractors need to take these steps:

• Fully understand the contract terms. It is important to understand the type of contract involved, and the contract’s exact terms. This provides the groundwork for how to dispute the Government’s action, or any delay in payment.
• Document termination costs. It’s also very important to obtain and maintain detailed documentation of all costs arising from a contract termination, suspension, or stop-work order – or from delays in payment. A government contractor is going to have to demonstrate to the contracting officer all costs arising from the Government’s action.
• Give clear written notice to the contracting officer. A contractor hit with an adverse action should immediately notify the contracting officer, in writing, that the government contractor believes a stop-work order or suspension of work has given rise to costs, and that the contractor intends to seek and award of those costs in the form of a contract claim, once the suspension ends, the stop-work order is lifted, or the Government formally terminates the contract.
• Follow all required procedures when filing a claim or appeal, and meet all deadlines. The relevant claim submission process and/or appeals process has to be complied with rigorously, including all filing deadlines. Typically, a claim for a stop-work order must be submitted within thirty days of cancelation or expiration of the order.