Since the inauguration in January, President Donald Trump has issued many executive orders (EOs) impacting companies that provide goods and services to the federal government. Over the past few weeks, our professionals have received a constant stream of questions from contractors who have recently got stop work orders under both contracts and grants. In this article, we will include some of the frequently asked questions we believe are beneficial to pass along. As we continue to receive questions and as more guidance becomes available, we will keep updating this FAQ listing. If you have additional questions you think we should address or need targeted assistance with navigating these directives, please reach out to the GovCon Consulting team at Forvis Mazars.
FAQ #1: We just received a letter from the government telling us to “stop work” on one (or more) of our federal contracts. What does this mean? What should we do?
A stop work order (SWO) is commonly issued in a letter format by the government’s contracting officer when there is a funding issue, a change to the project’s scope that cannot be easily adjusted through a change order, or for a variety of administrative reasons. Most recently, SWOs have been issued to some federal contractors based on EO guidance regarding funding freezes and reductions to government spending and workforce.
If you receive a SWO, it is a formal notice directing you to stop working on the tasks identified and, in many circumstances, the entire effort required under the contract or grant. In general, we recommend taking the following steps promptly:
- Review the SWO – Work with your contracts and legal teams to understand what parts of the contract are impacted;
- Communicate with your contracting officer – Get clarification and rationale for the SWO and potential next steps;
- Notify subcontractors and suppliers in writing, providing them guidance on what you need them to do;
- It is extremely important to specifically track and document your costs incurred during the SWO period. The contract clauses generally provide guidance on requests for equitable adjustment and documentation will be critical for successful compensation. This process should include segregated charge accounts for labor, materials, overhead, and any other costs specifically incurred due to the SWO;
- Evaluate the SWO’s impact on the schedule, staffing, subcontractors, and any notices you may be required to provide;
- Review existing insurance policies to see if you have coverage; and
- Begin thinking through strategies for:
- Plans for remobilizing and restarting if the SWO is lifted; or
- Settlement proposals and close-out activities in the event the contract is terminated.
FAQ #2: Can the government really tell us to stop working if we have a contract?
In most circumstances, yes; however, this is a contracts/legal issue, and you should coordinate with your contracts/legal team.
They will likely look into the agreement for terms and conditions that will answer the question. For negotiated contracts issued under Federal Acquisition Regulation (FAR) Part 15, the contracting officer (CO) will generally issue a SWO. The clause at FAR 52.242-15, Stop Work Order, authorizes the CO to require the contractor to stop all or part of the contracted work for a period of 90 days after the order has been provided to the contractor and may be canceled, or extended, as needed. Alternatives to the SWO include FAR 52.242-14, Suspension of Work, for construction or architect-engineer contracts, terminating the contract for convenience or, if warranted, terminating the contract for default.
For grants recipients, the grant administrator can issue a “suspension,” which has a similar impact as a SWO. A suspension of a grant is in reality a temporary halt in the funding provided by a grant. Under a suspension, the grant recipient is not allowed to use the funds for a period of time and may need to pause project activities related to the suspended portion.
If a SWO clause is not in your contract, notify the issuing official immediately for clarification of the authority under which the SWO is being directed. If you ignore the SWO and continue working, the risk of nonpayment and potentially catastrophic penalties is high. Some of these penalties may include termination for default due to a breach of contract, financial penalties, legal disputes, and suspension or debarment. The best avenue to take if you don’t understand or disagree with the SWO is to work with your legal team and then contact your CO or the issuing official immediately for clarification of the order.
FAQ #3: Will we still get paid for the work we have done?
Yes, you should, though this often leads to a two-pronged answer:
- First, the amount for many contracts will be fairly straightforward for work that is completed before the SWO was issued and for any work not impacted by the SWO. For example:
- For fixed-priced services or products completed and delivered, while most likely slower than normal, the process for being paid for the work completed and delivered prior to the SWO would likely not change;
- For a cost-type contract, allowable costs incurred to date can generally be vouchered and paid through FAR 52.216-7, Allowable Cost and Payment.
