In these times of changing priorities within the U.S. federal government, it is crucial for contractors to understand the immediate actions they can take to ensure maximum cost recovery and protect their interests in the event of work stoppages or terminations.

Stop work v. suspension of work

Federal Acquisition Regulation (FAR) 42 outlines the applicability of clauses related to stop-work orders and suspension of work to negotiated contracts. Should either of these clauses be used as a basis to stop work, it is essential to evaluate the particulars of the invoked clause to fully understand contractor obligations and rights. FAR 52.242-15 (Stop-Work Order) and FAR 52.242-14 (Suspension of Work) contain not only similar provisions but also key differences related to required timeframes for action and recoverability of profit, among others. It is important to note that a work stoppage does not necessarily mean the contract will be terminated. 

If your work is stopped or suspended, what should you do? 

• Comply with the requirements of the notice (e.g., provide immediate notification to subcontractors to stop work).
• Coordinate with affected subcontractors (it is the prime or upper-tier subcontractor’s responsibility to do this, not the government’s). 
• Establish separate charge codes within your accounting system to record costs associated with a work stoppage. Capturing these costs contemporaneously is a best practice and helps avoid a “re-accounting” of costs to support requests for equitable adjustment. 
• Establish a process to monitor schedule delays and evaluate whether schedule impacts go beyond the time period during which work was stopped or suspended (e.g., due to pushing restarted work into seasons with weather conditions that would create further delays beyond the period of work stoppage).

Contract termination

FAR 49, which contains provisions for contract terminations applicable to negotiated contracts, is voluminous and includes a wide array of topics, including contractor obligations when receiving a termination notice, settlement of subcontractor proposals, partial and final payment, inventory disposition, and the actual forms used for termination settlement proposals, among many others. 

A host of contract clauses cover contract terminations specific to particular contract types (e.g., FAR 52.249-2 applies to fixed-price contracts), each containing unique provisions. In addition, FAR 31, which is the basis for negotiating costs under a terminated contract, includes a cost principle for termination costs (i.e., FAR 31.205-42) detailing requirements applicable to common costs that can arise in contract termination.      

If your work is terminated, some recommended steps are similar to those in a work stoppage, including terminating subcontractors, establishing separate charge codes for termination activities, and ensuring compliance with actions stipulated in the termination notice. That being said, contract termination is far broader in scope than a work stoppage, and time should be taken to understand all contractor obligations spelled out in FAR 49 and the termination clause applicable to your contract. Termination settlement proposals must normally be submitted within one year of the date the termination notice was received, so acting quickly to satisfy termination obligations is advisable.

“Amid shifting priorities in the federal government, contractors must act decisively to safeguard their interests – understanding immediate steps for cost recovery and risk mitigation is essential to weathering work stoppages or terminations.”

– Mike LaCorte, Partner

Conclusion

If you encounter a work stoppage or your contract is terminated, please click here for more information about our Government Contracting and Compliance Expert Services practice or contact an HKA Government Contracting expert for assistance at inquires@hka.com.

About the author

Mike LaCorte has more than 18 years of experience in government contracts, accounting, auditing, and management consulting. Mike has led various consulting engagements, including regulatory compliance and business system assessments, investigations and litigation support, cost and damage analyses, organizational restructurings, bid protests, due diligence related to mergers and acquisitions, management consulting, and other similar assignments. Mike is deeply familiar with the requirements of the Federal Acquisition Regulation (FAR), FAR Supplements (e.g., the Defense FAR Supplement (DFARS)), the Office of Management and Budget (OMB) Uniform Guidance, Cost Accounting Standards (CAS), and generally accepted accounting principles (GAAP).

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