Stop Work Orders: Consequences for Contractors
Since the Trump administration issued a series of executive orders affecting government contractors, many businesses providing goods and services to the federal government have faced Stop Work Orders. These orders, often issued due to funding freezes, changes in project scope, or administrative decisions, require contractors to halt work on all or part of a contract. Understanding how to respond and manage financial implications is crucial for contractors facing this situation.
When a contractor receives a Stop Work Order, the first step is to carefully review the directive with their legal and contracts team. It is essential to communicate with the contracting officer to clarify the reasons for the order and discuss potential next steps. Subcontractors and suppliers should also be notified, as they may need guidance on how to adjust their work. Throughout this process, tracking and documenting all costs incurred due to the order is critical, as these records will be necessary for potential financial recovery. Contractors must also evaluate the impact on project timelines, staffing, and contractual obligations while reviewing any applicable insurance policies that could help mitigate losses. Planning for possible outcomes, such as resuming work or preparing for contract termination, is a key part of navigating these disruptions.
The government has the authority to issue Stop Work Orders, and contractors must comply. These orders are typically issued under FAR 52.242-15 for negotiated contracts, while construction or architect-engineer contracts may be subject to a Suspension of Work under FAR 52.242-14. If the contracting officer determines that work must stop, the contractor must abide by the directive. For grant recipients, a suspension serves a similar function by temporarily halting funding. If a contract does not include a Stop Work Order clause, the contractor should immediately seek clarification from the issuing official. Ignoring the directive can result in consequences, including contract termination, financial penalties, legal disputes, and suspension or debarment from future federal contracting opportunities.
Payment for work completed before a Stop Work Order was issued depends on the type of contract. Fixed-price contracts generally allow for payment of completed and delivered work, though payment processing may be delayed. Cost-type contracts allow contractors to voucher for allowable costs incurred before the Stop Work Order. If additional costs arise after the order is issued, contractors will need to prepare a Request for Equitable Adjustment, which provides documentation of the financial impact and seeks reimbursement.
When the order is lifted, contractors should resume work immediately unless further action is required. The contracting officer should modify the contract to account for any changes in the delivery schedule or price. Contractors must assert their right to an equitable adjustment within 30 days of the Stop Work Order’s expiration. In cases where an order leads to contract termination, preparing a termination settlement proposal is necessary to recover eligible costs. Proper documentation and swift action help facilitate smoother negotiations and payment processing.
Even contractors who have not yet received a Stop Work Order should take proactive steps to prepare for potential disruptions. Reviewing contract terms related to suspensions, terminations, and requests for equitable adjustments can help contractors understand their rights and obligations. Establishing accounting systems that track and segregate costs can ensure that all financial impacts are properly documented. Maintaining detailed records and engaging legal counsel or contract specialists can provide contractors with the necessary tools to navigate potential disputes and mitigate risks.
This blog post provides general information and does not constitute legal or financial advice. Contractors should consult with legal counsel or a government contract specialist for case-specific guidance.