- Second, for additional costs incurred after receiving a SWO, you will most likely need to prepare a recap of your costs incurred, known as a request for equitable adjustment (REA). (See FAQ #4 below.)
For grants, the ability to get paid for the work performed is found at 2 CFR Section 200.343, Effects of suspension and termination. This guidance states that costs are not allowable unless the federal agency or pass-through entity expressly authorizes them in the notice of suspension or termination or subsequently. However, costs during suspension or after termination are allowable if:
- The costs result from financial obligations that were properly incurred by the recipient or subrecipient before the effective date of suspension or termination, and not in anticipation of it; and
- The costs would be allowable if the federal award was not suspended or expired normally at the end of the period of performance in which the termination takes effect.
For both contracts and grants, several keys to success are understanding your agreement, the SWO, termination clauses, their requirements, and of course, documentation, documentation, and documentation.
FAQ #4: What happens after the SWO is over?
When a SWO is canceled, or the period of the order expires, the contractor should immediately go back to work and the CO should be prepared to make an equitable adjustment to the delivery schedule, the contract price, or both. FAR 52.242-15 clearly states that the CO shall modify the contract accordingly. It is extremely important to remember that the SWO clause requires a contractor to assert its right for adjustment within 30 days after the SWO is canceled or expires.
This is also the time to prepare, assess, and submit an REA. Based on our recommended steps above, the REA should be prepared using the amounts accumulated in the segregated charge accounts for labor, materials, overhead, and any other costs specifically incurred due to the SWO. Prompt and thorough action at this point can help to deter scenarios that can delay negotiations and subsequent collection of amounts owed.
In some cases, the SWO will be lifted through the issuance of a termination for convenience. In the event of a contract termination, the accounting and segregation of directly related costs is critical to being reimbursed appropriately with a termination settlement proposal.
When working with REAs and termination settlement proposals, make sure to leverage adequate professional assistance. This is especially astute since the cost of preparing the proposals is often allowable as an element of the amount recoverable. Forvis Mazars has significant experience in preparing, supporting, and negotiating REAs, settlement proposals, and supporting potential claim prosecution.
FAQ #5: With the turmoil currently in place, will my REA be honored and paid?
REAs have been an integral element in the realm of government contracting, often reviewed and negotiated in the normal course of business. There is no way to predict the long-term effect that the current wave of SWOs and suspensions will have on the processes we outlined above. If your REA is not resolved in a timely manner, your contract should provide the process for dispute resolution.
Our experience shows that if the CO receives an REA without detailed costs and associated documentation, there is a high likelihood they will reject the proposal. In addition, since the CO is not required to review and act upon an REA proposal until final payment under the contract is due, depending on the contract, years can pass before resolution.
If you are facing what you consider to be a significant delay in hearing from your CO, consider working with legal counsel to evaluate opportunities to pursue your REA through the judicial system through the Contract Disputes Act (CDA). In the event you pursue this avenue and file a claim under the CDA, the costs associated with prosecuting the claim, however, would not be allowable costs.
FAQ #6: What should I do right now if I haven’t received a SWO or termination?
Considering recent government activity, we recommend reviewing all of your contracts, subcontracts, and grants to develop an understanding of incorporated clauses relating to SWOs, suspensions, and terminations. In addition, any terms related to change orders, requests for equitable adjustments, or claims should also be reviewed and understood. Once you have reviewed and assessed your contract terms, focus on your accounting policies and processes for identification and segregation of costs and maintain adequate documentation to be ready to react decisively if a SWO or termination comes your way.
Conclusion
Our goal is to keep this posting current and active over the next several months. If you have questions regarding contract actions received based on new guidance being issued, please reach out to a member of our team. Companies are also advised to seek legal counsel to understand your rights if you are affected by a SWO. The Government Contract Consulting group at Forvis Mazars can advise with options, legal referrals, and assistance to your team on creating processes for tracking and maintaining detailed records or preparing REAs, termination settlement proposals, or claims.