Federal contractors and grant recipients facing stop-work or suspension orders are entitled to reimbursement of costs and added performance period.
In its first two weeks, the new Trump administration has introduced a flurry of significant changes to the federal landscape. Many agencies have taken immediate action to enforce new executive orders by issuing stop-work orders to federal contracts under Federal Acquisition Regulation (FAR) 52.242-15. In fact, all USAID contractors, except those that have received limited waivers, have received stop-work orders as a result of Executive Order 14169, Reevaluating and Realigning Untied States Foreign Aid. Grant recipients are also facing suspension orders pursuant to the grant regulations at 2 C.F.R. § 200.343. Although the Office of Management and Budget (OMB) has rescinded the OMB memorandum directing agencies to implement the stop-work and suspension order, and federal courts have enjoined the government’s “pause” in payments to contractors and grant recipients, agencies are nonetheless continuing to direct contractors and grant recipients to stop work.
Regulatory Framework
As described in FAR 52.242-15, stop-work orders may be issued at any time by written order of the contracting officer to stop part or all of the work being performed under the contract. The stop-work period is not to exceed 90 days and, during this time, contractors must “take all reasonable steps to minimize the incurrence of costs.” At the expiration of the 90-day period, or if the order is lifted any time before the end of the period, the contractor “shall resume work.” Thus, during the stop-work period, contractors must navigate the conflicting requirements of minimizing costs while maintaining readiness to immediately perform when the stop-work order ends. The contracting officer can also terminate the contract for convenience or default anytime during the stop-work period. In either case (resumption of work or termination), the contracting officer “shall make an equitable adjustment in the delivery schedule or contract price, or both” if: (1) the order results in an increase of time required for, or the contractor’s costs properly allocated to, the performance of the contract; and (2) the contractor asserts its right to an adjustment within 30 days after the end of the order.
For grant recipients, the suspension of grant awards is addressed in the Uniform Guidance for Federal Awards at 2 CFR § 200.343, Effects of Suspension and Termination of Grant Awards. It states that costs incurred during a suspension are typically not allowable unless: (1) the costs resulted from financial obligations incurred by the recipient before the effective date of suspension and not in anticipation of the suspension; and (2) the costs would be allowable if the federal award was not suspended. Agencies occasionally supplement the general provision at 2 C.F.R. § 200.343 with their own provisions. For example, USAID addresses suspension in 2 CFR § 700.14, providing for substantially similar allowances for costs.
Notably, a few agencies, such as the National Institutes of Health (NIH) and the National Science Foundation (NSF), have gone further and provided guidance or procedures for grantees to recover costs as a result of suspensions of grant awards. Specifically, NIH advises that it will “allow full credit to the recipient for the Federal share of otherwise allowable costs if the obligations were properly incurred by the recipient before suspension” and “may authorize other costs in, or subsequent to, the notice of […] suspension.”
Best Practices for Contractors and Grant Recipients
Below are key strategies to mitigate risks for contractors and grant recipients who have received stop-work or suspensions orders:
- Review contract or award language. Contractors and grant recipients should review the applicable clauses in their contracts or grant awards and consult legal counsel immediately upon receiving a stop-work or suspension order.
- Flow the Stop Work Notice Down to Subcontractors or Subrecipients. Stop-work or suspensions orders typically require the orders be flowed down to subcontractors and subrecipients, or at least implicitly require flow-down to enable costs to be eliminated or mitigated.
- Assess options for employees performing on the contract. Some employees may be redirected to other work within the organization. Other employees may need to be furloughed or laid off. Employers considering furloughs or layoffs due to a stop-work or suspension orders should assess any employment law implications, such as compliance with the Worker Adjustment and Retraining Notification (WARN) Act, Fair Labor Standards Act, or any applicable state or local laws.
- Communicate with the Contracting Officer or Agency Promptly. Establish clear communication with agency officials to understand the scope of the stop-work or suspension order and carefully review any formal stop-work or suspension order to determine what work, if any, may still be performed.
- Document Additional Costs and Cost-Mitigation Efforts. Maintain thorough records of efforts taken to minimize additional costs during a stop-work or suspension period, as well as all costs incurred, such as the costs of idle labor, idle facilities and other unabsorbed overhead[1] costs to maintain readiness.
- Prepare REAs. Contractors and grant recipients should prepare and submit REAs for expenses related to stop-work or suspension orders, and for additional time to perform requirements, within 30 days of the end of work stoppage. It is advisable to engage legal counsel early to assist in preparing such REAs.
[1]Unabsorbed overhead costs are fixed overhead costs whose allocation to the contract has been impacted by the reduction in the stream of direct costs caused by the delay/suspension. See DCAA Audit Manual § 12-803.
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